Curbing corruption in private corporations
Sam Choon Yin (2004)
This article reminds us that
private corporations are susceptible to corruption. It is imperative that they curb the problem. Otherwise, the corporations
may suffer from lower productivity and shareholders value. It is well known that Singapore is one of the least corrupt countries
in the world. It is useful thus for private corporations to learn from Singapore’s experience in dealing with the problem.
can occur in private corporations
It may be
useful to begin by defining the term ‘corruption’. In the simplest sense, corruption refers to the abuse of power
by an individual to maximize his/her private interest at the expense of others’ interest. For example, government officials
receive bribes from businessmen to allow their ‘illegal’ businesses to run. Because these activities escape the
detection from the government, economic statistics like national income and unemployment are not likely to reflect accurately
the country’s economic status. Policies implemented using these statistics may worsen the problems instead of solving
is often discussed in the context of public sector governance. However, acts of corruption can also take place in private
corporations. Essentially, they can be treated as a form of an agency problem where company agents do things that are not
in tandem with the notion of maximizing the principals’ interest.
executive managers may seek opportunities to expropriate company’s funds to pay higher salaries to themselves, furnish
their officers with unnecessary electronic gadgets and travel excessively in business trips. The agents may also employ more
workers than necessary thus raising the operating expenses unnecessarily. Some of these expenses may be passed on to the consumers
in the form of higher price leading to losses in consumer surplus. The organization becomes less competitive as a result.
are also trying to put company’s money into their own pockets through creative or illegal accounting. Hiding liabilities
and inflating profits are getting more common among companies to reward company agents in excess of what they actually deserve
of the private firms may provide employment opportunities to their relatives and friends without proper screening. They can
also offer exclusive contracts to relatives and friends without going through the proper procedures. The public views an organization
negatively if nepotism and cronyism are commonly practiced. This can result in lower company’s reputation and loss of
may bypass certain procedures or reduce the stringency of requirements to permit others to reap private benefit. This is possible
for example in loans assessment. A bank manager may grant overdrafts and other banking facilities to the briber without properly
checking his/her creditworthiness thus subjecting the bank to unnecessary risk. In another example, a company agent may source
for low quality and high priced materials because he/she has received bribes from the seller. The company may mark up the
prices to recover the increased cost thus negatively affecting its competitiveness.
productivity level of corrupt agents tends to be lower because of their excessive attention paid to enrich themselves in the
These are different forms of corporate corruption that can take place in a typical company. If the agents are poorly
monitored, the above-mentioned problems can emerge. The result? Lower productivity and shareholders value.
Corruption in Singapore
exists in Singapore albeit rarely. International agencies have ranked Singapore as one of the least corrupt nations in the
world. For example, in the World Competitiveness Report 2003 prepared by the International Institute for Management Development
(IMD), Singapore was ranked fifth least corrupt economy among 29 countries with population less than 20 million (after Finland,
Denmark, New Zealand and Iceland). Transparency International (TI), a fledging non-governmental organization established in
1993, constantly ranked Singapore as one of the 10 least corrupt countries in the period covered (1995-2003). For many years,
Hong Kong based Political and Economic Risk Consultancy Limited (PERC) has ranked Singapore as the least corrupt country in
the world. Table 1 below briefly documents Singapore’s experience in eradicating corruption.
from Singapore’s experience
several lessons which the private corporations can learn from Singapore’s experience.
1: Set up an independent anti-corruption committee
It is useful
for private corporations to set up independent committees to spot, investigate and eradicate ethics-related problems. The
tasks can be handed over to the Ethics Committees if there are any. An independent board member should head the committee
with staff from various departments making up the rest of the team. The committee could report directly to the CEO and its
members appointed by the Chairman. Because it is possible for the CEO to be investigated, it is useful to empower the committee
and allow it to carry out its investigations despite having views that are in contrary with the CEO. The committee’s
terms of reference thus must highlight this provision.
Curbing corruption in Singapore
up an independent agency, the Corrupt Practices Investigation Bureau (CPIB)
CPIB is mandated to carry out all investigations pertaining to acts of corruption. It reports directly to the Prime Minister.
The President approves the appointments of key personnel in the CPIB. Under a provision in the Constitution, even the Prime
Minister can be investigated. The probability of catching the offenders is raised accordingly. Proper screening of the CPIB
staff is carried out. In Singapore, the incentives and disincentives of doing good and bad are clear and credibly enforced.
The public does not hesitate to come to the CPIB, give information and assist in subsequent investigations. The CPIB is confident
that it will successfully catch-up with the person engaged in acts of corruption. Discreet investigations are commonly carried
out before investigations are done openly.
the penalty cost
are dealt with severely upon conviction to signal the society and court’s disapproval of improper practices. Otherwise,
would-be offenders will have a greater tendency to act corruptly. In Singapore, it is wrong to receive and pay for bribes.
