Steve Rochlin, head of AccountAbility North America, began by acknowledging that many large corporations try to address corruption, though they face obstacles. To illustrate these difficulties, Rochlin offered an anecdote. On a recent international flight, he was seated alongside a mother and two poorly behaved young children. In the hopes of surviving the flight with his nerves intact, Rochlin engaged as little as possible with the troublesome tots. Upon disembarking, the airline staff upbraided him for doing so little to help his wife manage the unruly boys. "But she's not my wife," he pleaded. The airline staff apologized, indicating that the entire plane had been under the impression that he was an uncaring father.
Steve Rochlin, head of AccountAbility North America, began by acknowledging that many large corporations try to address corruption, though they face obstacles. To illustrate these difficulties, Rochlin offered an anecdote.
On a recent international flight, he was seated alongside a mother and two poorly behaved young children. In the hopes of surviving the flight with his nerves intact, Rochlin engaged as little as possible with the troublesome tots. Upon disembarking, the airline staff upbraided him for doing so little to help his wife manage the unruly boys. "But she's not my wife," he pleaded. The airline staff apologized, indicating that the entire plane had been under the impression that he was an uncaring father.
The story is analogous, Rochlin said, to the situation corporations face when combating corruption. In conversations with AccountAbility, corporations note that they are often perceived as being responsible for abuses of integrity that occur merely in proximity to their business operations. "This is not my responsibility," Rochlin said, mimicking an imaginary corporate compliance officer or CEO, "But everyone is talking about me as if it were."
Rochlin highlighted one of the difficulties surrounding discussions about corruption—defining the terms. The watchdog group Transparency International views corruption as a question of improper payments or bribery. The World Bank, the leading development agency, defines corruption as the privatization of public policy. This is a definition that makes many in the United States uncomfortable, Rochlin said, because it touches near the system of institutional lobbying that operates in American democracy.
Many corporations lament that they simply don't know what the boundaries are when it comes to corrupt practices around the globe. Multinational corporations find themselves navigating complex supply networks and diverse operating environments, including cultural differences. The common barrier to early action on corruption is the free rider problem—less ethical corporations may have lower costs and thus gain market share. These were themes on which all of the speakers touched.
AccountAbility's goal, according to Rochlin, is to build and extend a dynamic network of accountability among stakeholders. To this end, AccountAbility seeks to elucidate expectations for companies, for the broader industries they work in, and for public and civil sector bodies. The model for this, Rochlin said, is the Extractive Industry Transparency Initiative (EITI), which supports improved governance in resource-rich countries through the verification and publication of company payments and government revenues from oil, gas, and mining.
EITI works to build multistakeholder partnerships in developing countries in order to increase the accountability of governments. By creating an industry dynamic, Rochlin said, EITI has begun to "shine the light of day" on the extractive industry. There is a growing energy and enthusiasm that EITI could serve as a model for similar initiatives in the pharmaceutical, defense, and other industries.
Rochlin expressed his belief that innovations and technological breakthroughs will accelerate the progress of anticorruption initiatives by empowering stakeholders and giving citizens a voice in policy formation.
"The system of corruption is a failure of governance," he concluded.
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Alice Eldridge, Vice President for Ethics and Business Conduct at Lockheed Martin Corporation, spoke next. She is responsible for managing the Corporation's ethics program, which includes awareness and compliance training, outreach activities, issues management, and performance tracking.
As a government contractor, Lockheed Martin uses a basic definition of corruption: fraud, waste, and abuse. In the minds of Lockheed employees, Eldridge noted, corruption is very much a human resources problem. Corruption issues affect employee relations and the overall level of goodwill by creating a loss of trust among employees. High-profile corruption cases breed cynicism and mistrust in the industry, she said, extending from the community of employees to the shareholders and corporate customers.
Eldridge insisted that an ethics regime that focuses solely on compliance cannot improve the culture and trust issues associated with abuses of integrity. At the very least, she said, there must be a minimum expectation of integrity attached to the privilege of employment with the company. But compliance programs, at least at Lockheed, do not offer the "best bang for the buck," she noted.
When doing business overseas, Lockheed Martin promotes what it calls its core values. These include doing what's right and respecting others. Interestingly, focus groups convened at Lockheed's European subsidiaries reacted against the first of these values, "doing what's right," because they didn't know what it meant. In many cases, Eldridge said, there was an expectation of divergent cultural norms associated with corruption, its impact, and its definition.
When performing due diligence on potential partners and prospective acquisitions, Lockheed makes it known that it is unwilling to abandon these core values. Lockheed's compliance training adheres to a uniform understanding of corruption and integrity across its international business groups.
Katy Choo, Senior Counsel, Litigation and Legal Policy, at the General Electric Company, spoke third. She supports GE with respect to government and internal investigations, compliance issues in acquisitions, compliance initiatives of the company, and preventive law. She counsels GE's businesses with respect to anti-corruption efforts globally.
