Britain's bribery shame to end?

For the past few years, we have watched with sagging spirits the abject failures of the UK authorities to get to grips with overseas bribery by British firms. It's been a real stain on the reputation of the country, its rule of law, and its businesses. With the US pressing ahead with numerous convictions under its beefed up enforcement of the Foreign Corrupt Practices Act (i.e. any firm listed in the US is liable to prosecution for bribery wherever in the world it may have occurred), Britain has become something of an international embarrassment. So much so, that at the end of last year, the former head of Transparency International UK, Laurance Cockcroft bemoaned "Britain's bribery shame".


Cockcroft's article in the magazine Ethical Corporation, written following a damning report from the OECD's working group on bribery, made the case pretty starkly:

"This extraordinarily feeble performance by the UK is regarded as symptomatic of a profound lack of commitment to addressing corruption. The report of the OECD working group suggests the UK government’s inaction is creating a situation where UK-based companies can behave with impunity in the payment of bribes to win overseas business. ... [Earlier] the OECD had raised the question of whether the UK’s failure was effectively “systemic”. This implied that the nexus of inadequate legislation, feeble prosecuting agencies and a political willingness to buckle to an ally (Saudi Arabia) made uncomfortable by a criminal investigation meant that the UK was totally unable to address corruption. This fear was quietly reinforced by the fact that in Transparency International’s corruption perceptions index, published in September this year, the UK fell from 12th to 16th place."

We've talked here before about the huge BAE scandal in the UK, and the country's decline on the TI rankings. In the new edition of our business ethics book, which is just going into production, we explore the events in even more detail. But those of you that want the 2 second overview, the bottom line is that the Serious Fraud Office was forced by the British government to cave in on its investigation of BAE's alleged millions in bribes paid to Saudi Arabian officials after heavy lobbying from the company and the Saudi government. The whole episode spoke of a huge ethical failure - and even a wrenching of the basic rule of law. As Cockcroft put it (and he was among the more reserved commentators): "Ten years ago, the international community relied on the UK to be progressive in this arena. Now, disappointment at the lack of a serious stand has turned to disbelief, and disbelief to anger."

Today though, comes news of a small but significant breakthrough, with the announcement by the SFO of its first conviction of a major British firm for overseas bribery. The firm, Mabey and Johnson, a signifant player in the world of bridge-building firm, was found to have paid bribes totalling £1m to foreign politicians and officials to secure export orders. Operated through covert middlemen, the bribes were paid to officials in a range of developing countries in Africa, Asia and the Caribbean. The SFO, learning something from its US cousins, tconcluded its first plea bargain type conviction which saw Mabey and Johnson slapped with more than £6.5m in fines and reparations to foreign governments.

This can only be good news for the beleagured SFO which only a few months ago had been left dispirited and demoralized by the BAE failure. Its head and the main BAE investigator had both left the organization soon after the government had effectively closed down their biggest ever bribery investigation. Now, media reports suggest that the new director, Richard Alderman, may be ready to push for a plea bargain at BAE too.

Today's news can only be welcomed by those of us with an interest in seeing the UK get back into the driving seat on dealing with overseas bribery. However, it will take more than one prosecution to wash away the shame of its pitiful performance over the past decade. The country's record of investigating and prosecuting bribery is still woeful in comparison to its peers – at the end of 2008, only two cases had been brought, compared with 103 in the US, 43 in Germany and 19 in France. Let's not pretend that this is because British companies are so much more honest when it comes to bribery than their contemporaries - it's more a case of them simply being able to get away with it. And realistically, only a conviction of BAE is going to change the perception of Britain as a soft-touch country, at least in the short to medium term. The SFO has little time to lose - especially if they don't want to be further embarassed by the Americans prosecuting the iconic British firm before they do. But it's still not clear if the ethics will simply get submerged by the politics again.

Business and climate change

Observant readers will notice that we've started adding some of our favourite blogs on business ethics-related subjects in the blogroll that you'll find on the right hand side of the screen. The latest addition is Climate Change Inc, the new blog on business and climate change by David Levy, a professor at the University of Massachusetts, Boston. Levy always has something pretty interesting to say, particularly on the politics of business responses to climate change. He's someone whose work we've found stimulating, and have always enjoyed bumping into him at conferences and collaborating on a few things along the way.

The new blog deals with all things business and climate change related, though with a particular slant towards politics and policy issues. We particularly liked this recent post on how the oil industry has recently resurrected its "carbon wars" strategy, including the mobilization of American citizens to protest against proposed climate change regulation. Here's what he says....

