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1
State Enterprises in Search of Ethics
Past Roots, Principles for the Future
Lecture by Jim Wesberry on the Panel "Good G...
2
My desire in this talk, as a grandfather of 13 grandchildren, is to leave you
with three points that I believe are keyin...
3
Over many centuries, the terms "honesty" ... "integrity" ... "ethics" ... have
resounded on the lips of statesmenand pol...
4
"What is the essence of good governance? Not resolving issues in
haste and not seeking advantage. "
"If one cannot gover...
5
"The noblemanretains throughout his life the ingenuityand innocenceof
childhood."
"If the ruler is just, no one willbeun...
6
The outstanding economic successesofChina and the four Asian tigers,
Singapore, South Korea, Hong Kong and Taiwan, and s...
7
conduct. It is a very special problem in the public sectorand among its
enterprises, often characterizedby many speeches...
8
control collapses. This leaves only the alternative of external control which
inevitably leads to repressive police-type...
9
principle. Nowadays this conceptis known as "The Tone at the Top," the
support provided by seniorexecutives as regards e...
10
1. The preservation of civilized, free and secure life demand that the conduct
of a state enterprise, its seniormanagem...
11
5. The private sectordevelopedand implemented the conceptof "codes of
ethics practice," initially initiated by the high...
12
processes are directly dependent on the credibility and the essenceofethical
conduct of those responsible for governing...
13
11. State enterprises acquire credibility in the pursuit of ethical conduct
through the establishmentof committees, com...
14
 Exemplary behavior by senior executives is essentialto maintaining the
"ethicalenvironment."
 The "ethical environme...
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State Enterprises in Search of Ethics: Past Roots, Principles for the Future

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Lecture by Jim Wesberry on the Panel "Good Governance of Public Sector Enterprises: Issues of Ethics and Accountability" in the
Practitioners Summit of the 2015 CReCER Conference
" Preserving Economic Gains and Investing in the Future: Promoting Growth through Improved Financial Accountability"
May 7, 2015, Quito, Ecuador
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Published in: Government & Nonprofit
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State Enterprises in Search of Ethics: Past Roots, Principles for the Future

  1. 1. 1 State Enterprises in Search of Ethics Past Roots, Principles for the Future Lecture by Jim Wesberry on the Panel "Good Governance of Public Sector Enterprises: Issues of Ethics and Accountability" in the Practitioners Summit of the 2015 CReCER Conference " Preserving Economic Gains and Investing in the Future: Promoting Growth through Improved Financial Accountability" May 7, 2015, Quito, Ecuador "It is necessary that men know evil to be ableto prevent it and dedicate themselves to doing good" Confucius, 500 B.C. “We can afford to differ on the currency, the tariff, and foreign policy;but wecannot afford to differ on the question of honesty… Honesty is ... an absoluteprerequisite to efficient service to the people ...” Theodore Roosevelt Governorof New York 12 May 1900 Objective Many centuries ago in China a wise old man was asked, "Whatcan we do about the corruption a lack of obedience and ethics among our children?" He replied, "Well, you must start with their grandparents." Ethics begins with grandparents
  2. 2. 2 My desire in this talk, as a grandfather of 13 grandchildren, is to leave you with three points that I believe are keyin the searchfor ethics by state enterprises: 1. The president or chief executive of the enterprise is the keyperson in establishing and maintaining the "tone at the top" that affects the integrity, ethics and other factors essentialto a positive “ethicalenvironment.” 2. Exemplary conductby all senior executives is essentialto demonstrate a sound "tone at the top" and maintain the "ethicalenvironment." 