Corruption is one of the biggest governance challenges, but it is often widely and erroneously perceived as a public sector problem. Most corruption conversations are on the public sector context, and corporate anti-corruption measures and strategies are often designed towards mitigating public sector corruption. This perception has endured over the years despite evidence that private sector actors are essential participants in many corruption acts, and there are multiple forms, including those which are driven by the private sector. In a recent study of 40 grand corruption scandals in Nigeria, it was found that over 80 percent of the acts were transactive and quid-pro-quo kind of exchange involving multinational firms, or their local agents and public officials.
Candidly, the public sector is the most fertile soil for corruption. This is perhaps because a private business organisation cannot tolerate corruption within its system for long without suffering life-ending damages. Moreover, only the state can legally create legislation and regulations which public officials can “prey” upon. However, the private sector and public sector are organically linked, and the overall perception of corruption in a country is the reflection of corruption behaviour of both sectors.
A well-known rationalisation is that corruption is functionally useful to a business. There are even theoretical postulations that back this perspective. They hold that the private sector is a mere victim of the state’s dysfunctionality. This perspective cannot stand rigorous empirical scrutiny. Moreover, it is dangerous as it only serves as a tool to rationalise and sustain the status quo. Besides, the evidence is clear that corruption is socially inefficient.
Transactive business-related corruption has a long history, but the legal system lags behind its prevalence. Until recently, it was not a crime for businesses to engage in corruption. In the United States of America (USA), for instance, it was not unlawful for businesses to pay bribes until the enactment of the Foreign Corrupt Practices Act (FCPA) in 1977. In many European countries, the same persisted until 1997. This is still the case in some countries, although these bad corporate behaviours are sometimes captured under corporate governance codes.
In the Nigerian experience, corrupt expenses are hidden under various creative accounting terms. High profile cases often cloud the broader realities of the exact mechanism of private sector corruption with media emphasis on the political/public culprit rather than its private sector enabler. Corporate organisations are quick to throw any individual caught under the bus and dismiss the action as a bad apple’s problem. Well-structured firms often set up a corruption compliance program. Many have formal corruption policies and personnel responsible for them. The document is usually very high on gifts, staff misdemeanour, and whistleblowing. However, implementations are mostly performative and tokenistic, mostly in adherence to regulation or checking the box to fit a profile. Years of implementing these policies have changed nothing in the overall ethical climate. This is abnormal as their overall positive impact should be evident by now.
Anti-corruption as currently designed seems to be losing momentum. There have been few success stories disproportionate to the resources deployed. There is more prosecution of yahoo cases than those that are systemically important. A recent paper from the Anti-Corruption Evidence Consortium (ACE) posits that the corruption gatekeeper has been more effective as a debt collection agent for commercial banks, high net-worth individuals and even government.
As against the current approach, a consensus is emerging in corruption discourse on the fact that corruption is a collective action problem. In other words, corruption happens and get perpetuated because it is the expected behaviour in all social interaction. Most people will agree that corruption is wrong and they will all gain if nobody is corrupt, but it is, however, one’s loss if others are corrupt and one is not. It is partly, for this reason, that anti-corruption ‘fight’ that is solely legalistic and police-like is proving to be ineffectual. Without solving the underlining collective action issues, regulatory anti-corruption approach irrespective of the number of anti-corruption agencies will achieve little.
The private sector has a role to play in designing a sector-specific collective action programme. Sub-sectors within the private sector often shared characteristics, group identity and norms. These characteristics could enable it to come up with industry-specific collective action that could easily be monitored, and violations quickly detected. The extractive sector currently has the Extractive Industries Transparency Initiative (EITI) that aims to make the sector more transparent and accountable to the people. However, it is still public sector-focused and less private sector-focused. Business actors operating in a sector know the sector’s corruption vulnerabilities, and they could design collective action around these vulnerabilities.
The above idea is hinged on several studies that have shown that there are sectoral differences in private sector corruption. A firm’s characteristics and sector are important explanatory factors in the nature of their involvement. Sectors like construction, natural resources and services sectors are reported to be prone to corruption that happens in the interface of private and public sectors. Private-to-private corruption is, however, more prevalent in procurement and supplies. Given this, firms have different abilities to resist or avoid corruption due to different bargaining or refusal power and corruption vulnerabilities.
This initiative could impact positively on reducing the depth of overall corruption. This is because it will be sector sensitive and gives a better opportunity to address sector nuances than a wider, broad-based strategy. Because sub-sectors are smaller in size and actors probably know each other formally and informally, they should achieve quicker in-group cohesiveness. This type of initiative could be led by business associations, NGOs or a specially created unit.
Corruption is a significant aspect of the problematic business environment. There is strong scholarly evidence that corruption between private and public sector is complementary and substitutive. The perpetual low ranking of Nigeria in the annual Transparency International’s (TI) Corruption Perception Index (CPI) is an indictment of private sector culpability and also its vulnerability. Though CPI measures public sector corruption, it is nevertheless a reflection of the overall prevalence and manifestation of corruption in the country.
It is in the interest of the organised private sector to drive change.
Olusegun D. Sotola
This article is written by Olusegun D. Sotola for the Christopher Kolade Centre for Research in Leadership and Ethics (CKCRLE) at Lagos Business School (LBS). Olusegun is a volunteer with the Centre and the opinions expressed in this article are his. CKCRLE’s vision is creating and sharing knowledge that improves the way managers lead and live in Africa and the World. You can contact CKCRLE at crle@lbs.edu.ng.
