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An Unsolvable Business Problem You Can’t Afford to Ignore

January 28, 2016, 4:06 PM UTC
Approximately 25 thousand people, according to organizers,
RIO DE JANEIRO, BRAZIL - 2015/03/15: Approximately 25 thousand people, according to organizers, took the Copacabana Beach and Cinelandia, in the south, to protest against the government of President Dilma Rousseff for massive corruption scandal at state oil giant Petrobras. (Photo by Fabio Teixeira/Pacific Press/LightRocket via Getty Images)
Photograph by Fabio Teixeira — Pacific Press LightRocket via Getty Images

I remember not many years ago talking with the CEO of a substantial but not famous publicly traded U.S. company, who was agonizing over what he should do in Brazil. His company had been operating there for a few years, doing well, but now he wondered if he should pull out. The reason: His company was fighting legal battles with competitors in Brazilian courts, and he was convinced, with good reason, that the process was rigged against him. He refused to pay bribes, but if he didn’t, he couldn’t compete. Every alternative was bad.

Corruption is everywhere in the news today, an impossible issue that every leader must face sooner or later. On Wednesday, Transparency International released its annual ranking of perceived corruption in the public sector of virtually every country. Least corrupt: Denmark. Most corrupt: North Korea and Somalia, tied. Brazil suffered the greatest increase in perceived corruption. And as it happened, Brazilian authorities on Wednesday raided several locations and arrested six in a continuing probe of bribery that threatens to topple president Dilma Rousseff’s administration. On Tuesday, China’s government announced that the chief of the national statistics bureau, Wang Bao’an, was under investigation for corruption. Also on Tuesday, a top Chinese financial executive being investigated for corruption jumped to his death from his 12-floor apartment.

When corruption is a fact of life, what’s a business leader to do? Most of the world’s fastest growing economies – not all, but most – are notorious for corruption. All four of the BRICs are, for example. Companies wanting to grab some of that growth may face the quandary of the CEO who was throwing up his hands over Brazil. And even if a leader isn’t personally scrupulous about bribery, he may operate under laws such as America’s Foreign Corrupt Practices Act that forbid him from committing the graft that competitors engage in routinely.

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Big, famous companies can often avoid the conundrum. Their mere presence may be so valuable to a country or local government that no graft is required; on the contrary, public officials may be under orders from the top to make sure everything goes smoothly. So, for example, Tata of India is known for operating cleanly even where corruption is rampant, and the company deserves applause for its stance. But it has an advantage, which it has earned over decades, in following that policy.

By contrast, what’s the right policy for a small or medium-sized business just fighting to stay above water in a fiercely competitive environment? I have never heard a good answer. I can only offer a bit of hope. As economies grow larger and compete increasingly in the fight to attract global capital, they tend to clean themselves up. Sometimes it can be done quickly; Lee Kuan Yew transformed Singapore’s public sector from massively corrupt to world-class honest in just a few years. Chinese President Xi Jinping has waged war on corruption since getting the job three years ago; his progress is still unclear. Even in Brazil, where skepticism is always warranted, the current anti-graft investigation is at least unprecedented, even if its success can’t yet be judged. Indian Prime Minister Narendra Modi is trying hard. In Vladimir Putin’s Russia, on the other hand, don’t even ask.

The only good advice for leaders is that if you haven’t faced this issue yet, prepare yourself. Dare to raise it with your peers. It’s one of those problems that you have to deal with, even if it’s unsolvable.