3. The "ethicalenvironment" is even more important than legislation, enterprise policy, codes ofethics or any other instrument or practice employed in pursuit of ethicalconduct. Roots of the Past Confucius was the first and perhaps the greatestphilosopheron the importance of ethics in the public sectorand the importance of projecting an image of integrity and honestyby the highest officials. Theodore Roosevelt, who evenvery young became president of the United States because ofan assassination, spoke ofhonesty in the public service preciselywhen his country was involved in corruption to such an extent that a " progressive movement " by the civil sectorwas necessaryto motivate drastic changes in the behavior of public servants. PeterDrucker, one of the 20th Century’s greatestauthorities on management and an admirer of Confucius observed: “…ifthere ever is a viable"ethics of organization,"itwill almostcertainly have to adoptthe key concepts whichhave madeConfucianethics both durableand effective.”1 1 These according to Drucker are: - clear definition of the fundamental relationships; -universal and general rules of conduct-that is, rules that are binding on anyone person or organization, according to its rules, function, and relationships; --focus on right behavior rather than on avoiding wrongdoing, and on behavior rather than on motives or intentions; and finally,
  3. 3. 3 Over many centuries, the terms "honesty" ... "integrity" ... "ethics" ... have resounded on the lips of statesmenand politicians, and often these have been just empty words, unfulfilled promises or cruel lies viewed over the passage of time. But today we continue to use these words in the hope that "someday" they will describe the management of public affairs. "Ethics" is a term for which there is no uniform definition. It means different things to different people, even within the same country, and among different countries and different languages sometimes it becomes incomprehensible. "Ethics" is related to the study of the practices and standards of right and wrong, i.e. goodand evil. The term "ethics" is defined as the discipline dealing with what is goodand what is bad and with moral duties and obligations. Ethics has been called "the science ofthe ideal human nature". It is the combination of ideals, beliefs and standards that characterize or are inherent in a group, community, people or nation. "Ethical" conductis that which merits moral approval or, in its most common usage, it is consideredthat which is accordwith acceptedstandards of professionalconduct. In our hemisphere ethics is based upon Judeo-Christian traditions of morality and righteousness but there are also other ancient traditions. Unlike many of the other philosophers one, Confucius, had a very special interest in ethics in the public sector. He often spoke of the "governor" or "ruler" posts that today we callthe "chiefexecutive or CEO." His teachings survived over more than two millennia. Greatinterest in his teachings is currently resurging in China, after having been nearly abandoned under the Mao regime. He often directed questions to his disciples, but sometimes also gave his own response. an effective organization ethic, indeed an organization ethic that deserves to be seriously considered as "ethics," will have to defineright behavior as the behavior which optimizes each party's benefits and thus makes the relationship harmonious, constructive, and mutuallybeneficial.”
  4. 4. 4 "What is the essence of good governance? Not resolving issues in haste and not seeking advantage. " "If one cannot govern himself, how will he know how to govern others?" "If proper in their own conduct, whatdifficultywould they have in governing?Butif not ableto be proper in their own conduct, how can they demand suchconduct from others?” “To govern is to correct. If you set an examplebebeing correct, who would dareto remain incorrect?” The most interesting thing about the teachings ofthe greatphilosopher is that his main criterion regarding public officials 25 centuries ago is still important and widely acceptedup to now. He believed in the powerof benevolence, arguing that rule by example rather than by fear would inspire people to follow an equally virtuous life. The same principle, in his opinion, should govern personal relationships. “If guided byvirtue and regulated bythe rules, the common peoplewill have a sense of shame and abidebywhatis required of them.” " He whoexercises governmentbymeansof his virtuemaybe compared to the north polarstar, whichkeeps its placewhen all the stars are rotating aboutit.” Confucius arguedthat the virtuous man is not just someone who is at the top of the socialhierarchy, but one who understands his place in this hierarchy and embraces it fully. To define the different means of virtuousactions one must return to traditional Chinese values: loyalty; filialpiety;ritual propriety; and reciprocity. Confucius calledthe personwho carefully observes these values a "gentleman," "superiorman" or "nobleman" meaning a man of virtue, education and goodmanners. "A superior man maybe described as one who first puts his ideasinto practice, and then preaches to others whathe alreadydoes."
