On November 18th ethiXbase hosted the 2nd Asia Pacific Ethics & Compliance Summit in Singapore. The summit saw a gathering of over 300 regional industry leaders and global authorities from both public and private sectors. Among the esteemed speaker line-up was Dr Julio Bacio Terracino from the Public Sector Integrity Division at the Organisation for Economic Co-operation and Development (OECD).
Republished in full below is his keynote speech entitled ‘Cultivating Cultures of Integrity’. This speech is re-published with permission from the OECD.
Good morning, ladies and gentlemen. It is my pleasure to be here with you today at the second Asia Pacific Ethics and Compliance summit. On behalf of the OECD I would like to thank ethiXbase for inviting us to join you today. We have an ambitious agenda ahead of ourselves, with aims to promote multi-stakeholder collaboration and enhance the standards of business practices across the region. I would like to thank all of you for making this summit part of your work. It is through exchanges like these where we get to share perspectives, learn from experiences and inspire each other.
Colleagues, today I would like to talk to you about corruption and the need to re-focus our efforts into cultivating cultures of integrity.
Let’s start with corruption. The fact that corruption undermines our economies, erodes our societies, and destroys our political institutions will come as no surprise to you. Yet, our studies show that the main reasons why businesses implement compliance programmes are not societal concerns but rather the risk of reputation damage and law enforcement actions.1 Therefore, even though the negative consequences of corruption are known to many of us, efforts to keep building and communicating the business case against corruption must be continued and intensified.
Corruption hurts all of us, although it hurts more those that have less.
Starting with the economy, corruption leads to biased decisions, which results in an inefficient use of resources. In turn, this lowers productivity and increases inequalities. Empirical evidence from OECD countries has found that higher levels of corruption are associated with lower levels of competition.2 Corruption is also undermining innovation and the diffusion of new technologies: evidence from 22 OECD countries suggests that the negative impact of corruption on Total Factor Productivity growth over a twenty year period is due to corruption undermining technological change and companies’ incentives to invest in innovation, research and development.3 As you all well know, corruption prevents the creation of an enabling market environment where the most productive firms can thrive. Indeed, the list of the negative consequences of corruption on the economy continues and is long.
Moving beyond the economy, lingering perceptions of corruption can result in political polarisation and disillusionment amongst voters. There is growing evidence that voters feel disillusioned about political integrity and the intertwinement of elite networks across sectors in society. Leaks on offshore tax evasion or former public officials taking up lucrative posts and board memberships in banks and multinationals have dented the reputation of elected politicians, established firms and respected countries.
It should be of no great shock to us that when the people do not see the government as working in their interest, when they perceive, rightly or wrongly, that the relationship between policymakers and special interest groups is leading to policies that do not take their best interests into account, they protest with their vote.
While the picture I have just painted may seem bleak, both the public and private sector communities are mobilising their resources and efforts to develop systems of control to prevent and punish corruption. In the last two decades there has been unprecedented anti-corruption action.
At the OECD, as you may know, we host the Working Group on Bribery and promote strong action against the bribery of foreign public officials. But we do much more: we conduct cross country comparative analytical studies, we develop data and evidence and we support individual countries and businesses in developing the tools and policies to fight corruption and promote integrity. Let me share with you some of the lessons learned from our work and in doing so, allow me please to challenge some of the clichés of anti-corruption.
What we have learned is that anti-corruption is not about political will; it is not about bribery; it is not about removing discretion, and above all it is not about reducing impunity and sharpening the teeth of enforcement.
We have seen that while political will is important, it is not a determining factor. Even with political will anti-corruption efforts may stagnate, and even without political will, progress in establishing the foundations for ethical behaviour is possible. Many of the needed reforms are technical and go beyond the realm of politics.
It is also not about bribery. In fact, the most damaging aspects of corruption are related to conflict of interests, trading in influence, embezzlement and all other corrupt acts. So when we only focus on bribery, we are missing the big picture.
Discretion of decision makers, both in government and businesses, is seen as an opportunity for temptation and thus many anti-corruption efforts focus on removing such discretion. An area in which this is evident is public procurement. Many national laws, but also international instruments, such as the United Nations Convention against Corruption, request the use of objective and predetermined criteria for public procurement decisions. The intention is obvious: procurement officials will lack the discretionary power to award a contract to a favoured company and will not be able to take a bribe. However, I have seen first-hand how this applied to the letter, in combination with the lowest bidder criteria, does not always lead to the acquisition of the best-value goods and services.
Last and most importantly, we often hear claims that there is too much impunity and not enough enforcement. But enforcement cannot cloud our focus.
Policy and legislative decisions usually stress the importance of both increasing the costs and lowering the benefits of undesired behaviour through control and sanctions. These approaches favour strong enforcement and often complex and expensive compliance regimes. But is it working? Are we moving towards containing corruption, or are we missing a crucial piece of the puzzle?
Let me explain another way. The classic approach to understanding the corruption phenomenon it is through the disease analogy. When we consider a disease, we ask ourselves: how should we eradicate it? Where should we invest our resources? Should we increase our efforts in building large hospitals, providing more beds, developing better technology and medicines to treat the disease?
Or should we focus on investing in research for preventative measures to the disease? Should we raise awareness about what causes the disease and what we could do in our everyday activities to prevent the disease from occurring in the first place? If we focus solely on developing robust compliance and enforcement regimes, if we loudly declare the need for political will but never invest in a society for integrity, we will miss the opportunity to prevent corruption in the first place.