From a company perspective, Choo said, GE is diversified with six main units, including GE Commercial Finance, GE Healthcare, and NBC Universal. The ethical challenges are very different in each of these areas, she said. The company is actively trying to address potential corruption issues in each of these units as its business becomes increasingly global.
In 2007, Choo said, half of GE's revenue is expected to originate outside of the United States, and the company's target markets in the developing world correlate strongly with Transparency International's index of corruption hotspots. The company is therefore attuned to its ethical obligation to work on anticorruption initiatives and to promote both good governance and solid corporate integrity.
A frequent risk associated with GE's movement into the developing world, Choo said, was in the area of vetting third parties and new business partners. These risks manifest as improper payments, conflicts of interest, nepotism, and failures of comptrollership. Another enticement to corruption in developing countries is the lack of segregation of duties—functions that would be more properly divided among a few employees are in the hands of one person due to staffing limitations.
Choo emphasized the importance of a corporate culture of integrity that she described as the "tone at the top." The core policies of GE's ethics program are outlined in the GE handbook and are routinely and methodically measured to determine where gaps exist. The handbook contains 14 key policies and is translated into 31 languages. Its basic message, according to Choo, is that improper payments to gain advantage in a business setting are never acceptable.
All GE employees worldwide and business partners are required to undergo regular testing on the company's core ethics and corruption policies. In risky areas such as customer interface and sales, extra testing is conducted. This training extends to third parties that do business with GE. All third parties, Choo said, must register on a digital site that monitors compliance with core integrity training. These scores are tracked annually and contracts are canceled for poor results.
Brian Levy, Adviser, Public Sector Governance at the World Bank, was the final speaker. He discussed the positive relationship between two key variables in the developing world: per capita income, and quality of governance. Yet, there is considerable debate as to the priority of anticorruption efforts vis-à-vis development.
The World Bank's mandate, he said, is the reduction of poverty worldwide, but the fact that poor countries are generally those where governance is weaker, and corruption higher, poses some important dilemmas for the mission. The World Bank has a fiduciary obligation, according to Levy, to ensure that the money it contributes as aid to developing countries is used for its intended purpose.
Of late, questions have emerged about the World Bank's efficacy as a corruption fighter. In any year, he said, there are on average 130 investigations of corruption at the World Bank. One-sixth of those are linked to World Bank staff involved in fraud and corruption. Of these, between January 2005 and June 2007, there were only about ten cases of demonstrated fraud across the institution involving Bank staff.
Until a decade ago, Levy said, the World Bank was seen as setting the standards for managing the distribution of development funds. There is a need to intensify efforts to build anticorruption frameworks that endow multiple stakeholders with responsibility for good governance and public integrity. Typically, he noted, the standard control environment takes a zero-tolerance approach to corruption issues.
This approach is challenged by development projects, such as those promoted by the World Bank in Indonesia, that put resources directly in the hands of the community. While there is a lack of top-down controls, there is nonetheless a track record that suggests such projects better target the needs of the communities themselves. It's unfair, he implored, to say, "Well, there is corruption in Indonesia, so the World Bank should leave Indonesia." That's not in line with the organization's mandate.
Effective aid, Levy said, targets development projects that help strengthen institutions. He called this a country-systems approach. In Tanzania, this country-systems approach has resulted in 7 percent economic growth since the late 1990s. There have been major improvements in health and physical infrastructure as a result of foreign aid totaling 8 percent of Tanzanian GDP. Half of this aid took the form of direct budget support, putting the country in the driver's seat.
The World Bank is continuing to make major investments in the quality of public financial management in the countries where it works. Nevertheless, a review conducted in 2001 of Tanzania's public procurement systems suggested that up to 15-20 percent of the country's procurement expenditures did not go for the purposes intended. There have been major subsequent reforms of the procurement systems. But it is still too early to judge the impact.
"When working in a low-income environment, a difficult environment, where broad systems are still imperfect, should the World Bank retreat to a gold-plated island?" Levy asked rhetorically. His answer was a hearty "No." The World Bank must maintain a commitment to stay engaged in the face of systemic corruption in the developing world, he concluded.
After a discussion with the audience, Devin Stewart, Director of Global Policy Innovations at the Carnegie Council for Ethics in International Affairs, thanked the participants and added a brief summary of the afternoon's meeting. He noted five themes touched on by the participants:
Cultural questions surrounding the definition of corruption—ethical behavior is not contextual but rather universal; Multistakeholder engagement to build accountability inside and outside the organization; Metrics designed to measure the success of anticorruption initiatives, adding a level of transparency; Creating awareness in far-flung operations of what is considered ethical; Serving as exemplars of good behavior when operating in ethically challenging environments.
