Multinational Corporations, Governance Deficits, and Corruption

Defining the beast: basic considerations
Differences in the various forms of corruption
Corruption in developing countries
Elements of ethical assessment
Starting-points toward solutions


Corruption is a worldwide problem. To restrict this lack of social control to the developing countries alone would be to take an unfittingly optimistic view of the pestilence. Hans-Ludwig Zachert, head of the German Federal Bureau of Criminal Investigation, has likened corruption in his country to corrosion: initially it only crops up here and there and frequently makes inroads beneath the surface. “No matter how much government apologists may maintain otherwise,” he has stated, “corruption in the public service is not just a matter of 'a few black sheep' but an alarmingly everyday occurrence in Germany.”(1) According to Zachert, the cases uncovered to date already number in the thousands. The main profiteer is organized crime which, aided by civil servants on the take, seeks to gain massive influence over the authorities. “... practically no sector is spared corruption or quasi-corrupt practices. Hardly a day passes without new cases coming to light.”(2) If timely countermeasures are not set in motion, he fears, the canker will become so widespread as to subvert the very pillars of the system.

In July 1995 a German newsweekly reported that highly paid executives in the country's automotive industry were under suspicion of having enriched themselves by demanding and pocketing “commissions”, i.e. kickbacks. The magazine thought to discern signs of a “culture of corruption”(3) – this, be it noted, in the Federal and not some remote Banana Republic. Other instances of corruption in the Federal Republic of Germany have even been elaborated in the form of case studies. (4)

In emergent countries such as South Korea and Mexico former top officeholders have been arrested or are suspects in connection with corruption; likewise in France, Italy, Belgium and Japan. (5) American analyses see corruption as a problem for the United States too. (6) Further publications (7) in the same vein from the United Kingdom, Japan and The Netherlands, as well as a voluminous documentation on Italian tangentopoli (more than 1,300 top managers were arrested), point to the supposition that virtually every society on earth knows corruption in one guise or another. (8)

Transparency International, an organization established to combat corruption, publishes national listings that grade the intensity of corruption ascertained in a country on a scale going up to 5 points for the worst. No fewer than eight countries qualify for the maximum. In other words, no baksheesh no business.

The global dimension of corruption thus stands proved. But what is an apposite definition of the phenomenon?

Defining the beast: basic considerations

First off, without beating about the bush or prettifying the subject one can define corruption as misuse of power for private benefit or advantage. (9) This power may, but need not, reside in the public domain. Besides money, the benefit can take the form of protection, special treatment, commendation, promotion, or the favors of women or men.

A more differentiated approach discloses a remarkably multiplex cluster of mores that is value-judged quite differently from culture to culture and, where its ramifications are concerned, accordingly heterogeneous. In some cultures presents and reciprocal personal favors are a part of the code of expected conduct and social behavior. In others the person who wishes to show gratitude for professional assistance rendered with personal gifts can quickly bring discredit on himself and the beneficiary.

Whereas some countries permit bribes to be deducted from taxes as “operating expenses” or “special outlays”, other countries such as the United States have anti-corruption legislation that even makes the bribing of foreigners in a foreign country a punishable offense. For companies based in diverse parts of the world this legislative motley leaves them with varying degrees of elbow room in coming to terms with corruption. In the Federal Republic of Germany bribing an official is a criminal offense for which both briber and bribed can be punished. If the bribe changes hands abroad, however, it is (still) tax-deductible, a fact that would seem to indicate a certain understanding on the part of the lawgivers that double standards are a fact of life.

Under the German law against unfair competition so-called “commissions”, i.e. fees paid for favors done in business dealings – for example, to a company employee who in his or her job capacity gives preferential treatment to a certain firm – also open both parties involved to punishment. Because the arrangement includes granting possible price reductions to the firm placing the order, however, this sort of wrongdoing might better be defined as fraud or breach of trust and punished accordingly. Since such deals are shadowy and the parties to them are locked in conspiracy (briber and bribee both in the same boat), it is extremely difficult to prove their existence, so that relying solely on legal redress is inapposite. For this reason it is useful to consider the problem in the context of corporate ethics.

In sum, generally speaking corruption encompasses four main distinguishing features:(10)

  • Misuse of a position of power;
  • Gaining of advantage for those who, actively and passively, are parties to the misuse;
  • Undesirable effects on third parties (ramifications);
  • Secrecy of the transaction.

Because both the dimensions of a position of power and the undesirable consequences can vary greatly and because of its significance for moral reasoning, we need to differentiate further.

Before we consider the moral differences among the various forms that the phenomenon of corruption takes, two further provisos. Not every business is susceptible to it to the same degree. Experience shows that construction firms that specialize in infrastructure and other large-scale projects and manufacturers of big-ticket capital equipment such as turbines or aircraft are especially vulnerable, most notably when the decision on a contract hinges on just a few people or even on one person alone. (11) Ailing companies with uncompetitive products and services are more likely to stoop to corrupt behavior than healthy companies who enjoy a salient marketing edge thanks to excellent products and services.

Sweeping statements about “the” developing countries, for example, and “everyone” there who carries responsibility are out of place as well. Payments tainted with corruption may indeed occur more frequently and involve various officeholders more often and to that extent be a condition of business. This does not mean, however, that corruption is practiced everywhere and in every case and that upright officials are nowhere to be found.

Differences in the various forms of corruption

First of all it is pertinent to draw a purely quantitative distinction between “small” and “big” corruption. And qualitatively we can distinguish between corruption for legal and for illicit ends.

3.1. “Petty” corruption

This form is defined as “small” payments intended to get someone empowered to take and enforce decisions to see to it that something he or she is duty-bound to do is actually done within a reasonable period of time. The payments are made because without this additional “stimulus” nothing would happen, or else its happening would be inconscionably delayed. Hence the expression “speed-up gratuities.”

