corruption and corporation

1. Corruption
• Corruption can undo everything else we are
trying to do –Norman Borlang
Corruption is broadly defined as the misuse of
public power for private gain. Two extreme
ends of corruption
Grand corruption-petty corruption
Grand corruption normally practised by very
senior/top level executives, bureaucrats and
policy makers.
Petty corruption-typical of custom
lower paid officials.

2. • Grand corruption- distortions of decision resulting
in a significant adverse economic effect.
• Petty corruption normally concerned with
bureaucratic delays- basically it may be termed as
‘facilitation payment’.
• Similarly corruption may be classified as
‘international’ and ‘domestic ‘ corruption.
• Generally international corruption, may be both
petty or grand . Petty corruptions are always local
and domestic.

3. • Corruption may be prevalent both in private
and public sector organisations.
• However since public sector organisations
have duties to the public at large,
corruptions in this sector attract more
attention.
• Corruption in public services varies from
country to country.

4. • Transperency International produces Corruption
Perception Index (CPI ) for different countries
every year. Scale 10 means very clean and 0=
means highly corrupt.
• In this scale Finland is the least corrupt country
scoring 10,UK scores 8.7, China gets a score of
3.1 and India a very low ( high corruption ) value
of 2.8.

5. Grand corruption –
Bribe Payer--------------Bribe Receiver
|
Middle Man/ MGN
|
Agents
Agents- Legitimate/ Illegitimate
Commission involved may vary from 5% to 15%,
sometimes it may be as high as 25%.
Damage done by the system is very high because
payer of a bribe will endeavour to recover the
money in some way. This increases cost down the
supply chain-ultimately customs suffer.

6. • International Grand Corruption-bribe
normally paid offshore-normally from
unaccounted money- it is linked with black
money.
• Indirect cost of Grand Corruption:
– distortion of policy decisions
– policy normally driven by personal gain and not
by social usefulness.
– it tends to increase inequality
– quality of public service/ product suffers
seriously.

7. • Each act of Corrupt Contract deteriorates
quality of business environment.
• Carries the risk that Corruption will become
Public Knowledge and therefore damaging
to the companies involved.

8. • Measures to be used –in case of Grand
Corruption:
– appropriate legislation (Lokpal Bill in India)
– criminalisation of offshore bribery. Effort is to
shift the onus on the companies to prove that an
‘offshore’ payment was not a bribe.
– revision of codes of companies to ban any form
of corruption by company employees.

9. • Improving and tightening bidding process.
• Competitive Tendering Process-more
transparent.
• Supervision of process starting from initial
specification to final implementation by an
individual or a body which does not stand to
gain from corrupt award.
• Funding Agencies must try to ensure that
funds issued for one purpose are used for the
same purpose.
• Ratification of OECD Convention.
• Risks of corrupt business getting black-listed.

10. Petty Corruption
• Enabling people to jump the queue to the
disadvantage of others
• Encouraging the disregard of local laws
• Helping to perpetuate a bureaucratic system
that is corrupt and inefficient.

11. • Effect of petty corruption hits the poor and
the vulnerable:
– School fees payment hit parents
– Paying doctors for treatment which is free
– Unemployed jobseekers paying bribe for
getting hired
– Shanty dwellers ,who face eviction unless they
make a regular payment to the local policeman
• Payment of bribe normally condoned by
society.

12. • There is no social stigma against Grand or Petty
corruption
• List may be endless
• Entertainment & small gifts criteria for
determining the propriety of a job:
– frequency
– timing
– reciprocity
– value in general
• Each criteria has to be adequately applied
• Most important consideration: openness with
which the gift is given or received.

13. • Corruption is a complex issue
• It is difficult to give prescription for a
corruption- free society.However, following
guidelines may be useful.
• Grand corruption- always inexcusable and
should be dealt with sternly as a criminal
act

14. • Petty corruption is also condemnable
• Systemic improvement necessary
• Equality of treatment
• Social stigma for corrupt behaviour
• Social recognition for honesty and integrity as
opposed to giving recognition to wealth
irrespective of the way the same is acquired
• Education and Awareness against corruption
• Every individual trying to free himself / herself
from corrupt behaviour and practices
• Avoid giving present/ gift for gaining advantages
• Follow rules-do not jump the queue

15. Corruption
• If everyone acts honestly and with integrity
corruption will be less.
• System should encourage honesty and integrity and
punish corrupt and dishonest behaviour.
• In case of doubt whether something is corrupt or
not-apply the newspaper test. If either the giver or
receiver of a present or favour would be
embarrassed to see the details accurately reported
in a newspaper, there is a strong presumption of
corruption.

