The good corporate governance paradox

I’ve been teaching Good Corporate Governance (GCG) for more than a decade now. GCG assumes more importance today when our newly-elected President Duterte declares war against drugs, crimes and corruption in government. We can do no less in the private sector but help the President in this campaign against corruption.

We, in the private sector are always critical of government corruption forgetting that there is no corrupt person without a corruptor. There is no bribe taker without a bribe giver. There is no kotong cop without a kotong giver. It takes two to tango.   This is where the Code of Ethical Conduct in Business assumes importance in promoting good and clean government.  It is easy to brush aside ethical conduct by saying that one could not survive in business by keeping one’s nose clean when competition does not.

That to me is taking the easy way out. My experience in the corporate world tells me that a business can survive without violating the Code of Ethics. When I was in the drug industry, our company just avoided most government hospitals because we could not sell our products without giving some kickbacks. But we survived. There was enough business in the private health care industry without violating our Code.

We had a policy in one multinational company that all employees must observe the Conflict of Interest Rule and the Ethical Code of Conduct. Allowing any member of the employee’s family, within the fourth civil degree of consanguinity or affinity to transact business with the company is a violation of the Rule. Bribing government officials, no matter how small the money was, to gain business advantage, was absolutely taboo. Violating this policy was subject to dismissal.  Anyone who knew of any violation but failed to report such violation could also be subject to dismissal.

Every year, each management, sales and purchasing staff must sign a Non-Violation report and submit it to my office. I was required to submit all reports direct to the U. S. Company’s external auditor. Did we observe the policy? You bet we did.  One day, my collection lawyer reported that a government hospital in the north had an account receivables of P2 million. The governor was asking for a 10% share of the payment. I put my foot down to our collection lawyer’s suggestion to give in.  I suggested to him to file a collection case against the provincial government instead.

The home office made it very clear to us that all branches and affiliates overseas must observe this policy.  In a country where it cannot survive without violating this policy, the home office would rather close shop and leave.  But here was the dilemma. One day, we reported that in one week’s time, we’ll stop production because we would run out of raw materials since they were held at the Customs bonded warehouse. What should we do?  Funny, the home office sent us this telex:

“The Code must always be observed. However, in a country, like the Philippines, Indonesia, Mexico, Pakistan, Egypt, where it is customary to give ‘facilitation money’ to ensure speedy withdrawal of goods from customs, it is allowed to do so provided the amount is reasonable and must be reported at once to our external auditor.” The directive did not specify what is reasonable and left it to our sound discretion.

Implementing a Code of Ethical Conduct is indeed fraught with some murky situations. I thought our home office was caught between the devil and the deep blue sea: to be immaculately clean but suffer losses or adopt a pragmatic approach – compromise with the country’s culture but maintain transparency by revealing the reasonable amount of ‘facilitation money’ (read: bribe) to its external auditor and to the U. S. Securities and Exchange Commission.

Implementing the Code sometimes puts the company into comical twists. Yuletide season is traditionally gift giving time. We all know that at Christmastime the Purchasing Department is inundated with baskets of ‘goodies’ from suppliers. Other departments look with envy at this department during the Christmas season.

We discouraged suppliers from giving Christmas gifts to any employee.  We also issued an internal memo that while the Company respects the Christmas tradition of gift giving, any gift exceeding P200 in value would be confiscated and donated to charity. Ingenious that we Filipinos are, employees just told our suppliers not to deliver their gifts to the company but to their respective homes.

Admittedly, providing a Code of Ethics and implementing it with its profound effect on one’s business is a paradox. But at the end of the day, it is still better to have one and putting teeth into it than not having one at all.

(The author is Chairman of Change Management International, Inc., a management consultancy firm. Past president of PMAP, past president of Society of Fellows in Personnel Management and currently Vice-President of ECOP and Commissioner of the Tripartite Voluntary Arbitration Advisory Council (TVAAC), he is co-author of the book, “Personnel Management in the 21st Century” and author of the book, “Human Resources Management – From the Practitioner’s Point of View.” His email address is: [email protected])