"....large numbers of Americans are suddenly getting excited about climate change. They are not, however, worried about rising CO2 levels and the impact on sea levels, hurricanes, or glaciers. They are jumping on buses and crowding into rallies to oppose the proposed energy legislation, which is intended to address climate change. Through placards, slogans, and speeches, the attendees demonstrate their concern that their very way of life – cheap fuel and electricity, even their jobs in energy-rich states – is under imminent attack. This threat is apparently more palpable and galvanizing than climate change, a distant and abstract concern, if not a hoax perpetrated by the same intellectual East Coast Europhiles trying to impose socialist medicine on beleaguered overtaxed Americans.

Perhaps a few of these angry citizens spontaneously joined the rallies in a state of high dudgeon after perusing the 1200 page Waxman Markey bill. Most likely, their transportation and placard messages were organized by Energy Citizens, whose website proclaims that it is “a nationwide alliance of organizations and individuals formed to bring together people across America to remind Congress that energy is the backbone of our nation’s economy and our way of life.” In fact, Energy Citizens was set up and financed primarily by the American Petroleum Institute (API), the US oil industry association, with support from the National Association of Manufacturers and other groups. It has contracted with a professional events management company to plan about 20 rallies against forthcoming energy and climate legislation in Southern US states, with a focus on energy producing states such as Texas. Member companies are encouraging their employees to join in. This project complements a massive increase in lobbying efforts by the fossil fuel industry in the last six months."

Fascinating stuff. And, as Levy notes, a real return to the oil industry's seemingly dead-in-the-water tactics of the 1990s when climate change denial was all the rage and various political strategies were deployed by the sector to derail the gathering climate change consensus. Levy goes on to offer an analysis of why the industry appears to have engaged in Carbon Wars round 2, but admits that a final conclusion is difficult to arrive at given the mixture of motives, interests and positions among some of the key players. However, as we mentioned not too long ago in relation to BP's "Back to Petroleum" strategy, a new conservatism appears to be blowing in the oil industry around sustainability issues (or at least the pretense of progressiveness has lost its allure), so there is much to be gained in the run up to Copenhagen by seeking to tweak the political climate towards a more accommodating pro-fossil fuel position.

Our best bet is that a range of different company strategies may start to emerge again which could derail any kind of univocal industry positioning, which seems to be the aim behind the latest manouevuring. But in the meantime, it looks like the main business action will be in the nonmarket (i.e. political) arena rather than in new market developments, at least until a new climate consensus is reached post-Copenhagen. Be sure to keep up with Levy's blog for all the latest developments.

So, what then is ‘Socialism’?

Among the things one can’t avoid noticing after living in North America for more than two years is the bizarre use of the ‘S-word’. It recently keeps popping up in the context of health care reform in the US but it also rears its allegedly ugly head in many other contexts.

Since the 1960s, most notably promoted by Ronald Reagan, the term ‘socialized medicine’ has been used as a scarecrow to denunciate any other approaches to healthcare than the private system the US has had in most places. Other systems, such as the Canadian or the British or the French, by being branded ‘socialist’ gave people the impression – as comedian Bill Maher put it recently – that ‘Stalin himself would stop by to use his iron fist for your prostrate exam’… And the campaign proved to be successful.

It is interesting to see how people in North America find it difficult to imagine that any other system of capitalism than theirs is necessarily ‘socialist’ or even ‘communist’. Some in the US even fear that Obama’s approach to saving the banking system or rescuing the car industry is a direct way to socialism.

We won’t get into the details of the differentiations – it’s after all the 101 of political philosophy. It is however a good time to bring this to our attention. After 30 years of what often has been derogatorily been dubbed ‘neo-liberalism’ or the ‘Washington Consensus’ we see now a shift in economic policies. In many countries of the globe governments – some more reluctant than others – have assumed a role which assigns business a wider role and responsibility in society than the one to shareholders only. And more broader yet, the US seems to be leading reforms of social and economic life which point to a more inclusive and socially balanced form of capitalism.

Countries such as Sweden or France – often called ‘socialist’ on this side of the Atlantic – are capitalist countries with all the trimmings: private property of the means of production, markets, and the rule of law. However, they have built in some mechanisms that cater for the whole of society (such as a healthcare system for all) and ways of redistributing some of the income of the top earners in society for the benefit of the more disadvantaged.

These differences are not rocket science. It has been studied by a whole school of academic thought, among them the ‘Varieties of Capitalism’ approach, or the ‘National Business Systems’ school of thought. The more surprising it is that even respected scholars in North America fall in the trap of using this simplistic view on the S-word – as a recent debate about the Canadian health care system on the email listserver of the ‘International Association of Business and Society’ (IABS) shows.

It’s time to get rid of old stereotypes. Let the debate begin!

BP and alternative energy

There was a nice feature article in the Financial Times earlier this week on BP's retreat from its alternative energy business. Headlined 'Back to Petroleum' it argued that since the departure of former chief executive Lord Browne, the new BP leadership had brought about a greater attention to core business in oil and gas .... and that this had meant the "BP Alternative Energy" business unit was being scaled back. Noting the early retirement of the quasi-independent unit's chief exec, the closing of its off-site office, and cut backs on funding, the paper remarked that having led the charge towards alternatives, "BP is now leading the retreat".