The word “petty” in “petty corruption” refers to both the size of the financial transaction and the size of the obligation that the transaction buys. In many poor countries petty corruption pervades every segment of society. In an impoverished society many people's success in the daily struggle to survive can depend on doing things that they would not be constrained to do if they were better off. In this light petty corruption appears as a defensive strategy that people must resort to because their income does not suffice to feed and clothe their families. (12)

Professionals working for Switzerland's official development aid agency have described the concrete implications in strikingly candid fashion. They pointed out that “... the responsible Ministry officials (can) cause us very serious difficulties by dragging out procedures if friendly relations are not cultivated -- with an invitation to attend the Swiss national holiday celebration on August 1st, say, or a small Christmas present. Such token gestures have an immediate effect on the dispatch with which our requests are dealt with at the administrative level.”(13) If someone takes a firm line in resisting demands his work is impeded. Sometimes this can be offset by extra personal effort, sometimes not. “... Each person has to find out for himself how clean he wants to stay – and how firm he can remain.”(14) A case history from Mexico illustrates the consequences that can ensue from a demonstration of “firmness”:

“All over the country it is difficult to obtain a telephone extension. The price set by Teléfonos de Mexico, which has the monopoly, is 500 dollars, inclusive of installation. Only 5 out of 100 applicants try this route. The rest prefer to shell out 1000 to 1500 dollars on a huge black market controlled by employees of the monopoly itself. For 1500 dollars you get your phone within days. But if you pay Teléfonos de Mexico 500, you can wait 12 months-if you are lucky. The workers, who install the illegal extensions at incredible speed, earn 400 dollars a month. (15) A Mexican political analyst's commentary: “Everything can be fixed like that- whether you want to enroll a child in secondary school, evade a traffic fine, or leave the country without having to show your military identity card. Every victory over hopelessness has its price.”(16)

One may justifiably wax indignant about corruption in connection with humanitarian aid, yet, taking every aspect into consideration, it becomes clear that simple solutions are not possible here either. A former deputy director of the Swiss Federal Directorate for Development Cooperation and Humanitarian Aid (DEH) has admitted to carrying on the mission even under conditions tarnished by corruption. “Development cooperation is necessary all the same”, he said. “If one went so far as to declare that we shall cease helping countries where corruption exists, then there would be practically nothing more we could do. But the whole point is to bring about improvements.”(17)

Terminating a development assistance program because of “small” exactions seldom has an impact on those who are the intended target anyway. Instead the brunt falls on those whose chances for a better life depend, sometimes critically, on humanitarian aid. Here again the social consequences of an alternative course of action in a given case have to be weighed in a situation ethics framework. Private enterprise, too, should follow this guideline. The following case can serve as an example from the real-life world of doing business:

An official of the central bank of a developing country has the authority to grant import licenses. In public bidding a company has obtained a contract to supply life-saving drugs to the national hospitals and now wishes to import them. To secure the needed foreign exchange, however, an import license is required; but the central bank official is prepared to issue one only if he profits personally. Because patients' lives depend on the timely delivery of the medicines the company comes under pressure, while the official drags his feet. In this situation the manager of the drug company decides to bribe the official with an “expediting” payment. For the sum of 500 US dollars the import license is authorized on the very same day. As I reason it, handing over the 500 dollars creates an ethical problem. However, weighing the “sin” of paying against the benefits of risk-averting for innocent patients, I consider it to be a lesser evil than risking even one patient's life.

Corruption can have a direct influence on business success. With its help the whole climate of doing business can be changed in the bribers favor. Without resort to corruption well-nigh insurmountable problems can arise: deliberate foot-dragging instead of friendly treatment (in passing on information or granting approvals, for example); holding back information rather than imparting it in time (for example, in connection with a crucial deadline such as the latest date for submitting a tender in a public bidding competition); or shelving vs. approving applications (e.g. for import or export licenses or sales authorizations). All this can add up to the decisive difference between business success and failure.

In the sphere of “petty” corruption gifts present a delicate special problem, in that there is always the possibility that they may be given without ulterior motives as tokens of personal sympathy.

3.2. Gifts

In many cultures gifts given directly, as in the form of an invitation to dinner or other favors of this order, are frankly expected as marks of respect or as proof of amicable relations. Refusing them can be taken as a sign of rejection or even as an affront. In other cultures the fact that a company presents potential customers with gifts may be criticized as bordering on corruption, or at least as ethically suspect. (18) The problem lies not in the giving as such but in the value of what is given. Unproblematic under a certain limit, as soon as this is exceeded the practice may be looked upon askance.

Various organizations have drawn up guidelines on how their employees should act with respect to the gifts they give to customers or business friends as well as those they themselves receive. The practice may be expressly forbidden, pointers to what is appropriate given, or an upper limit specified-value must not exceed 100 dollars, for example. A critic of the pharmaceutical industry once put it thus: “Whatever you can eat or drink in a day does not constitute corruption.” As both recreations can be enjoyed at differing levels of quality, however (a 1947 vintage Bordeaux is in a loftier league than, say, a bottle of last year's Valpolicella), purists may well regard this way of demarcating the borderline with septicism.

Guidelines are never the whole answer to the question, though, on account of factors such as a different standard of living between giver and receiver, cultural dissimilarities and divergent social norms, or quite simply the grey areas inherent in giving and receiving. What always remains is a latitude of interpretation and discretion that demands an independent exercise of judgment on the part of the person concerned.

The intention of the giver is always a pertinent consideration in evaluating the merits of a case. If a gift is meant simply as a friendly gesture, free of any expectation that a reciprocal situation might arise-one need not always have ulterior motives in mind-then there is not much of a problem. Still, such gifts are not altogether unproblematic either, since they do serve to generate good will that can pay off later in some other connection. The sociologist Neckel refers in this nexus to the “Don Corleone Principle,” describing how subtly habit-forming gifts can get to be. (19)

If on the other hand gifts are bluntly intended to spur the receiver into performing or omitting to perform a certain action within a relatively well-defined period of time in the interest of the giver, clearly what we have is a corrupt maneuver. As a general rule one is best advised to desist from giving or accepting gifts that go beyond small kindnesses and friendly gestures.

The second test that acceptability has to pass is, as already noted, a gift's value. Obviously a ballpoint or fountain pen – assuming it is not a chic designer model -is not in the same class as computer equipment given for private use or airfare to coveted destinations.

In my experience a good way to stay clear of any suspicion of corruptibility is to have the gifts that employees have been given personally turned over to the company and made available to everyone – through a raffle, for example. During an assignment in a developing country in Africa I was, to my utter surprise, showered with gifts. At the end of my first year I had them put on display in the company conference room, numbered, and raffled off among the full workforce. In this way everyone from the night watchman to the secretaries to management staff got the chance to acquire desirable items that would otherwise have been beyond their means.