The government does not hesitate to shame the offenders via the media to further raise the opportunity cost of engaging in
political leadership to inculcate the incorruptible virtue
MPs, ministers and public officers are expected to set good examples for others to follow. All PAP members are required to
declare their family assets to the Prime Minister while the ministers (including the Prime Minister) declare their family
assets to the President.
are put in to improve standards of operating procedures (e.g. through the PS21 initiative which, among other things, emphasizes
service excellence, greater efficiency in operating procedures and adaptation of the change culture). The government believes
that corruption is more likely to thrive in an inefficient administration where agents can take advantage of loopholes to
best the system. Advancement of technology is leveraged to minimize direct contact with public officers (e.g. electronic tax
filing system is adopted by the Inland Revenue Authority of Singapore).
competitive salaries to the agents
revision exercises are carried out periodically to see that the wage gap between the public and private sectors does not deviate
too significantly. Singapore’s public sector adopts the pay for performance principle diligently.
of catching the offenders must be increased to lower the opportunity for corruption. Employees for example can be empowered
to voice their concerns. Because of their closeness with things happening on the ground, they are in a very good position
to spot ethics-related problems. The anti-corruption committee must assure the staff that they are protected against harassment
and that fair and thorough investigations will be carried out.
committee can be given more power to scrutinise the actions of the company agents. These include ‘summoning’ relevant
persons to assists in its investigations and sending stern warning letters to suspected persons. The key is to make the company
agents fearful of the committee.
2: Increase the penalty cost
imposed on offenders must be significantly high. The company for example must not hesitate to report the matter to the government
authorities and sack the offenders if they are found guilty. It is useful that other colleagues know about the cases so that
they are aware of the consequences for acting corruptly. The possibility of being shamed in public can discourage would-be
offenders from engaging in improper practices. This is particularly true in the Asian context (including Singapore) where
people are generally afraid to ‘lose face’.
penalties must be made known to all staff. This can be done through the company’s intranet. The penalties must be enforced.
3: Strong political leadership to inculcate the incorruptible virtue
of the Board, CEO and executive managers must set good examples for others to follow. They can constantly appeal to the moral consciousness of their staff and remind them of the benefits of doing good
and the negative implications of seeking private benefit at the expense of the principals’ interest. The intention is
to inculcate the group norm that acting incorruptly is unacceptable in the organization. Corrupt agents should pay the price
like being shunned by their colleagues, and losing their reputation and job if they have violated the corporate and societal
Also, executive managers can be requested to declare their family assets periodically to the
Chairman. Because of its sensitivity and possibly violation of privacy rights, some may protest against the move. It is essential
thus for the measure’s objective(s) to be clearly conveyed to the staff. This should include the intention to safeguard
the company interest. Communication must be thorough and substantial. Only top managers should be involved in this exercise.
The exercise may be carried out on a voluntarily basis for those who hold less ‘sensitive’ posts. If there is
an allegation against the executive managers of assets wrongfully gained, they should be asked to explain how the assets were
acquired. If they are not able to explain how they had acquired the assets, the anti-corruption committee for corruption will
4: Promote service excellence
It is well
known that service excellence and the need to comply with standard operating procedures are incompatible with acts of corruption.
Uncertainties in terms of how things are done are lower since everyone is expected to follow the standard procedures. Accordingly,
bypassing standard procedures should be condemned and made easier to detect so that the opportunity for corruption can be
lowered. To standardize the procedures, it is useful to leverage on technology. There will be lesser incentives then for a
typical person to bribe others since he/she can carry out the tasks himself/herself electronically in an efficient and effective
It will also
be useful if the committee can establish the company code of ethics to state formally the acceptable standards, procedures
and decisions made by the organization, which a majority in the organization is expected to follow.
5: Pay competitive salaries to the agents
individuals are responsive to incentive and disincentive measures. Paying competitive salaries to the staff can serve as a
useful deterrent against acts of corruption. The briber would have to pay a more substantial amount to entice one to act corruptly.
Paying competitive salaries also helps the organization to retain competent staff.
reduce the incentive for corruption, private corporations can adopt the pay for performance principle with a greater proportion
of the staff salaries converted into the variable form. This is useful because individuals are generally marginal thinkers.
Additional incentives create additional efforts from the staff to excel in the working place. It is essential however that
a good staff appraisal system is in placed so that the staff can be assessed objectively and fairly.
Like in any
typical public corporation, the pay structure should be designed in such a way that the staff have to go through a long drawn
out process before they are deem qualified for higher compensation or reward (to match with their improved performance). This
helps to promote persons of highly developed intrinsic motivation to work in the private corporations while short-term materialistic
ones are avoided. Otherwise, improper practices like manipulation of financial statements are more likely to result since
the agents will concentrate more of their attention on compensation rather than on effort.
has taken the Singapore government more than four decades of hard work to grant the country the premium of having a clean
and almost corrupt free society. Private corporations should realise that they too can attain the status. Studying and implementing
the above-stated lessons is the right and essential step to take if they want to remain competitive in a more globalising