Ethics study finds little resistance in East Asia

PUBLISHED : Sunday, 28 July, 2002, 12:00am
UPDATED : Sunday, 28 July, 2002, 12:00am

A WORLD BANK STUDY SUGGESTS that corporate programmes to promote business ethics and root out corruption in East Asia do not face the level of cultural resistance that has often been assumed.

Project director of the study, United States-based business ethics expert Ronald Berenbeim, said the draft survey looking at the East Asian operations of three North American and four European companies found they could implement similar business ethics systems as those they had at home.

'These did not encounter as much resistance as might be commonly thought,' Mr Berenbeim said.

The study, which will be released at the end of the year, also failed to find major resistance at two Hong Kong companies, three Korean companies and six Japanese companies.

One major cultural difference, however, was that 'the rules about excessive gifts and entertainment that you have in North America simply don't work here'.

Mr Berenbeim, the principal researcher and director of the working group on global business ethics principals for business group The Conference Board, said the costs of paying even small bribes could be substantial.

One company surveyed discovered it had paid over US$1 million in small 'facilitating payments' - legal under US laws since amendments in 1988. 'They cancelled the contract because after this they weren't making any money,' he said.

Facilitating payments were usually regarded as small payments, 'like US$50 to a guy to put a stamp on the right stationery so you can build a bridge', a lesser evil than the huge bribes paid to heads of governments.

Successful corporate business ethics programmes had to include a system to encourage whistle-blowing by employees, such as hotlines. These systems then had to evolve into an early warning system because corruption, like a virus, quickly mutated from one form to another.

'At first you tend to get a lot of calls with people talking about how terrible their boss is. Then they start saying their boss is terrible because he's bribing a public official.

'At the third stage the boss actually calls to say, 'This guy is asking for a contribution for a foundation which his son-in-law happens to be the president of, what should I do?''.

Resistance to whistle-blowing could be more rooted in the culture of a company rather than the country, he said.

A mainland-based country manager said the use of whistle-blowing facilities in China did not get the same volume of complaints as in the US but it was still used, with 40 per cent of informants identifying themselves.

China-based companies also said the government had made 'significant efforts' to curb corrupt practices, with many respondents saying they were allowed to 'use their business principals if they managed the business', even without majority control of a joint-venture.

Mr Berenbeim said before the collapse of energy giant Enron and the spate of corporate scandals which followed, it was sufficient to look at a company's ethical relationship with its individual stakeholders.

'Now you have to look at the company's relationship with it's accountants, lawyers, bankers and their relationship with other companies, which adds about four or five dimensions to this whole process.'

As the author of a standard text for American lawyers about corporate sentencing guidelines, Mr Berenbeim dismissed recent moves to double sentences for white-collar criminals in the US as a 'feel-good measure'.

'Especially since it is starting to look exceedingly problematical as to whether they can be convicted of anything in the first place,' Mr Berenbeim said.

'What good is it to double the sentences of people you can't indict? It's been more than six months and still no Enron indictments.'

New laws and increased resources for investigations and prosecutions were needed to handle similar situations in the future.

'The SEC [Securities and Exchange Commission] needs more money - partly for staff and expenses but even more importantly to increase salaries for lawyers who can now make considerably more as private-sector attorneys and, in some cases, even in government positions.'

Mr Berenbeim said companies in the US had the incentive to develop business ethics systems because it could result in lesser penalties against them if they could blame wrong-doing on a 'rogue employee' working outside a company's established business-ethics system.

Mr Berenbeim said there had been a 'significant diminution of the regulatory process' - rather than an actual watering down of business regulations - during the Reagan and Clinton administrations, as a reaction to perceived over-regulation by every administration since World War II.

'Now the pendulum is going to change direction again and that will restore people's confidence, and then that too will become excessive and swing in the other direction.'

Mr Berenbeim, in Asia this month to present a series of The Conference Board's business ethics programmes, began specialising in business ethics 15 years ago after finding that the most successful companies had strong ethical codes and systems.