Most of the gifts came from customers who knew that a certain discretionary elbow room existed where the provision of goods in short supply (on account of lacking import licenses) or the granting of discounts were concerned. Without wishing to insinuate that our customers hoped to point me in a certain direction with their gifts, I can report that there were no more gifts once the word had got around about how they had been disposed of.

As a preventive measure companies and other organizations are well-advised to oblige employees whose decision-making authority leaves them particularly exposed to temptation to inform their superiors of any gifts received. With the matter out in the open one can decide on how to handle it fairly.

3.3. “Big” corruption

Although the transition from “petty” to “big” corruption is fluid in the individual case, the latter presents a distinct problem area. (20) In the worst case a parasitic political and economic upper stratum ruthlessly exploits its privileges and the clout that goes with them to funnel huge sums into its own pockets. In order to bag loot on that scale corrupted and corrupters shop for ways to buy goods and services with the highest possible price tag.

Everyone involved has an interest. The supplier sells pricey, perhaps overpriced, goods and services, while the “customer” takes his cut in the form of illicit “commissions”. (21) Development ruins in many a poor country testify to the deplorable results of such wheeling and dealing. Most of them are relatively useless, ill-adapted and lavishly expensive installations, colossal prestige projects and outsized construction schemes, or armaments that far exceed a country's legitimate defense interests. In most cases the purchase transaction as such is perfectly legal.

The illicit nature of such dealings consists in this: by dint of loyalty to their charge, and in view of the scarcity of resources, the officeholders or those empowered to make decisions would be duty-bound to serve the public interest, fending off whatever is harmful to it. For selfish reasons they fail to do so, however. Instead of seeking the most cost-effective solution to a problem-for example, by publicly inviting tenders and straightforwardly appraising the offers that come in-they give preference to the most expensive variant. The overblown dimensions, technical complexity, lack of a flanking infrastructure before and after, or simply a non-existent need-all these factors often make it highly unlikely that such investments will ever be efficiently used.

Since the “commissions” are normally high and, being underhanded, do not show up on any tax declaration, the direct effect on the beneficiary's income is substantial – and the harm done to the public welfare usually great. The devious practice is considered to have added massively to the foreign indebtedness of many developing countries while seldom contributing to bettering the lot of their people. The upshot is the notorious “privatization of profits and socialization of losses”, with the public costs of corruption outweighing whatever private benefit it may bring many times over. (22)

The privatization/socialization caper takes on especially opprobrious dimensions when large-scale corruption is carried on-that is, when payments are made in order to transgress the law. Again, an example will show what is meant:

A company in an industrial country wants to spare itself the high investment costs of building a special wastes incineration plant on its own turf and mounts a search for an alternative, cheaper way to dispose of the waste. In this situation a highly placed ministry official of a developing country approaches the company with a proposal: for a consideration of three million dollars he would arrange for the trouble-free importation of all of the waste into his country for a five-year period. He would also see to it that the special waste was buried in a remote and, in his perception, secure site. In his native village he owns enough land that would be well-suited to the purpose. True, the import (and since the “Basle Convention” of 1989, the export as well) of such toxic substances is officially prohibited. However, he, the Deputy Minister for Economic Promotion, sees no cause for worry since, first, the waste can be mixed with other materials such as gravel or sawdust and, second, the waste dump would bring jobs and so benefit the people of his village.

After briefly considering the economic advantages of the proposal the company assents to it. The sequel: a few years later the people living in the vicinity of the disposal site fall victim to a mysterious ailment – later diagnosed as severe poisoning. The deputy minister swears that he knew nothing of the special wastes' toxicity and that he was misled by the multinational corporation. The company is indited in the “host” country and becomes a focus of public protests at home as well as in numerous industrial countries.

At the beginning of this discussion we pointed out that, far from being confined to developing countries, corruption is a world-wide phenomenon. Nevertheless, it does constitute a special problem in the developing world.

Corruption in developing countries

Corruption is to all appearances widespread in developing countries and has very serious repercussions on their peoples' quality of life – above all that of the poor and disadvantaged. (23)

4.1. The background

Gunnar Myrdal, the late, great, committed social scientist, saw how corruption in the developing world triggers a chain of deplorable effects. He emphasized two in particular:(24)

  • Habitual corruption paves the way for authoritarian regimes. It works thus: by exposing the corrupt character of the old crowd and undertaking to punish the guilty the new crowd manage to wrap themselves (temporarily) in a mantle of legitimacy. Parenthetically, this charade underscores the important fact that the broad mass of people in developing countries reject corruption, precisely because they suffer under it.
  • Exaggerated notions of how pervasive corruption is and of how corruptible civil servants (for example) are-what Myrdal calls the “folklore of corruption”-produce resignation and fatalism among the “little people” and reinforce their conviction that this form of asocial behavior is normal.

Myrdal saw the roots of corruption in developing regions such as South Asia in the remnants of the traditions of pre-modern societies, where presents, tribute and other social obligations were a customary and normal part of social networks. Where fundamental loyalties are due the family, the village, co-religionists or one's own ethnic group or caste, rather than the state or society as a whole, then for someone holding office favors done for and preferential treatment given to kinsmen are more important than fidelity to the state and its organs. Where culturally sanctioned gifts denote respect toward higher-ups and taking care of protégés by way of reciprocating are the done thing it becomes especially difficult to pinpoint just where these customs slide over into corruption. Added to this, in many developing countries government employees are so poorly paid that they are unable to maintain even a modest standard of living. In consequence they have almost no other recourse than to seek to augment their income. And when the payroll is not met, for many of them loyalty to their employer ceases. They then start looking out for opportunities to feather their nest. Myrdal recalled that 200 years ago corruption was widespread in England, Holland and Scandinavia. It took improved governance and a firming up of moral standards, especially among the higher echelons of their civil services, as well as pay reforms to curb the rot. (25)

The confluence of poverty, relics of old and outmoded traditions, and bad governance, together with the fact that in this conflation, too, Myrdal's principles of cumulative causation and circular interdependence intensify the effects of the problem components, have disastrous consequences.

