Box 6.3. Corporate and Academic Partnerships for Ethical Business in Japan
After Japan was shaken by corporate scandals in the 1980s, the Feder- ation of Economic Organizations of Japan (Keidanren) produced in 1991 the Charter for Good Corporate Behavior and strongly appealed to member companies to respect business ethics. In 1996 the charter was revised, and a guidebook was issued. But a new wave of corporate scandals in the late 1990s signaled the failure of this first initiative.
The reengineering of corporate ethics in Japan was taken over by a number of new and active groups that involved private sector execu- tives and academic institutions and that focused strongly on imple- mentation. A Business and Society Committee was launched in 1997 by the Kansai Economic Federation, a business organization. In its final report in May 1999 the committee urged Japanese companies to improve their internal control systems by making use of an ethical and legal compliance management system standard, ECS 2000.
The project to launch the ECS 2000 was initiated in 1998 under the leadership of Iwao Taka, a professor at Reitaku University. This project eventually led to the establishment of the Business Ethics and Compli- ance Research Center (R-BEC) hosted by the university.
Meanwhile, the Business Ethics Research Center (BERC) was estab- lished in 1997 by a small number of major Japanese corporations with the cooperation of the Japan Society for Business Ethics, an academic association. BERC is an independent nonprofit organization dedicated to promoting ethical business practices that serves as a vehicle for the exchange of information and strategies among corporate ethics offi- cers. The center cooperates closely with academic groups such as R-BEC. By the end of 2002, 53 companies were affiliated with the center.
In Japanese corporations the implementation of ethics and compli- ance systems was closely correlated with changes in corporate gover- nance, especially as regards board activity. The Corporate Governance Forum of Japan, established in 1994, played a leading role in raising awareness of corporate governance issues in the Japanese business community. After years of discussion among members, including the top management of leading Japanese corporations, scholars, and lawyers, the forum in 1998 published “Corporate Governance Princi- ples,” which included specific proposals for achieving good corporate governance and business ethics. Recent worldwide surveys have high- lighted the consistent quality of socially responsible reporting in Japan (KPMG 2002).
Part II of this volume provides further details on compliance laws and programs in Japan.
Box 6.4. Institute of Directors in East Asia Network (IDEAnet) In recent years, several East Asian countries have established institutes of corporate directors as a tool for the promotion of better corporate governance, especially at the board level. Although inspired by estab- lished institutes in Australia, the United Kingdom, and the United States, these institutions take varied forms. Some are independent, while others are associated with academic, private, or governmental organizations. Whatever their type, they are at the forefront of corpo- rate governance reform in their economies.
IDEAnet was organized in 2000 with the objective of coordinating initiatives and sharing information between and among institutes of corporate directors in East Asia. It currently has members in China, Hong Kong (China), Indonesia, Korea, Malaysia, the Philippines, Singapore, Taiwan (China), and Thailand. It is collectively working toward providing a wider range of globally recognized training courses, networking opportunities, and more aggressive and relevant advocacy and policy reform initiatives in each of the member economies and in the region as a whole.
The group has started to broaden its reach by working with coun- terparts from outside the region. Multilateral organizations such as the World Bank’s Global Corporate Governance Forum have been primary supporters of such initiatives.
To date, IDEAnet has conducted several working meetings and joint conferences. In addition, several members, working under the auspices of the Pacific Economic Cooperation Council, developed the Guidelines for Proper Corporate Governance Practices, which were adopted by Asia-Pacific Economic Cooperation (APEC) in Shanghai in 2001. Most members of IDEAnet are currently working on a corporate governance scorecard initiative for their respective economies and eventually for participating economies in the East Asia region.
Source: Global Corporate Governance Forum.
At the global level and in Western countries, organizations dedicated to improving corporate ethics include:
• The Ethics Officer Association (EOA), created in 1991 in the United States. Today, more than half of all Fortune 100 companies belong to the EOA, and there are many nonprofit members. The EOA network holds conferences and smaller meetings and also conducts research.
• The European Business Ethics Network (EBEN) and the International Society for Business, Economics, and Ethics (ISBEE). These institu- tions bring together academic research and practical perspectives.
• Knowledge-oriented institutions such as the Conference Board’s Global Business Ethics Network (box 6.5).
Box 6.5. The Conference Board’s Global Business Ethics Network The Conference Board, founded in 1916, has over 2,500 members in more than 60 countries. From its earliest days, the board’s work in business ethics and related issues has been part of a broad-based research program in economics and management practices. Today’s program has evolved out of the earlier research activities.
The Conference Board’s Global Business Ethics Network, estab- lished in 1997, facilitates an exchange of views between different sec- tors of society regarding business principles and promotes a better understanding of the practical issues in formulating and implementing principles for the conduct of global business. The goals and research focus of the group are to:
• Define standards for global business practice
• Apply core principles in diverse political, social, and cultural envi- ronments
• Obtain the support of and promote cooperation with nonbusiness institutions.
To date, the network has supported five research projects, including the one underlying the present study. It has held meetings with com- pany, government, academic, and NGO participants in Africa, Asia, Australasia, and North and South America. Other participating insti- tutions include the World Bank, the Wharton School at the University of Pennsylvania, the business school INSEAD (with centers in France and Singapore), the Fundação Getulio Vargas in Brazil, Japan’s Busi- ness Ethics Research Center, Transparency International, and the Inter- national Labour Organization.
