Corruption-related Decision-making and Multinational Business Decisions Presenter: Achinto Roy University of Canterbury, New Zealand

Some of the definitions of Corruption in Literature Rogow & Laswell (1963) “ A corrupt act violates responsibility toward at least one system of public or civic order and is in fact incompatible with (destructive of) any such system” Leff (1964) “ Corruption is an extra-legal institution used by individuals or groups to gain influence over the actions of bureaucracy” Nye (1967) “ Behaviour which deviates from the formal duties of a public role (elective or appointive) because of private-regarding (personal, close, family, private clique) wealth or status gains: or violates rules against the exercise of certain types of private-regarding influence” Huntington (1968) “behaviour of public officials which deviates from accepted norms in order to serve private ends” Scott (1972) “Corruption, we would all agree, involves a deviation from certain standards of behaviour” Klitgaard (1988) Corruption= Monopoly + Discretion minus Accountability

Corruption and Business Decision- making What is Corruption in Business? “ A phenomenon that requires illegal, immoral gratification in cash or kind as an exchange for securing an unethical advantage over others in business and/or in society, and as a result undermines stakeholder obligations” (Roy, 2001; Roy, 2004)

Decision-making in Corruption-related situations 1. Loss of fear of Business ( Testimony of Carl Kotchian of Lockheed) 2. Our competitor is doing the same ( McDonnell Douglas about Lockheed during the US Senate hearings in 1975 ) 3. Personal Career Advancement and Personal Gain (Case of Enron Executives)

Decision-making in Corruption-related situations 4.Past Experience with Corruption 5.Feedback from Local Managers 6. Corporate Policy (inadequate for many situations) Thus the decision-maker is placed in a situation of ‘positional objectivity’

Positional Objectivity and its consequences Positional Objectivity is “what we can observe depends on our position vis- à-vis the objects of observation” Amartya Sen, 2002 Here the decision-maker cannot separate oneself from the economic objectives that are further magnified by the fear of losing business, profits etc, without questioning the fear itself and without considering the CSR implications/ stakeholder issues.

Consequences of Corruption- related decisions Example of Shell’s operations in Nigeria and Shell’s transformation post the hanging of Ken Saro-Wiwa Example of Enron’s Dabhol project in India Allegations of Human Rights violations by these two companies. Can a company violate Human Rights?

What is needed? “Often what the general manager seeks and needs is a more or less orderly way of thinking through the moral implications of a policy decision” ( Goodpaster, 1984) “Well designed instruments are needed, to make ethical intentions operational in real life situations” Emeritus Professor Henk Van Luijk, 2000.

Corruption-related decision- making The Concept of CRDM ( Roy,2004, Roy, 2005) A CRDM Model Ethical grounding in: ISCT Thinking (Donaldson & Dunfee, 1999) – hypernorms and moral free space Wartick & Wood, 1998 model of Corporate outcomes. Aristotle’s Eudaimonia

A CRDM (corruption-related decision-making) Model Corruption-related Decision Is it Active or Passive Corruption? Active Corruption (Offer) Passive Corruption (Demand) Key to definitions: Active Corruption: Where the decision-maker designs, insinuates, creates a condition to pay a bribe or initiates a corrupt act. Passive Corruption: Where the decision-maker had not intentions, plans but has been approached for a bribe or a corrupt act. Facilitating Payment: Any payment demanded by a corrupt system or a corrupt person as a matter of rent seeking behaviour for dispensing one’s discretionary powers. This includes petty payments demanded by lower level functionaries in a public office. Corrupt Transactions: This covers all transactions that are not monetary bribes but are demanded to dispense a function, favour or discretion as a matter of quid pro quo. Type A: Payments or acts of corruption that will adversely affect “fundamental human rights or issues of sustainable development. Type B: Payments or acts of corruption that will NOT adversely affect “fundamental human rights or issues of sustainable development. NO: The word, “NO” indicates a No to any form of active corruption and payments of Type A. Yes*: Indicates a conditional “Yes” and implies payments to be made if and only if the payment is unavoidable under the circumstances, and is not a Type A payment but a Type B payment. The word “Yes” also implies that stakeholder-conscious multinational corporations will support anti-bribery/corruption initiatives by NGO’s and International bodies and make sincere attempts to bring about systemic changes. Facilitating Payment? Corrupt transactions Is it Extortion? Decision NO Type A-No Type B-Yes* Type A-No Type B-Yes* Yes*

Justification for the Model Good Governance should be an exercise beyond mere compliance with law. In a survey of financial institutions conducted by PWC and EI they concluded that institutions “equate effective corporate governance with meeting the demands of regulators and legislators” (Kaushik & Dutta, 2005:10)

Justification for the Model Good governance in corruption-related situations and the current international law The OECD Convention, 1999 (criminalises active bribery of foreign public officials) Overview of the UN Convention Against Corruption, 2003 Good Governance: Ethical Decision-making or compliance with law Good Governance is protection of vital stakeholder issues: Human Rights and Sustainable Development in corruption-related situations