4.2. Effects of corruption in developing countries

Reality in many developing countries today is still shaped like this: relatively underdeveloped public institutions, small upper class elites, and huge differences in wealth and income-with the concomitant possibilities of wielding power and exercising authority. Under these conditions corruption has especially deplorable effects. (26) Where it spreads no bedrock remains in the long run; habituation to dishonesty destroys all sense of honesty. The disposition to corrupt and be corrupted rather than qualifications comes to determine relations between people. Corrupt conduct in office ends up as flagrant disregarding of community interests.

The ones short-changed by all this are the socially powerless and decent people, for they either cannot or will not join in playing the crooked game. Because of their poverty or uprightness they constantly get short shrift in comparison with those who have the wherewithal to influence decisions and the way things are handled to their advantage and are not shy about doing so.

When it comes down to cases this often means that quite normal services to which all citizens are nominally entitled by the constitution and the law are denied persons from the underclass, already under severe social duress, unless they cough up. It starts with giving someone who needs a certificate of birth or death a hard time, continues where children are enrolled in school, testimonials are required for job applications or positions with government are filled, and does not stop even when, following a catastrophe, the state distributes free or subsidized relief goods such as food.

Those, on the other hand, who thanks to their connections and social status and the pull these confer, are better off and in a position to dispense pecuniary or other favors need not fear mistreatment. Oftentimes they do not even have to pay their full taxes or other levies. Thus privileged, they regularly enjoy the benefits of government-provided services that, in view of their social position, they ought not and certainly have no need to profit from.

The same mechanisms are in play at the institutional level, for example in connection with official approvals, authorizations, prohibitions and the like that are of importance to business companies' operations, among other things. Wherever muzziness prevails in the awarding of contracts for goods and services by officeholders possessing discretionary authority, power centers take shape that positively invite corruption. And again, this has consequences.

Only select circles of clients get to benefit from services that government, by virtue of the job it was set up to do, should provide without discrimination. For certain companies approvals are not forthcoming, no matter that all legal requirements have been fulfilled. Conversely, other companies get the stamp of approval without having met the requirements. Some firms, wondrously, are spared tax audits and technical inspections for years and years, although it is obvious for all to see that they are precisely the ones who should be controlled. Others have to undergo controls three or four times a year, no explanation given -and never mind that there is no detectable evidence of anything amiss.

What a business enterprise, be it large or small, has to contend with in a state-dominated economy with its profusion of laws, decrees, regulations and implementation directives, and how corruption can trammel the life of the economy, was described graphically a few years ago by Hernando de Soto, taking Peru as an example:(27)

De Soto induced a “typical Peruvian small businessman” to petition for permission to operate a tailoring establishment, specifying that all legal requirements should be fulfilled. In order to obtain a permit the entrepreneur had to “pay his respects” to no less than 11 ministerial or municipal departments, one after the other. Ten of 11 officials were only prepared to perform their duty in return for an additional financial consideration. Two of them even threatened to “bury” the application if the businessman did not pay up. In the end it took 289 days, and the expenditure and lost working time came to USD 1,231, i.e. 32 times the Peruvian minimum wage at the time.

Contrary to stereotype, a want of governance and corruption hit the small people hard, not the bigwigs. Large companies can hire experts to cope with the bureaucratic hurdles and obscure rules of play. They also have the means, should they wish to employ them, to “oil” the administrative machinery and speed up long drawn-out decision-making processes.

In earlier discussions of the problem of corruption in developing countries this fact led some authors to perceive positive aspects of it as well. Their argument ran that corruption overcomes bureaucratic indifference and accelerates decisions, reduces uncertainty about deciding whether or not to invest, and thus serves to mitigate the consequences of poor government policies. (28)

Elements of ethical assessment

5.1 Basic premise: corruption is immoral

As we have said, corruption occurs in societies the world over. Most people, and not only those in the realm of Occidental culture (29) are in agreement (30) that it is iniquitous and abhorrent. (Unless, that is, they happen to be among those who profit from it. (31)) Corruption is socially destructive. It saps the foundations of probity and leads to disregard of the public interest. In the markets it warps competition to the point of stultifying it, to the detriment of the economy. By thwarting rational ways of deciding things and getting them done it puts a further strain on the network of interaction, cumbersome enough to begin with in many developing countries. From the perspective of development policy it is particularly to be deplored that repercussions emanating from corruption hurt the underdogs of society worst because of its inherent tendency to twist decisions in favor of those who, thanks to their pocketbook or social position, can bring influence to bear.

Small businesses and poor people lack the resources to prod the decision-making mill to work in their interest; they are helplessly at the mercy of capriciousness and corruption. So they must try to make a go of it in the outlaw zone of the shadow economy, living in constant fear of criminal prosecution or forced to “protect” themselves by greasing the palms of the servants of the state. As de Soto has shown, the poor of Lima, like those in other big cities in developing countries, have built up an informal shadow economy because “official channels” leave them no chance of survival, what with too much government and too many conditions, approvals and decrees serving mainly to satisfy the bureaucrats' own interest and opening up opportunities for corruption to them. The deleterious impact of corruption on development is beyond doubt. (32)

The business world as well can only view corruption as an evil. For one thing it undermines every effort to do business with the customer in mind, aiming to achieve the optimal customer satisfaction that translates into market success. A business that can flourish merely by “greasing” has no incentive to strive for quality. In a climate of corruption the quality and competitive price of products and services do not determine market success, but rather how much bribe-money changes hands; not the reliability and integrity of a company, or other gauges of genuine competence, but rather the unscrupulousness of corrupt individuals. This game does not deserve the name of competition: its true name is fraudulent competition. Corruption can tie up sizable financial and organizational assets (33) indefensible in any normal climate of operations. Without the impediment of corruption those resources could be employed elsewhere or used to improve profitability. (34)

Last, it is too much to expect of employees that they should perform corrupt acts and submit to making payments. Especially employees of multinational corporations who do so can run a high personal risk, for it is probable that even though two people may be doing “the same thing” it will not be considered quite the same. A bribe passed to a government employee by a countryman is generally looked at in a different light than the identical act with an expatriate doing the bribing.

In the long term no society can subsist as an orderly whole if corrupt mores dictate the tenor of economic, social and political life. It always comes down to shady practices used to procure an unfair advantage for one side at the expense of someone else. Both the Economic and Social Council and other UN bodies and the OECD have condemned and proscribed corruption. From a corporate ethics point of view there can be only one clear-cut judgment on corruption: whether active or passive it is illegitimate and immoral.

