C Gopinath

Corruption: MNCs can’t pass the buck

C. GOPINATH | Updated on August 04, 2013 Published on August 04, 2013

Walmart should not replicate its Mexican strategies here.

Blaming palm-greasing on local conditions will not work. .

The head of Coca Cola’s regional operations, which includes India, was recently quoted as saying, very emphatically, that business and compliance can co-exist; they are not mutually exclusive, and pursuit of business opportunities does not necessarily mean cutting corners. He further emphasised that he would not pay a single rupee as a bribe or favour.

Contrast that with the reported comments of the head of Dr Reddy’s Laboratories who felt that the state of corporate governance depended on the state of society, and the value of ethics in it, and without society changing, governance would not change.

Adapting to standards

Now, who is stepping forward to take leadership? Many companies have been facing the problem of what happens when the global runs into the local?

The run-ins can be in the area of rules and regulations, and the standards under which they operate.

Multinational companies are often faced with the question of how much should they adapt to the needs of a local market. It is a difficult question to deal with when it has to do with their products and services. Adaptation can serve the requirements of local variations in preferences and, thereby, also deal with the challenges of local competition, while global standardisation has the benefits of scale economies, apart from facilitating global control.

Apart from products and services, the standardisation versus adaptation question also has to deal with the local work cultures and ethical standards.

Foreign companies, which have to work under global corporate standards of compliance with rules and laws complain, that they are at a disadvantage against local competition that may ignore such standards, as it pushes up costs and causes delays.

Recent examples of companies running into trouble as they pursue global ambitions brings this conflict into the limelight.

Walmart is facing problems in Mexico where it was found that their local managers were guilty of bribing local officials to secure zoning and construction permits in their push to expand.

The problem was further compounded when news reports began to suggest that the corporate officers in the US were aware of this practice and rather than punishing the guilty, they were trying to brush it under the carpet.

The corporate officers were probably told that was how business was conducted in Mexico and they should not interfere, for it would hinder their store expansion targets.

Not bribing local officials may certainly have slowed down their growth, and that is where the corporation needs to make a choice of what standards it wants to live by. And in a world of global reporting, MNCs can no more separate their global standards and reputation from local practices.

Walmart has run into a similar situation in India. Can it argue that it needs to be locally corrupt because that is how things are done, while also arguing against the local requirement of local content in the products it sells?

Not a valid excuse

Several others are also grappling with the issue of local deviance in operations from the expectation of higher global standards.

GlaxoSmithKline is dealing with its local managers in China who found creative ways of using illegal payments through travel agencies as a means of rewarding or motivating their customers among the medical profession.

General Motors has discovered that its local managers in India may have fudged specifications so as to pass emission tests, including re-fitting already approved engines in new models to meet emission norms.

These companies increasingly realise that adhering to global standards of behaviour is also good business practice.

Saying ‘that’s how business is done there’ is no more a valid excuse for global companies.

Only recently we saw a rush of apparel retailers in the US and Europe agreeing to go above and beyond contractual obligations and take responsibility for work culture and safety practices among their suppliers in Bangladesh, as a fall out of the Tazreen Fashions fire and the Rana Plaza building collapse.

They did not even try to hide behind a valid excuse that factory inspection and labour rights were a local government issue.

Ranbaxy and Wockhardt are examples of home-grown pharmaceutical multinationals running into a reverse situation where their local practices were not in keeping with global standards in the industry in which they want to operate.

Clearly, if MNCs are aiming at global reputation, they need to work to global standards. In the case of Walmart operations in India and other cases, the head of the organisation had to be relieved when there was evidence of non-compliance. This is as it should be; for even if the head pleads that he was not aware of low level deviance, that is enough cause for firing, for he should have made it his business to be aware of what was happening.

True compliance

Compliance is not just a question of filling up forms and signing-off that all rules have been followed. Setting up a compliance department creates a sense that the problem has been dealt with; but such structural initiatives can only go so far.

True compliance has to go beyond that. It comes from creating a culture in the organisation of wanting to exceed the minimum the law prescribes.

The culture needs to include transparency in many areas of operations so that there are many pairs of eyes evaluating behaviour, not just a set of forms that have to be filled. Compliance culture comes from the top repeatedly declaring the standards they are following and showing how they are actually practising them.

And it also requires a whistleblowing culture within the organisation, so anyone who finds evidence otherwise has the freedom and confidence to speak-up. It is better to be found out within than have the regulator knocking at the doors.

(The author is a professor and dean of the Jindal Global Business School, Sonipat, Haryana.)

Published on August 04, 2013
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