  5. 5. 5 "The noblemanretains throughout his life the ingenuityand innocenceof childhood." "If the ruler is just, no one willbeunjust; if the ruler is kind, noone will be cruel.” "When the ruler himself acts rightly, he willexercise influenceover the peoplewithoutgivingorders, and when the ruler himselfdoes not act rightly, all his orders will beuseless." Confucius emphasized trust - trusting your boss, your employee, your neighbor, your friend in the hope that this confidence will be returned. He believed that refraining from offending and building a decentreputation would encourage goodteamwork, business success,and community spirit. Over the past 2500 years China has implemented the teachings ofConfucius and eachtime it has workedover long periods. The times when it failed were when a corrupt emperor stepped in and used the laws to oppress the people. In summary, Confucius was an eternal optimist. He believed in people. He believed that if the ruler was a noble man, the people will not only follow him, but will imitate him. Confucius pointed to the "north" in the compass of governance and many of his teachings are still very applicable to state and private enterprises, their officers and their employees. “ConfucianState Capitalism” In 2005 a survey of 20 countries found that the Chinese were those who most believe (74%) that "the market economyis the bestsystem on which to base the future of the world." This compares with the views of the United States (71 %), Russia (43%) and France (36%). The values of work, education, merit and frugality are common to Confucius and also to the capitalist system. Moreover, Confucius’conceptthat the conduct and example of honesty and integrity of the executive (governorin times of Confucius) and seniorofficials is the key to goodadministration coincides with what today we call "the tone at the top."
  6. 6. 6 The outstanding economic successesofChina and the four Asian tigers, Singapore, South Korea, Hong Kong and Taiwan, and similar efforts by countries that along with China are called the "BRICS"--Brazil, Russia, India and South Africa -- have given birth to the conceptcalled"State Capitalism” an economic systemin which the state conducts commercial economic activity with administration and organizationof the means of production in a capitalistmanner, including the system of a salaried workforce andcentralized management. It is characterizedby the dominance of state enterprises in the economy. Some attribute the economic successofChina and the four "Asian tigers" to Confucian virtues and the important socialrelationships and interpersonal trust operating in the world of business, aspects sometimescalled"Confucian Capitalism." Certainly Confucian values such as hard work, family values and community cohesionas wellas business practices basedon trust can explain their wealthand Asian commercialsuccess with possibilities of more efficient, more profitable and less competitive than the methods of classical capitalism. Confucius’ philosophy was basedupon free will, not state control. He believed that societiesand nations would be more stable if there was a bidirectional flow of duties: the duty of the people to work for the development of the state balancedwith the government's duty to care for people and to provide for their welfare. We canconceptualize these two approaches as "ConfucianState Capitalism" combining the efficiency aspects ofcapitalismwith the ethicalcharacteristics of Confucianism thus providing a step forward in the searchfor ethics in state enterprises. Experimentation and development of this form of "capitalism" could be the answerto the urgent need to ensure ethics, honesty and integrity in state enterprises. The Ethical Environment The "ethical environment" is even more important than legislation, codes of ethics or any other instrument or practice employed in the pursuit of ethical
  7. 7. 7 conduct. It is a very special problem in the public sectorand among its enterprises, often characterizedby many speeches, debates and legal provisions calling for ethicalbehavior, but simultaneously demonstrating a poor ethical environment as a result of arrogant, selfishand often blatant public and private acts by political leaders who having receivedfrom the populace the privilege of high public office, somehow feellike the legendary "king" of the popular Latin American song with the claimed right: "I do what I want ... my word is the law ... and I keepon being the king. " It's a happy song but it is sad that politicians observe its words… a very common sad practice throughout the world, evenwhere the song is neither known, nor sung. There are two main curses in respectof ethics that characterize state enterprises: • The executive or leaderwho does not realize, or care, about the fact that eachof his actions contributed to the strengthening or weakening of the ethicalenvironment of the enterprise itself. • The politicization of the enterprise subjugating its efficiency and ethics to the wishes of a party or political group. The ethicalenvironment in a public enterprise consists ofthose efforts and activities aimed at promoting and maintaining ethical, honest and responsible behavior, notably including both official and private actions of senior executives and ethical image that they reflectwith respectto both their support of ethical conduct and their ownexample. The ethicalenvironment is part of the broader "controlenvironment". It is one of the components of internal control describedin the "COSO" report, a document sponsoredby five prominent professionalorganizations that now have globalacceptance. The conceptof internal managerial control currently supports the fundamentals of modern corporate management through the world. The control environment and four more components form the basis of the concept of internal managerial control. In my opinion this conceptdepends entirely and completely upon the ethical environment and where the ethical environment becomes irreparably contaminated, the conceptof internal