5.2 There's corruption and corruption

An assessment of the various kinds of corruption that takes into account the gravity of the breach of morals involved must, in the spirit of situation ethics, examine the actual circumstances under which deviant behavior has occurred. Only after further questions have been clarified and the various pros and cons considered is it possible to arrive at a fair verdict on the degree of illegitimacy that the situation under review presents. (35)

Among the pertinent questions are these:

  • Who profits directly and indirectly and how much do the actors benefit?
  • Whom does the corrupt act harm? How does the harm suffered relate to the benefit realized?
  • How big a sum is in play and how does it relate to the business transaction that actuated the corruption?
  • Was the sum under discussion paid for a service or for information generally regarded as aboveboard, known to everyone, and in the circumstances legitimate?
  • Was there another way to the same end that, although perhaps longer and more onerous, afforded the same chance of leading to success?

A circumspect appraisal of all aspects of a case results in differing conclusions regarding the seriousness of the moral trespass. It is easy to think of examples where, in my opinion, leniency would be indicated.

Let us imagine that after driving eight hours you have already been stuck another hour in 90-degree heat in the backed-up traffic at the border of the country where you are headed on vacation. And let us further suppose that you are bringing a friend a stereo set that is subject to customs duty. Now imagine that it turns 12 o'clock just as you get to customs at last, only to be informed by the officer on duty that he is now taking his three-hour midday break. Noting your expression of despair, he suggests that if you care to pay him USD 30 for overtime (actually two minutes) he will settle the formalities during his break. A clear case of “speed-up payment”.

Or imagine that at the airport in an African vacation-land you are told that your long-booked and confirmed domestic flight is now, surprisingly, overbooked. It looks like the dream you have nurtured for years of visiting a wildlife park near Kilimanjaro stands no chance of coming true. Unless, that is, you pay an “administrative fee” sufficient to elicit the discovery that your name was “erroneously” deleted from the confirmed passengers list.

If you pay the sum demanded, both times it is clearly an instance of corruption and unfair to those who are unable to come up with the bribe. Yet as I see it cases of this sort have to be judged differently from more serious ones – for example, paying an official a much bigger bribe to make him forget about a correctly completed customs declaration or even to clear the way for importing toxic waste, drugs or weapons. Neither kind of bribe is legitimate, and on general principle one must always try everything possible to get through without resort to a corrupt act. Plainly, however, there are qualitative differences in the gravity of the offense committed.

5.3 Cases of clear-cut corruption

Certain kinds of corruption leave no doubt as to how they should be adjudged. Where corruption is practiced as a means of gaining unlawful advantage, judgment can be pronounced unequivocally and without undue cerebration: the practice is unlawful and therefore cannot be considered legitimate under any circumstances. Business institutions are thus well-advised to make it known publicly that they do not tolerate the practice-not even when it might be commercially expedient and would quite probably go undetected. Employees who contravene this unambiguous declaration of corporate policy should not only be sacked but also reported.

Arriving at a verdict on large-scale corruption is also fairly easy to do. Wherever companies stoop to pushing lavish purchase decisions at odds with local realities whetting officialdom's appetite for outsized, technically over- complex or otherwise ill-suited goods and services either by offering “commissions” or knuckling under when they are demanded, their conduct is illegal- and in acting thus they become accomplices to the damage inflicted upon the commonwealth.

5.4 Grey zones of evaluation

Where “expediting contributions” or gifts have the effect of prompting an official to do something that he would be duty-bound to do in any case and to do it adequately and within a reasonable period – in other words, where the sole object of the bribe is to provoke the actual carrying out of an act that is perfectly legal as such – I see no great moral problem. There is one, to be sure, in that someone who can afford to pay for speeded-up attention to his business enjoys an illegitimate edge over those unable to do so. Even if rewarding an official for seeing to a legitimate piece of business without delay may in certain circumstances be the “lesser” evil, an evil it remains nevertheless. For this reason a company and its employees in positions of responsibility should never under any circumstances have recourse to corruption as the means to an end, whatever this may be.

Where someone is at the receiving end of an extortionate demand, passing judgment on the ethics of the situation can prove difficult. This is particularly the case when the outcome effectuated with the aid of corruption not only does not harm the public interest but even turns out to have positive ripples.

How does one decide when government employees insist on their “commission” and make it clear that a job just won't get done without it? If a person is being blackmailed and submits, could we not say that he has acted in self-defense (36) and is therefore not morally culpable? In the ethical perspective what is the “lesser evil” in this case:

In the course of fully legal sales negotiations having to do with a legitimate order of business – this in a milieu well-known to be corrupt – a demand for graft is insinuated, rejection of which would result in the loss of many company jobs. In weighing every aspect of the situation must we not also take into account the palpable privations that, say, a steelworker in the Ruhr area or a Lockheed aircraft employee might suffer from the loss of his job because his company refuses to pay the “locally customary” bribes in certain developing countries as the price of landing major orders?

On the basis of corporate ethics theory it is easy to respond to questions of this sort, for heroic moralism has only one thing to say to corruption of any and every kind: no. The practical value of the no is slight, however. “White sheep” companies that consistently conduct themselves morally cannot, it is obvious, survive in a herd of black sheep. Approaches to solutions must, to have a chance of lasting success, not only tackle the problem on the corporate playing field. They must be more complex in conception, include various levels, and take hold as a concerted plan of action. Be fair

Here again the application of the “Golden Rule” is an important point in question. It opens a variety of reflections for example with regard to one's attitude towards colleagues on the same hierarchical level (key word: mobbing) and with regards to those who have lower ranks in the company (key words: respect, freedom, dignity). Let us share two short case studies:

Suppose you have just heard that one of the most important members of your staff is prepared to leave your department in order to accept a position in another department within your company. The new job would be a challenge and provide excellent career opportunities. You have no doubt that your employee would fit in very well and would be able to meet the requirements of the new position. At the same time you would lose your best team member and your department's performance would suffer seriously, and so would your bonus. The person would be very difficult to replace.