This is why, ladies and gentlemen, we need to talk about culture and appeal to the intrinsic motivation of individuals. People care about more than just money and status. They find a job satisfying if they can align their personal goals with their duties. Teachers find satisfaction in the achievements of their students, the self-esteem of doctors’ increases when they successfully treat a disease and procurement officials take pride in high quality contracts. Leaders can trust that the majority of their officials and employees will behave ethically.
In spite of this, for too long, the focus of the anti-corruption discussion has been on developing carrots and sticks to encourage ethical decision making. But this has not been enough. It has actually resulted in diminished capacity for ethical behaviour in some cases. Evidence has found that overly rigid compliance regimes can actually act as a deterrent on employee’s ethical behaviour. This is called the “hidden costs of control”, with costs arising due to adverse impact on officials’ and employees’ intrinsic motivation.4
Through a series of behavioural experiments, where researchers looked at the effects of different compliance programs on one’s intrinsic motivation for integrity, it was found that some of the more traditional methods of control were, in fact, promoting corruption rather than preventing it.
Take for example the four-eyes principle. Here, the argument is that it is much harder to successfully corrupt two people than it is to corrupt one. But experimental evidence has found that the four-eyes principle does not help in reducing corruption. This in part is due to the fact that the principle is motivated by distrust and easily reduces intrinsic motivation.
More importantly, evidence has found that the four-eyes principle encourages group solidarity – meaning that two people develop sympathy for and solidarity with one another, and can consequently become entrapped in a corrupt network.5 Drawing from this, we can conclude that distrusting employees and creating methods for reducing their discretionary power can thus easily backfire.
Without individual people making personal decisions to behave ethically – in the public sector, the private sector, and society as a whole – we will only ever succeed in treating the disease of corruption. We will not prevent it.
That is why we at the OECD have developed a strategy for organisations to create whole of society public integrity systems, which above all promotes a risk-based approach with emphasis in promoting a cultural change. So what does this mean?
It means creating a public integrity system that is built on 3 pillars: first, the system, creating a coherent and interconnected set of policies and tools that are coordinated and avoid overlaps and gaps. Second, the system needs to rely on effective accountability, building on risk based controls and real responsibility for integrity violations. These two elements incorporate much of the existing knowledge on compliance systems. And I need to be clear here. Systems of control and accountability are necessary, but insufficient for sustainable progress.
The third pillar of an integrity system provides for cultivating a culture of integrity. Here we refer to the recruitment, training and promotion of values of the individuals in an organisation. The intention is to appeal to the intrinsic motivation of individuals. One way of doing this is through awareness raising and educational campaigns aimed at changing values.
There is much we can learn from other fields. How did we change social attitudes in relation to the environment, to drunk driving, and currently bullying? Well implemented strategies have completely reversed social attitudes to these issues. This is not an overnight strategy. It requires awareness raising and communication. The message must be visual, constant and compelling.
But above all, to succeed in cultivating a culture of integrity we also need to understand better what drives individual behaviours. At the OECD we have recently launched an initiative for evidence based integrity, in which together with governments and businesses we are developing experiments, collecting data and testing ideas on what motivates individuals to act ethically. We are learning from behavioural psychology what works. For example, evidence shows that tone at the top does work and we now know how to incorporate this into everyday life in an organisation.6
Colleagues, no country is immune from the pandemic of corruption, and no country nor company can afford to ignore it. Each of us must be part of the solution. At the OECD, we consider the private sector as a key partner for governments for collaborative work in the fight against corruption.
Going forward, I invite all of you today to take advantage of this summit and engage in a dialogue to identify how to better leverage the efforts of both the public and private sectors to support a whole-of-society approach to integrity.
The stakes are higher than ever. Integrity is not just a moral issue; it’s also about making our economies more productive, our public sectors more efficient, our societies and our economies more inclusive. It’s about restoring trust, not just trust in government, but trust in public institutions, regulators, banks, and corporations.7 Let us learn from you, support you, and work together for a better society.
1 OECD (2015), Corporate Governance and Business Integrity: a Stocktaking of Corporate Practices, http://www.oecd.org/daf/ca/Corporate-Governance-Business-Integrity-2015.pdf
2 OECD (forthcoming), Investing in Integrity for Productivity.
3 Salinas, M. & J. Salinas (2007), Corruption, efficiency and productivity in OECD countries, Journal of Policy Modeling 29(6), pp. 903-915.
4 Lambsdorff, J. (2015), Preventing Corruption by Promoting Trust – Insights from Behavioral Science. University of Passau, Diskussionsbeitrag Nr. V – 69 – 15.
5 Schikora, J. (2010). Bringing the four-eyes-principle to the lab. Paper presented at the annual meeting of the Verein fur Socialpolitik. Retrieved from http://www.econstor.eu/dspace/handle/10419/37465
6 Lambsdorff, J. (2015), Preventing Corruption by Promoting Trust – Insights from Behavioral Science. University of Passau, Diskussionsbeitrag Nr. V – 69 – 15.
7 As noted in the Opening Remarks by the OECD Secretary General at the 2016 OECD Integrity Forum: Fighting the Hidden Tariff – Global Trade Without Corruption