C Gopinath

Many shades of corruption

Updated on: Mar 13, 2011
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The public may take a grim view of corrupt administrative officers. But in the case of businesses, higher fees or commissions are seen as part of the market mechanism.

Not a day goes by without yet another revelation of somebody's unethical behaviour.

At one time, it was common to see charges of corruption being levelled at politicians. But the swathe has now widened to include judges, military personnel, bureaucrats, corporate leaders, professors, and so on.

Perhaps, it is time to reset our expectations of appropriate conduct. It would help to be clear about what exactly we mean by corruption.

One problem that clouds our judgment is our role perception of the person concerned. It is easy to define corruption in the public sphere as use of public office for private gain.

That definition carries with it the baggage of our role expectations. Since the public servant is expected to serve the public and is paid with taxpayers' money, we are right to be very upset when he or she does not follow the norms of correct behaviour and seems solely motivated by personal profit. The same is the case when we come across teachers or judges charged with corruption. The jobs they perform have an aura about them. It seems they fall a greater distance when they become prey to corrupt behaviour.

That, however, is not the case with business! The business person is supposedly driven by crass motives of greed and profit-seeking so that we may well expect him or her to indulge in unsavoury practices. For instance, the typical image of the business person projected in movies is one who is ruthless, bends the rules, arrogant, and so on.

The manager does not have a great distance to fall when found guilty of corruption. For instance, the financial services industry has fallen so low that as the people around the Galleon Fund are slowly reeled in, we are not shocked anymore.

BUSINESS AND GOVT

Apart from expectations attached to roles, there is also a problem of definition. What is corrupt behaviour can be subject to a wide interpretation. Take a simple case of bribery. If a public servant takes anything other than the announced or legislated fee, we can clearly scream bribery!

But in a commercial situation, when the shopkeeper charges a higher price for an item, economic theory would say that demand is greater than supply and it pushes up the price.

During the aftermath of a severe storm, local authorities in the US warn shopkeepers not to raise the prices of construction materials, drinking water etc., calling it ‘price gouging', and threaten stern action.

That's where we run into definitional problems. In many areas, the US has managed to bring ‘ corruption' into the open by legalising some practices. In many democracies, a candidate needs money to fight an election. By specifying that people can contribute to the candidates' election fund, and setting limits on the amount of contribution, how it is accounted, a lot of what is considered in many societies as bribing a politician becomes legal donation.

Let's wander back into the commercial space. Are commissions a bribe?

If ‘A' helps me sell an item to ‘B', then is the money paid to ‘A' an extortion? In many cases, CEOs who help an acquirer take over their company are paid a facilitation fee. Isn't that a bribe?

There is a more curious case reported in the US papers recently.

The US levies ‘dumping duties' on wooden bedroom furniture imported from China, ranging from 1 per cent to 200 per cent, on the grounds that they are being sold at below fair market value.

Many Chinese firms figured out a way to get over the problem. They make payments (apparently secretly till now) to the US manufacturers who file the complaints to the US International Trade Commission so their name is left out of the list of Chinese firms to be reviewed. It was reported that between 2006 and 2009, about $13 million (about Rs 58.5 crore) were paid to a group of 20 US manufacturers. A larger sum seems to have been paid to the lawyers representing the US firms.

For the Chinese firms, it is a way of avoiding the tariff and the uncertainty, since the tariff is reviewed on a regular basis. Is it a cost of risk management, or extortion by US companies? Certainly a grey area.

However, the grey areas become even greyer when the loss incurred becomes hypothetical.

I refer to the serious charges of corruption levelled by many journalists in the ISRO-Dewas deal, and about opportunities missed. I do not claim to be an expert on this but tried hard to understand the issues.

HYPOTHETICAL GAIN

First, it was a transponder issue. The space industry was not very well developed and ISRO has been having a tough job getting the private sector interested in developing downstream businesses and has really done a marvellous job of it.

There aren't even enough people who understand this business and the few who operate are staffed by former ISRO people. Satellite-based services are nowhere in the same league as the terrestrial based services (broadband, etc.) and there is a limited time-frame within which, if a nation does not use it, the space spectrum can be lost. Also, the satellite's life is limited within which returns must be generated on an investment.

Managers and technical experts sit around, make guesses and arrive at business decisions. Then, after a few years and with the benefit of hindsight and under changed market conditions, lots of people can start smelling a rat.

Corruption is a serious charge. Thrown around loosely, it unjustly gives a general impression of lower ethical standards, lowers expectations of fairness, and casts doubts on the work ethic of individuals. It must be used carefully.

(The author is Professor of International Business and Strategic Management at Suffolk University, Boston, US. >blfeedback@thehindu.co.in. )

Published on March 18, 2011

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