Three times a year, the Global Business Conduct Council convenes senior executives who exercise responsibility in multinational companies to discuss common concerns. Although there is no formal relationship between the Global Business Ethics Network and the council, the coun- cil’s discussions illuminate members’ interests that have been integrated into the research conducted by the Conference Board and the network.
An Asian Business Conduct Group has been formed; its first meet- ing was held in December 2002.
With active support from member corporations, and in connection with other stakeholders, these organizations have supplemented and reinforced company anticorruption initiatives by gathering and dissemi- nating knowledge and promoting new directions. Such groups for shar- ing knowledge and experience catalyze the dissemination of best practices and help in the process of benchmarking.
Groups of professional experts in ethics and compliance have been formed in Japan, Korea, and Hong Kong (China). Thus far, their member- ship is still small compared with their Western counterparts. The Japanese organization of ethics officers, BERC (see box 6.3), has a few dozen members, while its counterparts in Europe and North America have several hundred. The latter, however, are a decade older.
Business Schools
In East Asia business school curricula have begun to focus on ethics issues, holding out the hope that ultimately corruption will be drastically reduced by a new generation of businesspeople with a less tolerant per- spective. In some business schools, the issue of corruption is discussed as part of courses in professional responsibility. In others, ethical issues are integrated into the standard curriculum.
Even so, by no means all business schools cover the subject of ethics or, more generally, corporate social responsibility. This study did not sys- tematically investigate the curricula in EAP countries but it seems that except in Japan, only a few institutions in the region provide an in-depth course, even in the most developed economies, such as Hong Kong (China) and Singapore. Noteworthy exceptions are the Asian Institute of Management in the Philippines, with its Center for Corporate Responsi- bility, and Hong Kong Baptist University.
This is probably an area in which further progress can be expected, cat- alyzed by regional and international cooperation in the field of curricu- lum development and by coupling education with research that can directly benefit companies at the country level. Such coupling has been a common practice in Western countries, where ethics centers or societies are usually hosted by business schools.
Operational Initiatives
Some initiatives target specific professions and industries, either globally or at the country level. In the consulting engineering profession, for example, the International Federation of Consulting Engineers has devel- oped an integrity management framework to be applied worldwide by
Box 6.6. Business Integrity Management in the Consulting Industry The International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs Conseils, FIDIC) is an international pro- fessional organization. Consulting engineering is a major industry worldwide, with firms in both developed countries and emerging or transition economies. FIDIC’s constituents are national associations in those countries. One of the organization’s mandates is to provide guidelines on standards and practices to help engineers and their clients worldwide.
Consulting engineers confront extortion in their everyday work, particularly on government contracts. But as the industry becomes increasingly global, firms from all countries increasingly expect fair procedures.
In the mid-1990s FIDIC concluded that a long-term global strategy was needed to disseminate best practices and that the work should involve stakeholders, including the financing institutions. The World Bank provided support for FIDIC’s Integrity Management Task Force, which was mandated to implement the strategy. The task force com- bined a global approach and grassroots experience. It was headed by Felipe Ochoa of Mexico, himself a company CEO. Many of its members were from other emerging economies, and all had applied ethical man- agement principles in their own companies.
The task force produced a set of Business Integrity Management guidelines, which became official in 2001. In essence, the guidelines contain the ingredients described in chapter 4 in this volume—active engagement of the leadership, a company code of conduct, delivery mechanisms, and warning systems—but customized for the industry.
The FIDIC is working with its national associations to disseminate the guidelines to end users, through, among other methods, multilan- guage, multimedia training programs. It is working with government agencies to have integrity principles taken into account in project and procurement procedures. And it is promoting the inclusion of business integrity principles into the International Organization for Standard- ization’s ISO 9001:2000 certification principles for quality management in the consulting industry.
Source: FIDIC and World Bank.
its component national associations (box 6.6). The TRACE initiative (see box 4.6 in chapter 4) is aimed at agents and intermediaries through coun- try-based training. Given the sector-specific features of corruption, this targeted approach can be very valuable.
Integrated Efforts with the Public Sector
The primary role of the public sector in the battle against corruption is to reduce opportunities for corruption in public procedures, promote transparency, and safeguard a level playing field for the corporate sector. Priorities include reforms in areas such as public procurement, taxation, and customs. But experience shows that public agencies and regulators can also engage more directly with the private sector and play a critical role in promoting ethical practices by:
• Creating a legal and regulatory framework that provides incentives to corporations for ethical behavior.
• Supporting organizations that participate in the dissemination of good practices.
• Making explicit use of ethics and compliance in public procedures. For instance, in public procurement, bidders may be required to have a rel- evant compliance system.1
Such interventions, which ultimately have the agency or regulator establishing ethical and compliance standards in the country, can be undertaken only by strong and efficient public bodies. The first type has been discussed extensively in previous chapters. Reference to compliance in public procedures such as procurement can be a powerful tool for leveraging agencies but is still underdeveloped.
Hong Kong’s ICAC provides a unique example of public-private part- nership in all these dimensions (boxes 6.7 and 6.8).