That person's potential new boss has asked for your opinion and has made it clear that your input will be crucial for his/her decision to offer the job to your team member. Will you be fair and give your honest opinion and provide a strong recommendation? Or will you want to keep your staff member and hence mislead the inquiring person?

Or suppose, you have a staff member who has been a consistently poor performer – in spite of your best attempts to help. This person has informed you that he/she has applied for a job outside the company and asked you to give her/him references.

Will you give your honest judgement and run a risk to keep the person for the rest of your corporate life or will you recommend him/her against better knowledge and get a chance for making her/him leave the company? It is obvious, that the commandment “Be Fair” can be quite a tough one to follow.

The consequences of the commandment “Be Fair” for the pharmaceuticals industry here could, for instance, be debated on the principle of “acting on suspicion”, i.e. when a corporation learns that one of its products, whose safety has up to now been mostly beyond doubt, has been associated with incidents that do not tie in with experience to date. Waiting until the ultimate scientific proof is available would go against the principle of justice discussed here.

Starting-points toward solutions

6.1 The level of governance

Virtually every theoretical discussion on the subject of corruption sees a close tie to poor governance. People with uncontrolled power misuse their decision-making authority to corrupt ends. They are able to do this because it is impossible to see into how decisions are arrived at and accountability is obfuscated. The same political groups are in a position to obstruct changes in the conditions that make it possible for them to line their pockets illicitly. Although corruption or other unethical conduct cannot be excused by pointing to the irresponsible conduct of governments and their bureaucracies, it would be naive to suppose that problems which can develop only in tandem with flawed governance could be solved by applying the maxims of corporate ethics.

Good governance is undoubtedly the most fundamental condition of a country's political development. It is manifested when the activity of the state serves to bring the people security, prosperity, order and continuity because an environment has been created in which everyone can unfold their productive, political and cultural abilities. Notably where the state regulates economic life excessively, where a surfeit of laws and enforcement agencies chokes every display of private initiative, and where officeholders deliberately drag their feet and operate destructively in order to foster a “market” for inducements – in such a tangle precious little can be achieved with mere moral appeals prescribed by business ethics.

So without better governance the problem of corruption is insolvable. (37) The most relevant shortcomings in the context of fighting corruption are these:

  • Lack of a clear distinction between what is to be considered “public” and what “private”, leaving the door open to appropriating public resources for private advantage;
  • Lack of transparency in the handling of public finances, lack of independent control agencies, and thus hindrance of presentation of concrete proof;
  • Absence of dependable legal machinery for preventing arbitrary application of regulations and laws;
  • Weak public institutions, no free press;
  • Over-regulation, as evidenced by an unwarranted number of regulations, permits requirements and laws;
  • Unclear decision-making procedures hinging on very close personal connections plus capricious interventions by those who hold political power and their abuse of it for their own enrichment.

By and large one can say that the more inefficient a government is and the more “powerful” its bureaucracy, the bigger the corruption problem. When the omnipresence of imprecise or contradictory laws and regulations, the obscurity of the criteria and channels governing decisions, the lack of accountability and democratically sanctioned political controls, all in conjunction with an underpaid and corrupt officialdom, leave a firm otherwise beyond reproach no alternative but to either join the circle of corruption or else withdraw completely from the country, then whichever it decides to do little has been gained in the direction of improving the country's political status quo.

A will to work for better governance and concrete political action to this end are imperative for both sustainable development and the wiping out (or at least minimization) of corruption. This means first of all:

  • Dismantling over-regulation, for the overload of discretionary administrative rules and regulations provides officialdom at every level with the opportunity to exercise its authority not on the basis of objective requirements but rather in the specific interests of those (low-paid) officeholders empowered to decide.
  • Reform of the public service with a view to abolishing ponderous and nebulous ways of doing and deciding things. In their place introduce more precise and intelligible statutory and administrative regulations together with more efficient information flows; then translate them into real-life jurisprudence and practice. Further, effective superintendence and accountability required of everyone holding an official position as well as irregular personnel rotations in especially susceptible positions, though not at the price of impairing competence. Finally, effective, speedy and justly enforced disciplinary and punitive measures against corrupt officials and employees.
  • Revised hiring and employment conditions in the civil service – for example, more competition for posts, better remuneration, and ombudsmen – plus reduction of arbitrarily exercised decision-making authority.
  • Public invitation of tenders for government and agency contracts and all planning and procurement or public purchasing contracts above a certain amount. Documentation to be made obligatory; public and open evaluation of all bids and justification of the decision taken. Because corruption can only thrive in the dark, greater transparency is absolutely essential to overcoming it. Blacklisting businesses that have been found guilty of corruption and refusing to consider them for government contracts for a certain period – until they have mended their ways – can also be a useful tactic.
  • Build-up or improvement of internal audits and controls by higher authority, applicable to both officialdom and the business sector.
  • Creation of independent commissions along the Hong Kong model and protection of freedom of the press. Even in industrial countries big cases of corruption have finally been brought to light only thanks to free and independent media.

All of the foregoing measures are aimed at reducing the motivation and the opportunity to indulge in corrupt behavior. One could furthermore conceive of disincentives to corruption-for example, an achievement-based scheme in which public servants would receive a share of the fees and levies they collect. (38)

Over the past 35 years Singapore has shown what can be accomplished in a political and institutional environment of good governance and incorruptible leadership. Comparable national initiatives elsewhere are deserving of every possible kind of international support. The opposite pattern of behavior should be penalized – for example, by cutting back on international development assistance.

6.2 Broad coalitions

As is the case with any endeavor to bring about constructive social change, joint effort undertaken in concert stands a greater chance of succeeding than does single-handed action. In the confrontation with corruption the situation is comparable to the “prisoners' dilemma”, i.e. cooperating in good faith is more likely to produce results than a lone wolf effort.

If whole sectors, or at least the market leaders in a sector, were prepared to renounce corruption in any form as a marketing instrument, the pledging companies would strengthen their own security. More, the show of solidarity would be more effective than solo efforts in reaching the goal envisaged.

Disinterested outside institutions, first and foremost Transparency International, (39) could not only help to initiate and co-ordinate; through their published reports they would also have the means of arousing public opinion and with it the political pressure needed to combat and at least reduce corruption.

