Corporate governance : An antidote to corruption

enough to have replaced traditional economic ethos of capital and production. No wonder the economic crises.
Like economics there is a supply-side and demand-side for corruption. The supply-side or the giver resides in businesses. Businesses pay the bribes. The demand side or taker is predominantly government officials.

Government officials demand bribes. In most discussions corruption is often blamed on government officials and seldom on the private sector. This is not to say that the private sector is the sole supplier.
Literature is revealing that non governmental organisations are steady suppliers of corruption in developing countries. The centre piece of supply and demand for corruption in Africa and many advancing nations has been the many market oriented economic reform, such as privatisation. Public sector procurement for a long time now has attracted corrupt activities.

In trying to find a cure for corruption it is important to consider both the supply and demand sides of corruption. Much has been said about the demand side and seldom on the role of the private sector as a supplier of corruption.
The private sector is more cash liquid than the public sector, performance driven, profit motivated and always short of time. No cost no gain is an established rule of the profit game. Risk taking gives the game adrenalin.

Entrepreneurs outperform one another in pursuit of profits. This desperation, risk inclination and willingness to pay whatever it takes render the private sector most gullible to demanders of bribes.
In a survey carried out by the African Capital Markets Forum in Ghana during the year 2000, it was reported that 86 percent of households saw corruption as a major problem in the public sector, whereas 59 percent of households saw corruption as a major problem in the private sector.
It was also found that many firms in Ghana made unofficial payments (44 percent) to public officials with over a quarter (27 percent) frequently or always making such payments. Unofficial payments constituted a regular feature of transactions between business firms and public service agencies. 56 percent of firms reported that service was frequently delivered once they made an unofficial payment.

Although there is not much statistics on the level of private sector involvement in corruption in Zimbabwe, it is common knowledge that there is an increase in the supply of bribes in the country.
How does good corporate governance reign in this corporate behaviour? Corporate governance spells out the rules and procedures for making decisions on corporate affairs. It also specifies the distribution of rights and responsibilities among different participants in companies such as the board, managers, shareholders, and other stakeholders.
In addition corporate governance reminds businesses that while profits are important, businesses need ethics, customers and other stakeholders. Through corporate governance, corporations are warned of the dangers of putting profits first.

Company leadership is also cautioned that when numbers become all-important, almost any behaviour is justifiable as long as money is made.
Sound corporate governance standards reduce supply-side corruption by removing systemic opportunities that breed corruption. Principles of accountability, transparency, fairness and rule compliance help a good corporate governance system spell out the procedures for carrying out activities and responsibilities in an organisation.
The system does not leave room for uncertainty of roles and power.

An example of a good corporate governance mechanism is the transparency in the provision of accounting information.
It helps reduce the level of corruption by increasing the probability of detecting bribery acts. Better accounting practices make it difficulty for directors to hide bribe payments.
However, if the shareholder encourages bribery then accounting information might not be as effective in curbing corruption.
Why then do corporations with good corporate governance systems pay bribes? First there has to be a conducive atmosphere for the supply and demand of bribery. This can take place in broad ranges of business activities over which some government officials hold discretionary powers.

Common among these are; where firms bribe public officials to avoid or reduce tax, to secure public procurement contracts, to bypass laws and regulations, or to block the entry of potential competitors.
On the surface bribery seems to be cost-effective for businesses because bribe payment is often a fraction of the monetary value of the services rendered by the corrupt officials.
The reason to bribe becomes even more compelling when public officials hold the power to punish the firms for not paying the bribe, such as revoking business licenses. Corporates are often duped to believe that the only cost of bribery is paying the government officials.

However, global research is showing that there are hidden costs to bribery, some of which can be fatal.
Xun Wu in “Corporate Governance and Corruption: A Cross-Country Analysis” states that bribery exposes firms to substantial legal and financial risks in the future. Governments may decide to nullify contracts that have been initiated or influenced by bribery, or to blacklist the firms for future government projects.
In the past the government of Singapore banned five multinational companies (Siemens, Pirelli, BICC, Marubeni, and Tomen), from bidding on any government projects for five years after their consultant was convicted of paying bribes for utilities construction contracts.

Perhaps the most vicious is that, when companies open their doors to corruption, they may find it difficult to resist demands for bribery payments in the future. Research is also finding that companies with a reputation for bribing their way out are more likely to receive demands for higher bribe payment by corrupt officials, sometimes for services that are normally free of bribery for other companies.
Bribe payment from firms with such a reputation may be perceived to be “safe” from the perspective of the potentially corrupt officials, and these corrupt officials may increase the level of bureaucratic interference in order to secure bribe payments from these firms.

These companies become “ka mugodhi” or a private small mine for the officials.
Xun Wu goes on to explain that, as a result firms that hope to circumvent government regulations may actually face an increased level of bureaucratic interference.
Companies that pay more bribes face more, not less, effective red tape because corrupt officials can often customise the nature and amount of harassment on firms in order to maximise bribe collection.

Bribery undermines the companies’ drive in developing long-term competitive advantages. If managers realise that they can win business through bribery rather than through providing better products or services, they will be busy courting government officials rather than concentrating on developing the competitiveness of their firms through innovation and better investment decisions.
This is detrimental to developing economies.
Corporate governance is not only about dealing with the internal governance of a company but also with its relations to its suppliers, to its consumers, to its business partners, and to the government.

Integrity and accountability are the values that guide the relationship between owners, managers, employees, and other stakeholders.
Thus if the relations of the company, its suppliers and regulators are premised on bribery and corruption, as stated above, it will be difficult for the company to resist future demands for bribes.
A strong board of directors that prioritises the interests of shareholders can prevent companies from giving bribes to public officials. Directors and managers determine the corporate culture. Yet, they

often sign shady contracts, ignoring the negative implications. Non executive directors are systematically appointed in relation to their ability to influence outcomes with government relations. Such directors, instead of protecting the resources of the company, become conduits for bribe payments.

While corruption offers companies short-term relief, good governance provides a longer-term, victory. Victors are those who protect their reputation and their shareholders.
Prudent investors need assurances that their investments will not be channelled into unproductive activities. Entrepreneurs look for ways to attract investors to finance their visions. The aim is to make profits and maximise the value of the company.

To achieve this, more and more corporations are coming up with corporate governance reforms. Investors are looking for businesses that uphold values of good corporate governance. Weak governance systems provide a good environment for corruption to thrive.
Shareholders and investors in countries that are experiencing a high level of corruption may receive double dividends from the improvement in corporate governance. Companies with better corporate

governance have better prospects of growth and command higher valuation in the market.
A McKinsey study showed that global investors are willing to pay more for better-governed companies
It is said that inorder to kill off a bad habit, starve it. Private sector has the muscle to starve off corruption – stop supplying. Anti-corruption activists encourage private sector to adopt good corporate governance.