from ideological and political considerations—a factor that could ease SRI development in Asia and elsewhere.
Company efforts to promote ethics and compliance are now a reality worldwide. In East Asia growing numbers of multinational and regional corporations are adopting programs to fight fraud and corruption. In the future those techniques are likely to gain wider acceptance as a result of the deepening of globalization and the emergence of new generations of businesspeople more sensitive to governance issues. Thus, the private sector is poised to make a significant contribution in the war against cor- ruption, even if its impact cannot be instantaneous.
This study points out a number of key findings and directions.
Private sector programs are a “glocal” (global + local) answer to the problem that corruption poses to business
development everywhere.
• Large corporations are better able than small ones to develop strong systems, as they have more resources and greater bargaining power to resist extortion. In turn, they have an interest in raising awareness and disseminating good practices among their suppliers and business part- ners, and a legal and moral responsibility to do so.
• The national and the international perspectives cannot be disentan- gled. International trade and investment are blamed for spreading corruption, but they are also important vectors for disseminating good practices. This interconnectedness is especially important in East Asia, with its high degree of intraregional integration in trade and investment.
Private sector initiative cannot substitute for actions and reforms by the public sector.
The contribution of the private sector is to leverage measures under- taken by the public sector. This has been demonstrated in the interna- tional arena, where the 1997 OECD Anti-Bribery Convention has given
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The Current Agenda
a strong impetus to the recent proliferation of programs in multinational corporations.
• The perception that corruption is an obstacle to business is now uni- versal, although with some nuances. Also universal are the techniques and ingredients being used in company programs: active engagement of the leadership, a company code of conduct, effective implementa- tion through training, and discussion and warning systems. This simi- larity across companies and countries is likely to increase as globalization progresses.
• Cultural differences will continue to raise serious implementation issues. This point is especially germane in East Asia, where guanxi, the traditional Chinese way of doing business, although compatible with a high degree of integrity, relies on personal trust and nonformalized relationships. Considerable country-specific customization in compli- ance programs may be needed if companies are to resist corrupt prac- tices effectively.
• Better business ethics and internal control systems are part of today’s corporate governance agenda. Transparency and disclosure practices that conform to international norms greatly help internal systems to resist extortion. Good practices in the governance structure of a com- pany interact positively with the implementation of corporate ethics programs; for example, boards of directors are increasingly involved in formulating and monitoring these programs. In turn, ethical prac- tices and internal control help a company’s governance structures to function well.
Although the design and implementation of a corporate system depend mainly on choices by the company itself,
the company cannot do it all.
The promotion of good practices will be spurred by a number of external factors, including the incentives provided by laws and regulations, part- nerships involving individual firms or organizations, and the resources available to the firm in the form of knowledge, training, and benchmarks.
Both public and private capacities are still scarce, and the following pro- posals aim at using them to best advantage.
1. Make appropriate adjustments in the legal and regulatory environment.
A country’s laws and regulations should provide incentives for dis- seminating norms for business ethics and should encourage corpora- tions headquartered in the country to adopt internal compliance systems. These are not necessarily straightforward steps, and the
agenda is long term. It includes:
• Incorporation of references to ethics and to companies’ internal systems into laws and guidelines applicable to the corporate sector. Two obvious means for doing this are (a) guidelines, established by securities commissions or eventually embodied in securities law, for the governance of listed companies, and (b) anticorruption laws, especially those that establish anticorruption bodies, as in Korea. Such references are far from sys- tematic today, and for clarity’s sake it is important that these texts define, at least broadly, the appropriate content of a company system—
as is the case, for instance, in the United States (the Sarbanes-Oxley Act) and Australia (AS 3806). The same references to ethics and internal con- trol should also be made (if they are not already there) in laws and guidelines targeting the professions that play important roles in the corporate governance agenda, particularly the accounting profession.