6.3 Corporate ethics

The long history of corruption and the fact that even making it a capital offense in some countries has not resulted in its elimination show that stricter laws, stepped-up institutional controls and an improved political framework do not of themselves suffice to master the problem. And as for moral outcries against corruption, these amount to no more than idealistic quixotry. What is needed for a solution with teeth in it is a unified exertion on all fronts – including the business front.

To put it in clear text: in the end companies are not going to be able to shirk doing their bit in the fight against corruption. True, during the past thirty-odd years it has spread like a malignant tumor, so that in many countries today it is almost impossible to do business without greasing palms. It is also true that sometimes a virtual state of blackmail exists that one must go along with in self-defense in order to stay in business. All this notwithstanding, it is neither seemly nor ethically acceptable simply to call attention to the problem and give voice to one's disquiet while shifting the responsibility for doing something about it onto others.

If one does not want to look on passively while morals collapse, and implicate oneself by doing nothing, then one must take an opposing stand. A suitable way to start opposing would be to protect from temptation employees whose work might bring them into the danger zone of active or passive corruption. Prevention begins where the problem can and does arise, namely with human beings. Proceeding from there, the Working Group for Security in Industry and Commerce (Germany) has drawn up Ten Rules:(40)

  1. Set a good example. Avoid anything that could lead your employees to conclude that corrupt practices – even including active ones-might find favour or be tolerated in your company.
  2. Secure a written commitment from your employees to abide by guidelines expressly forbidding active and passive corruption. Make it clear to them that infractions will have actionable consequences.
  3. Let it be explicitly known whether and to what upper limits presents, invitations and other favours may be accepted.
  4. Require full disclosure from employees in strategic positions of their financial or other connections to suppliers and customers.
  5. Hold training courses for employees on the dangers of corruption and how to recognize them.
  6. Appoint a contact person in your company to whom employees can turn for binding advice on what criminal law and the company's own prohibitions entail.
  7. Appoint one or more persons in your company to whom observations relating to corruption can be reported direct. Make it clear that this will have no negative consequences for the reporting employee.
  8. To the extent feasible, institute the “four eyes principle”(41) and, insofar as necessary, job rotation. Require detailed records of all operations.
  9. Inform business partners of the regulations in force in your company. Ask them to establish corresponding safeguards.
  10. Reinforce internal controls by upgrading the auditing job's professionalism and prestige and expanding the scope of its authority. In case of doubt bring in outside examiners or experts. Report violations of the law to the police and see to it that legal proceedings are instituted.

As a minimal strategy Moody-Stuart recommends, among other things, that companies which do business in developing countries and are approached by top officials for “commissions” refrain from taking part in sales transactions or projects that in the company's judgment are disadvantageous for the buyer or interested authority, respectively. Further, no compromising of the company's standards should be entertained, even when the customer appears to be “magnanimous”. (42)

Every positive social change has to be set in motion by someone somewhere. Through a strict corporate policy every company, and through the exercise of responsible judgment every individual, has leave to practice conduct unsmirched by corruption. This means not only refusing to cave in beforehand but also standing one's ground when the pressure is turned on. The morality of such a stance is beyond doubt: corruption is bad for the people involved, for the company involved, and for the society it impacts upon.

Here as anywhere else, of course, there is no free lunch. Repudiating corruption can prove costly. If a company not only makes up its mind not to grease anyone's palm under any circumstances but to forswear corruption as an access route to the market, no matter how persistently pressed from whatever quarter, it is certain to lose market share in some countries. In a global market this can be painful, and especially so if the countries in question are very affluent markets or very profitable niche markets and competitors are without scruples.

For the moment all one would have to offset the tangible operating loss is the idealistic satisfaction of having remained true to one's standards and the hope of a political change for the better. Individual corporate action can alter a corrupt climate only marginally at the most. There is also the hope that in time the word about the correct stand the company has taken will get around, making it immune to undue expectations and coercion. In the longer term there is the further hope that when the social “cleansing” comes to pass people will remember those who refrained from joining in the merry cosi fan tutte roundelay. At the same time, though, it would be unrealistic to expect that every “new broom” government swept into office on a platform of virtuousness will in the event turn out to be so much better than the ancient régime it castigated and replaced.

Short-term, the repudiation of corruption in very many cases has to be juxtaposed against the appreciable price of abridged entrepreneurial success. This fact in no way detracts from the ethical argument for proscribing corruption unreservedly – but it does lessen the probability that the precepts constituting the argument will be honored in practice.

Over against the costs are the returns, admittedly much less readily quantifiable. To its own employees and its social environment the company presents a credible demonstration of its creed: this company does not just talk about values – it lives up to them. The positive example set by an internationally reputable company and made plain for all to see can encourage others to go and do likewise, thus getting a positive, cumulative upward trend off the ground.