  8. 8. 8 control collapses. This leaves only the alternative of external control which inevitably leads to repressive police-type measures as the only ones that can be applied to combat the chaos in the administrative and financial affairs of the enterprise. The COSO report contains the caveatthat “controls canbe circumvented by means of collusionamong two or more individuals, and managementhas the capability to override and annul the system." This is preciselywhat is happening around the world in both public and private enterprises. Every day brings more news about it. Apart from punishment and prison, the ethical environment is the only mechanism we have to fight collusion and managementoverrideof controls. Politicizationof the State Enterprise A state enterprise must be an apolitical enterprise, a very difficult goalto achieve in governments surrounded and sometimes consumedby an ambition and desire to advance the powerof the for the moment dominant or ruling party. The main two typical problems that result are: • Overloading the company with partisan employees loyal to the party, but unnecessary, unqualified and useless. • Contracting and/or purchasing services and products at higher than market prices conditioned upon "donations" to finance the party. Obviously these very common practices destroyany possibility of maintaining an ethical environment in the enterprise. If management is not sufficiently strong to be able to deny the influence of the party in power, it has no chance of maintaining an ethicalenvironment. The "Tone at the Top" It is very clearthat is not the only obligation of senior executives to carry out their managerialduties effectively and efficiently, but they must also assure ethical conduct and their own behavior should exemplify before the rest members of the organization a personal model of honesty and ethical
  9. 9. 9 principle. Nowadays this conceptis known as "The Tone at the Top," the support provided by seniorexecutives as regards ethicalvalues, both through official channels and acts, as wellas their own official and private conduct. The board of directors also has responsibility for the ethicalenvironment and the controlof the company. Exemplary behavior While maintaining a supportive attitude regarding internal controls is one of the most important functions of the executive, the most important is setting a goodexample. The sayings of "practice what you preach" and "actions speak louder than words" are particularly relevant in the case ofthe credibility of executives. Tragically, very often the same executives who support ethical practices and preach the values of ethicalconduct do not follow their own advice in their personalacts, and thus undermine their own credibility and that of the company they represent, and shed doubt upon all the official statements directed to subordinates. Exemplary conduct by senior executives is essentialto maintaining an ethical environment. The tragedy of the world's governments evident every day published in newspapers orbroadcaston televisionnews is that officials have appointed to fill the highest public offices are not setting a goodexample by their actions; in reality they are actually setting a very bad example and thereby destroying the credibility of the company. "Whoever would love life and see good days, refrain his tongue from evil, and his lips from speaking deceit; turn from evil, and do good ... " I Peter, 3: 10-11 Basic Principles of Ethical Conduct for State Enterprises in the XXI Century The twelve principles presentedhere represent an attempt to outline the fundamentals of ethicalconduct applicable to state enterprises today:
  10. 10. 10 1. The preservation of civilized, free and secure life demand that the conduct of a state enterprise, its seniormanagement and staff is such that it does not impede the civilized, free and secure life of any institution, organization, group or individual. 2. The conduct of a state enterprise, its senior managementand staff may not unfairly place another institution, organization, group or individual at a disadvantage. Equity means coexistenceand competitition with no behavior that interferes with or diminishes the rights of others to life, liberty and property rights. 3. The laws enactedby governments often define the parameters of conduct of state enterprises, its senior management and staff, but can never be so comprehensive that they coverevery possible situation involving human interaction and behavior. That is why they must be prepared to behave in such a way that they interactequitably with others, even in cases notcovered by legalprovisions or when they are obsolete. Ethicalconduct involves (a) the observance oflaws, and also goes further by (b) refraining from taking unfair advantage through actionor inaction in a situation in which any of the courses actionmay be legal, but not equitable. 