To be honest, even under Browne, BP had hardly been gung-ho in its commitment to alternatives. Even with year on year increases over the past few years, by 2008 the company was diverting just 1.3 per cent of its 2008 capital expenditure on solar energy, 2.6 per cent on wind, and a full 93 per cent towards oil and gas extraction (see the handy BP presentation on the Greenpeace website). Hardly a signal of a change of direction. It's no surprise that many of questioned whether the iconic 'Beyond Petroleum' rebranding was simply that - a change in advertising and logo that did little to alter the fundamental substance of the company.

Certainly under Browne, though, the momentum towards renewables, however small in relation to the core business of BP, was unmistakable. It wasn't all just empty rhetoric. The company quickly turned itself into a recognized leader among the big oil companies for its attention to sustainability issues - not that it faced much competition. The strategy, a common one in the CSR toolkit, was to stay just enough in front of the competition to be a leader, but not so much as to risk changing the game and threatening the underlying cost and revenue structure.

Under current CEO Tony Haywood, BP is clearly employing a back to basics approach. There's a lot of sense in some of this - not least in the greater attention being focused now on core health and safety issues aroung exploration and refining. The last thing the company needed was another Texas-style 'preventable accident'. But in stalling investment in the renewables business (not to mention new investments in the Albertan oil sands), Haywood is clearly serious about sticking to the core oil and gas business for the time being and waiting and seeing on alternatives until a clearer message (and more subsidies) come from governments.

We're not sure anyone should be too surprised by BP's reversal given some of the clear messaging that Haywood has given since taking over - such as describing the company as having “too many people that were working to save the world”, and a determined commitment to cut costs in the face of falling oil prices. Perhaps also, we're simply looking in the wrong place if we expect oil companies to be the engines of a low carbon economy of the future. As the FT hints, succeeding in the renewables business requires a very different set of organizational capabilities than in the oil and gas business. Old economy thinking is not likely to equate to a new economy mindset. The future of the energy business is more likely to be found in innovative new business start-ups than among the collossal energy giants of today. Although once the young tigers have proved their worth, it'll be the companies rich from oil revenues that'll be looking to buy them up.

Photo by Mancio7B9. Reproduced under Creative Commons license.

A major day in business ethics

June 29, 2009, might go into the annals as a big day in the history of business ethics. Right on top of many US news sites, we learn, first, that Bernie Madoff got his whopping 150 years sentence and, second, the US supreme court ruled in a landmark case in favor of 18 white firefighters who were suing their employer for what is often called ‘reverse discrimination’.

The Madoff case is in some ways your run-of-the-mill textbook case for unethical behavior in business – if it were not on such a biblical scale and in these dire times. And for a change not only hitting poor or middle class people but the wealthy. For us this example of fraud and theft points to the clear limits and boundaries of business ethics: the strong approach to deregulation and self-regulation of the financial industry in the US (and elsewhere) in the past has delegated a lot of ethical issues into the realm of the voluntary.
Funnily, they interviewed Harry Markopolos, a stockbroker, recently on 60 Minutes who as early as in the year 2000 had filed a complaint to the Securities and Exchange Commission (SEC), the self-regulatory body overseeing Wall Street. Four more he filed over the years, mostly because he was mad at Madoff as a competitor who offered these fairy tale returns. Remember, this was the time of Enron etc, where one would have expected the SEC to take complaints about unethical behavior seriously. Based on mathematical modeling Markopolos ("It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud.") could prove back then what the SEC never took serious. Madoff was just too respected and too powerful on Wall Street for the SEC to even daring to question his practices. It shows that ethical behavior in business still is very dependent on strong institutions, independent regulators and, no less, skilled and professional oversight. The ‘Case Madoff’ in that sense is in fact a ‘Case SEC’.

The second incident is equally important and will have massive consequences. The case is about the fire department of New Haven (a small town north of New York City) which had made their firefighters pass a test as the basis of promotion. None of the black firefighters passed the test. Out of fear to appear racist, the City of New Haven then refrained from promoting all the (white) guys who did pass. These 18 white guys (one of them Hispanic) went to court and now finally won fighting their case through all the levels.
For a long time, the business ethics literature has actually addressed these issues of retributive justice in rather favorable terms. Because of past injustices against a particular group, that group should now receive preferred treatment. The black guys, so the argument goes, did not fail the test for reasons in their control, but because they belong to an ethnic group, which in the US still struggles in education, family stability and other factors which make people successful. The problem here is though that in doing so, you discriminate against other groups in a similar way. The fact that a court now rules against this in some ways is a sea change in the way we will deal with affirmative action in years to come. The ruling will have massive implication for business too, as it is based on laws that apply not only to the public sector. It will surely lead to many complex discussions and tricky decisions in business.