  1. Scherer P.: Korruption fast alltäglich. In: DIE WELT, Thursday, 16 February 1995, No. 40—7, p.1.
  2. Ibid.
  3. “Der Spiegel” No. 28 / 1995, 10 July 1995, pp. 22—29.
  4. Cf. Rügemer W.: Corruption in Waste Water Treatment. A Case Study from Germany. In: Transparency International (Ed.); TI Newsletter, December 1995, p.3.
  5. Cf. report in: Business Week, International Edition, 18, December 1995, pp. 25—34; see also Kursbuch, Rowohlt Verlag, Berlin 1995, Issue 120.
  6. Banfield E.C.: Corruption as a Feature of Governmental Organizations. In: The Journal of Law and Economics, Vol. 18 (1975), pp. 587—605.
  7. Cf. Mahoney J.: Ethical Attitudes to Bribery and Extortion. In: Stewart S./Donleavy G. (Eds): Whose Business Values? Hong Kong University Press, Hong Kong 1995 223 – 246.
  8. Cf. reports in Tl-Newsletter, available from Transparency International e.V., Heylstrasse 33, D-10825 Berlin.
  9. Thus Frederic Galtung in: Zum Beispiel Korruption. Lamuv Verlag, Göttingen, December 1994, p.11.
  10. See also Schmidt K./ Garschagen Ch.: Korruption. In: Handwörterbuch der Wirtschaftswissenschaften, Vol. 4, Gustav Fischer Verlag, Stuttgart 1978, further, Johnson H.L.: Bribery in International Markets: Diagnosis, Clarification and Remedy. In: Journal of Business Ethics, Vol. 4 (1985), No.6, pp. 447—455; also D'Andrade K.: Bribery. In: Journal of Business Ethics, Vol. 4 (1985), No.4, pp. 239—248.
  11. Lane H.W./Simpson D.G.: Bribery in International Business: Whose Problem is it? In: Journal of Business Ethics, Vol.3 (1984), No. 1, p. 36.
  12. Cf. Directorate for Development Cooperation and Humanitarian Aid (DEH) Entwicklung -Developpement, No. 38, November 1992, p. 26 ff.
  13. As recounted by a DEH delegate who works in Honduras: Ibid., p. 27.
  14. Statement by a DEH delegate who works in Madagascar: Ibid., p. 27.
  15. Cf. Leyva C.G.: Die Korruption blüht nach wie vor. In: DEH: Entwicklung – Developpement, No. 38, November 1992, p. 8 ff.
  16. Ibid., p. 9.
  17. Cf. DEH: Entwicklung – Developpement, No. 38, November 1992, p. 31.
  18. Hazlet Th.K./Sullivan S.D.: Professional Organizations and Healthcare Industry Support: Ethical Conflict? In: Cambridge Quarterly of Healthcare Ethics, Vol. 3 (1994), No. 2, pp. 236—256.
  19. “I am doing you a favor now and expect nothing in return – other than that you help me should I once need your help.” Cf. Neckel S.: Der unmoralische Tausch. Eine Soziologie der Käuflichkeit. In: Kursbuch. Rowohlt Verlag, Berlin 1995, Issue 120, p. 15.
  20. Lloyd B.: Corruption: Where to Draw the Line? In: Business Ethics. A European Review, Vol. 2 (1993), No. 2, pp. 97—100.
  21. Cf. Moody-Stuart G.: Schwere Korruption in der Dritten Welt. In: Kursbuch. Rowohlt Verlag, Berlin 1995, Issue 120, p. 118 ff.
  22. Cf. Nye J.S., Jr.: Corruption and Political Development: A Cost-Benefit Analysis. In: The American Political Science Review, Vol. 61 (1967), p. 417 ff.
  23. More on the subject in: Theobald R.: Corruption, Development and Underdevelopment. Macmillan, London 1990.
  24. Myrdal G.: Asian Drama. An Inquiry into the Poverty of Nations. Pelican Book (Penguin), Harmondsworth 1968, 3 volumes. Here Vol. 2, Chap. 20, pp. 937 – 958.
  25. Myrdal G.: Asian Drama. An Inquiry into the Poverty of Nations. Pelican Book (Penguin), Harmondsworth 1968, 3 volumes. Here Vol. 2, Chap. 20, p. 957.
  26. For early examples from Sub-Saharan Africa see Leys C.: What is the Problem about corruption? In: The Journal of Modern African Studies, Vol. 3 (1965), No. 2, pp. 215—230.
  27. Hernando de Soto et alia.: El otro sendero. Lima 1985 (Caracas 1987).
  28. Leff N.H.: Economic Development through Bureaucratic Corruption. In: The American Behavioral Scientist, Vol. 8, November 1964, pp. 8—14.
  29. Cf. Eigen P.: Das Nord-Süd-Gefälle der Korruption. In: Kursbuch. Rowohlt Verlag, Berlin 1995, Issue 120, p. 155 ff. See also letter by Olusegun Obasanjo, ex-President of Nigeria, to the Financial Times, 14 October 1994.
  30. One reflection: recent reference works such as the Concise Oxford Dictionary give both a specific and a more sweeping definition: “ corrupt a. rotten, depraved, wicked; influenced by bribery... corruption n. decomposition, moral deterioration, use of corrupt practices...” (Seventh edition, reprinted with corrections, 1983).
  31. Concerning this ambivalence see Neckel S.: Der unmoralische Tausch. Eine Soziologie der Käuflichkeit. In: Kursbuch. Rowohlt Verlag, Berlin 1995, Issue 120 footnote 24. p. 9 ff.
  32. More on this in Nye J.S.: op.cit., footnote 27. Pages 417—427. Also Bayley D.H.: The Effects of Corruption in a Developing Nation. In: The Western Political Quarterly, Vol. 19 (1966), pp. 719—732.
  33. Gunnar Myrdal pointed this out with reference to South Asia almost 30 years ago. See Myrdal G.: Asian Drama op. cit., Vol. 2, Chap. 20, p. 942 ff.
  34. Unless, that is, tacking the additional costs on to prices is part of the deal. Then, of course, the injured party is the public and not the company.
  35. See also De George R.T.: Competing with Integrity in International Business. Oxford University Press, Oxford/New York 1993, p. 12 ff.
  36. Carl A. Kotchian, former head of Lockheed Corporation, argued along these lines. He gave way to a demand by government officials for a bribe in connection with the planned sale of TriStar aircraft. Later, when the payment became publicly known, he had to resign. See Kotchian C.A.: The Payoff: Lockheed's 70-Day Mission to Tokyo. In: Saturday Review, 9 July 1977, pp 7—12.
  37. For a detailed discussion of this subject see Leisinger K.M./Hösle V: Entwicklung mit menschlichem Antlitz. Beck Verlag, Munich 1995, pp. 114—172; see also World Bank: Governance: The World Bank's Experience. Washington, D.C., November 1993.
  38. Klitgaard R.: Vorbeugen ist besser als Strafen. In: Frederic Galtung (Ed.): Zum Beispiel Korruption. Lamuv Verlag, Göttingen, December 1994, p. 82 ff.
  39. Cf. Transparency International – The Coalition against Corruption in International Business Transactions (Ed.): Tl Newsletter, address noted in footnote 8.
  40. Cf. Karkowsky J: Vor der Versuchung schützen. In: Wirtschaft im Südwesten. Zeitschrift der Industrie- und Handelskammern Hochrhein-Bodensee, No. 12 (December) 1995, p. 5 ff.
  41. Meaning: inclusion of a second person in handling sensitive business matters.
  42. Moody-Stuart G.: Schwere Korruption in der Dritten Welt. In: Kursbuch. Rowohlt Verlag, Berlin 1995, Issue 120, (footnote 26), p. 127.

Source: Novartis Foundation - Sustainable Development Programme
Return to the Urban Governance page
Comments and suggestions to -