16. • Creating a corruption-free society( to the extent
possible )
• From history & US experience we know
corruption. New Deal Programme by 1940-
corruption and political manipulation had
diminished considerably. Corruption by others
was curbed because it was in Roosevelt’s political
interest to see it curbed. Reduction of
unemployment-strong political will to reduce
corruption by distribution of funds.
• System should make it difficult to embezzle
billions. Stricter and exemplary punishments.
Crushing powerful interests- requires strong
political will.

17. • Indian corruption-loss due to corruption since
independence is estimated as $452 billions by
Center for International Policy-Washington.
• Curbing black money
• Improving systems and procedures
• Creating social awareness against all types of
corruption
• Social recognition for integrity, honesty and
corruption-free behaviour
• Discouraging greed based growth. Highlighting
good Corporate Governance.-Abandoning the
principle greed is good.
• Social stigma /social boycott against corruption.
• A determined nationwide programme for creating
a corruption-free society.

18. Corrupt process of multinationals have adverse effects on developing
economies.
1. They undermine development and increase inequality and poverty.
2. Smaller domestic firms are at a disadvantage, they face unfair
competitions.
3. Money that could be useful for poverty removal is transferred to the
hands of rich.
4. Decision making is distorted in favour of projects that benefit the
few rather than the many
5. They also –
increase debts
Bought the company not the country
Local democratic process are by passed
Environment is damaged
Legislation is circumvented
Weapons sale is promoted
Approx 80bn annually is diverted by corrupt means (bribe, share funds,
facilitation fee, success fees ) this is considered adequate by us for
eradicating global poverty.

19. Corporation
• Most medium and large sized businesses are
organised as corporations.Corporations are owned
by a diverse group of owners known as
shareholders
• Most widely known corporations today are public
companies.
• Public companies are characterized by diverse
ownership groups-promoters, investors,
institutional investers, foreign
shareholders,corporations, retail shareholders.
• Such companies are listed entities and their shares
are traded in the stock-market.

20. • Corporation is a legal entity
• It is owned and financed by diverse group of owners known as
shareholders.
• Corporation has an identity- as a legal person- separate from
it’s owners, shareholders and promoters.
• A corporation is owned by a large number of shareholders.
Liability of each shareholder is limited to the amount invested
in the corporation by them. Creditors cannot claim from the
personal wealth of shareholders.
• Ownership is easily transferable by sale and purchase of
shares.
• Generally in corporations ownership, management and control
are separated.
• Today large corporations are becoming very powerful and
influential globally.

21. • Good governance of corporations is
important because it influences every aspect
of modern life. It influences
– (i) quality of water that we drink
– (ii) quality of air that we breathe
– (iii) products and services that we use in
everyday life.
• Some corporations have resources more
than some states
• In spite of all these their accountability to
the society and public at large is not clear.

22. • Large corporations use large amount of other
‘peoples’ money in financing their operations.
• Equity capital, debt capital- various forms of
credit constitute the sourses of funding –there is
nothing private (strictly speaking) about the
corporation because large proportions of a
corporation’s funding can be traceable to other
people’s money.

23. • It is essential for the state that such money is
utilised effectively,efficiently for maximisation of
wealth and creation of common good.
• Corporations are generally too big,failure of which
can bring disastrous consequences to the
economy,they should therefore be properly
monitored to ensure Good Governance.

24. • Considerable efforts have been made to improve
Corporate Governance in the last 25 years.
• This has been done through a combination of
legislation, regulation and self-imposed discipline
and control.
• USA has a long record of tight regulation. Many
changes in Board structures, voting procedures,
greater level of disclosure and transparency have
been put in place.
• However this did not prevent major disasters like
Enron, Arthur Anderson.
• Deeper changes are perhaps needed.

25. In UK Cadbury Committee Report on Corporate
Governance put a standard on the quality of
governance.
Many further reviews were also implemented.
Recently a new Companies Act effective from 2006
has been put in place.
In UK a combined code and governance provision
for listed companies was operative and the codes
regularly reviewed and revised. The latest revision
was in 2008.

26. • In 2005 OECD has published a set of
guidelines related to the governance of state
owned enterprises.
• European corporate goverance model is
different from Anglo-Americal model and
will be discussed in detail later.

27. • Corporations in India are of recent origin.
• East India Company was the first chartered company to
do business.
• Legislative frame in India derives from English Model
• At present corporations are guided by the consolidating
companies act 1956.
• The above has been complemented and substantially
strengthened in respect of publicly traded companies
by the establishment of SEBI(Securities and Exchange
Board of India) by an act of Parliament in 1992.
• A new company Law which will be comprehensive is
likely to be introduced soon by the present UPA
Government.