4. During the course of sociological, technologicaland economic development concepts ofimpropriety mature; practices once consideredacceptableand practical may gradually become sociallyunacceptable, thenimproper and eventually may become prohibited by law, or vice versa. Therefore while the basic ethical concepts ofright and wrong are stable, the interpretation of certain acts tend to change according to many variables, whereas what was acceptable becomesnotacceptable, then illegal. Similarly, the decline in the standard of living or level of morality of individuals, continued unemployment, the devastating effectof economic recessionor warcan cause practices once consideredunacceptable andimproper to become more acceptable socially, then proper, and finally permitted or mandated by law. This makes it very difficult to ensure compliance with the law and ethical decisionmaking, and the more rapid the change, the more complications arise which require, in turn, increasedattentionto ethicalconduct within those areas beyond the limits of strict legalcompliance.
  11. 11. 11 5. The private sectordevelopedand implemented the conceptof "codes of ethics practice," initially initiated by the highly educatedprofessions and more recently by large companies with operations that affectmany people and groups. These codes define the expectedbehavior to assure legalcompliance and additionally the expected behavior in cases thatare not clearly coveredby laws or which are not prohibited by them. Often this includes an obligation to the public in generalor injured third parties. Logically, it is expectedthat individuals of greaterrank or higher posts on the corporate ladder observe even higher standards of conduct. Such behavior usually involves duties to clients, purchasers of products, investors, lenders, and others affectedby their actions. These kinds of fiduciary duties of management, members of the board of directors, and employees primarily involve conduct relating to those directly affectedby their actions;however, when the public interest is affected, ethicalbehavior on the part of individuals from the private sector may become very important. 6. In the public sector, where laws have traditionally been the mechanisms for regulating the conduct of public servants, it is likewise expectedthat the higher the position within the hierarchy, the greaterthe responsibility to avoid conduct consideredimproper or inappropriate. The lack of flexibility in the process ofmodifying legislation, especiallyin cases where there is resistance,along with the growing impact of change in people's expectations and definitions of impropriety, have forcedgovernments and state enterprise seniormanagement to follow the path of the private sector in developing and implementing "codes ofethics" that are equally applicable if the laws are outdated, conflicting, unclear, or not yet applicable or intended for areas that have receivedthe impact of new or changing technologies. The fiduciary duties of officers and employees of state enterprises not only involve duties directly related to those groups or individuals affectedby their actions, but also almostalways affectthe public interest because suchacts are related to public welfare and safetyand involve the use of public resources.In this sense, ethical conduct by officers and employees of state enterprises is even more important than that of the officers and employees in the private sector. In addition, acceptanceandsupport from the people of the government and its
  12. 12. 12 processes are directly dependent on the credibility and the essenceofethical conduct of those responsible for governing and managing public resources. 7. The main areas ofethical conduct include: loyalty and morality; legality; accountability and integrity; accounting and financial reporting; managerial controls;contracting and procurement; avoidance ofactual conflicts of interest or that might seemto others to be conflicts; transparencybalanced with confidentiality; prudence, efficiencyand economy; obtaining fair value for money; avoidance of favoritism, discrimination and nepotism; avoidance of private promises, gain or advantage;and the duty to disclose unethical behavior or corrupt practices by others. 8. The greaterthe development of civilization, the country, the economy, and technology, the more complex become the factors and mental processesthat have to be applied to pursue ethical conduct by a state enterprise, its senior managementand its staff. 9. The basic compass that guides the choice betweenalternatives in the pursuit of ethical conduct is inevitably the human "conscience,"that sense ofright and wrong that guides human actions and distinguishes humanity from all other forms of knownlife. 10. When choosing betweenalternative types of behavior in an increasingly complicatedsocial, commercial, political, and technologicalenvironment, the human conscience is guided by laws, teachings, beliefs, religious andcultural traditions, historical experiences,and practices and contemporary advice. Due to the often complex interrelationships and potential risks of making innocent or naive decisions that may result in improper or unethical actions, state enterprises that are concernedthat the conduct of their officers and employees is ethically sound, not only must enact"codes ofethics", but also offer training through case studies that illustrate ethicaldecisionmaking among alternatives. Theyalso must provide experiencedcounsel by "ethics officers" appointed in eachenterprise that can provide advice with respectto specific situations in which one course ofaction or another could lead to the violation of ethical conduct.