• Consideration of a company’s compliance system when enforcing the law or administrative procedures. As a first step, regulators and public agencies can mitigate fines and penalties on an experimental basis when con- fronted with breaches of the law in a few areas. Ultimately, taking this stance may lead a country to adopt some form of sentencing guidelines that will mitigate sanctions according to the quality of a company’s compliance system. Pending a systematic legal framework, mitigation can be used case by case as a means of leveraging the administrative procedures enforced by regulators or public agencies. An obvious pre- condition is that the agency be strong and honest—which suggests the need for limited and gradual experiments. Potential areas are (a) secu- rities and exchange commission enforcement, and (b) public procure- ment (e.g., qualification or debarment procedures). The FIDIC proposal and the account of the construction industry in Hong Kong described in chapter 6 are examples.
• The extension of the OECD regime to non-OECD countries in East Asia and Pacific. The OECD regime is relevant for emerging economies because it puts national and transnational corruption on the same footing. Asia, unlike Latin America, has no non-OECD participants in the OECD Anti-Bribery Convention, yet the intensity of intraregional trade makes the convention relevant in the East Asian context. Although the exten- sion of the OECD regime might not trigger an overnight change, the regime and the review procedure that are built into the convention might help countries design good frameworks.
• The introduction of core legal principles that encourage effective internal con- trol systems. These include (a) the principle of corporate criminal liabil- ity, which is a necessary basis for introducing provisions for mitigation of sentencing, and (b) the protection of whistle-blowers—a measure
that should be applied in both the private and the public sectors. Those are probably long-term changes; not all the advanced OECD countries have implemented them yet.
2. Promote partnerships to catalyze the dissemination of good practices. These partnerships should leverage scarce expertise, resources, and enforcement capabilities in both the private and public sectors.
Forms of private-private partnerships include:
• Large companies working together (through ethics associations or existing organizations)—at the country level, as has proved successful in Korea and Japan, or in connection with a global working group, such as the Conference Board’s working group on Global Business Ethics Princi- ples, or on both country and global levels.
• Large companies, both international and regional, working with suppliers and intermediaries to raise awareness, provide training, and ultimately improve standards. Some promising experiments are under way in this key area, including the TRACE initiative described in box 4.6 in chapter 4.
• Dialogue with other stakeholders. Thanks to a number of very active NGOs, civil society is involved in the fight against corruption.
Although it is not realistic for individual company programs to be scrutinized by civil society organizations, it is important that large- scale partnerships in the private sector be known and recognized by stakeholders, as is usually the case.
Public-private partnerships are also essential. Public agencies may be directly involved in promoting good practices, as in Hong Kong. Anti- corruption agencies elsewhere may not yet have the resources to develop a dialogue with private sector organizations with the same intensity. But to ensure the consistency of public and private efforts as private sector programs gain momentum, it will be important for the public entities in charge to develop capacities to work operationally with the private sector.
3. Create and disseminate resources and knowledge for individual corpora- tions that are willing to develop anticorruption programs.
Training is a priority area in which there is a huge gap. Some potential vehicles are:
• Inclusion of the principles of professional ethics in the curricula of institutes of accountants.
• Courses offered by institutes of directors, which are now very active in East Asia and have expressed willingness to include ethics and com- pliance in their curricula.
• Ad hoc training for some industries.
• Inclusion of ethics subjects in business school courses. This step is of the greatest importance for the longer term, since, ultimately, the agenda will be implemented by future generations of business leaders.
Knowledge concerning facts and trends can be developed through such means as:
• Experience-sharing between professionals involved in the area (for instance, through the creation of ethics associations).
• The development of academic research capabilities. An ethics research center, as Japan’s experience has shown, can be very useful in devel- oping case studies and helping monitor problems. Such research can support business schools, business organizations, professional insti- tutes, and anticorruption agencies alike.
Benchmarking instruments can be developed for individual corpora- tions. East Asia has recently seen a number of private initiatives for pro- viding cross-company assessmesnts of transparency, compliance, and corporate social responsibility. This is a promising area, although the methods are still being elaborated.