  13. 13. 13 11. State enterprises acquire credibility in the pursuit of ethical conduct through the establishmentof committees, commissions or boards of ethics so as to have ongoing researchthatwill result in providing advisory opinions basedon actualexperience and / or decisions establishing precedents in areas that involve making significant decisions that require more attention than that of an individual, office or department. 12. The most important factor of all is the "ethicalenvironment" of the state enterprise. This is sometimes called"the tone at the top" so as to describe the importance of ethical behavior and ethicalpractices by the highest officials in their own public and private lives and their own support for ethical conduct through exemplifying it their ownactions, activities, decisions, practicesand orders to subordinates. More than 3,000 years ago King David of Israeland Judah left us in Psalm 15 a recipe for ethics: Walk with integrity Do what is right Speak the truth from your heart Keep your tongue from slander Do not cause harm to others Do not speak ill of your fellow Keep your word ... even if it costs Do good without expecting reward Do not accept bribes Despise vile men Honor those who serve God In closing remember the three key points of ethics:  The "tone at the top" setby the chief executive or head of the organizationprovides the foundation of a positive "ethical environment".
  14. 14. 14  Exemplary behavior by senior executives is essentialto maintaining the "ethicalenvironment."  The "ethical environment" is more important than anything else in the pursuit of ethical conduct. The greatpoet Alexander Pope describedour human dilemma about the vice and corruption, so common in our world, when he said: "Seen so often, familiar with her face. We first endure, then pity, then embrace. " But the same Alexander Pope also said: "An honest man is the noblest work of God.” James P. (Jim) Wesberry, Jr. CPA, CFE, CIA, CFSA, CGFM, is an auditor, consultant, researcherof corruption, lecturer and author. He is editorof seven electronicjournals "Corruption" and"ForensicAudit." It also maintains several web portals on the Internet. Was CertifiedPublicAccountant for 57 years. He was honored with the designation Contador Father of the Americas, the highest of the profession of public accounting of our hemisphere, honorreceivedthe highest honor of the Institute of Internal Auditors calledthe "Bradford Cadmus Award" and received the award for "Outstanding Achievement overhis career"awarded by USAID. He has been honored three times fortheirservices. He was an advisor to three General Comptrollers of Peru, Ecuador and three from the US Comptrollers and Bolivia. Wesberry has played execs positions at the World Bank, USAID, the ComptrollerGeneral of the US, PricewaterhouseCoopers andthe Institute of PublicAdministration of New York and was Director of Audit of the Organization of American States. Start exercising theirprofession in Atlanta, Georgia where he had his own firm and was electedthree times to the Senateof the State. Overthe past 15 years been project managerAnti-Corruption USAID for the Region of the Americas, and the countries of Mexico, Ecuador and the Philippines. Presently living in Cumbaya, Ecuador with his wife Lea, peruvian Quivilla, Province of Huanuco. He has seven children, thirteen grandchildren and one great-granddaughter. More information www.jimwes.com and http://about.me/jimwes

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