Mention the word “corruption” and images of sleazy netas and babus are conjured up in the popular imagination. Corruption is typically associated with politicians and bureaucrats who run government organisations, spearheaded by individuals who abuse their discretionary powers to enrich themselves at the expense of the public at large.
But at least two studies that recently entered the public domain indicate that corruption in the Indian private sector has come of age. This is what has been highlighted in two reports prepared under the aegis of the United Nations Office on Drugs and Crimes (UNODC) – interestingly, this particular UN agency deals with corporate corruption. These reports were prepared despite the non-cooperation of representatives of private firms.
Private sector corruption is apparently no longer confined to apparently isolated cases of unethical business practises – for instance, Enron or Satyam. The world body has contended that corruption in privately controlled enterprises in India became pervasive as the working of the country’s economy was liberalised since the early-1990s.
Importantly, the UNODC points out that while there are many laws in the country that are aimed at checking corruption, “India has no specific legislation addressing corruption in the private sector”. It calls for strengthening of existing laws and enactment of new legislation to, among other things, protect whistleblowers.
The first report titled Corporate Integrity – India: Incentives for corporate integrity in accordance with the United Nations Convention Against Corruption “which addresses a larger umbrella of private sector integrity issues”, states: “The opening up of the Indian economy in the 1990s, which led to the free inflow of foreign direct investment (FDI), not only increased the role and importance of the private sector in the Indian economy but has also heightened the need for focus on business ethics and corporate integrity.”
The second report of the UN body, India: Probity in Public Procurement – Transparency, objectivity and competition in Public Private Partnership projects in line with United against Corruption, which has been released simultaneously on 17 May, “… seeks to reduce vulnerabilities to corruption in the intersection between the private sector and the State under public private partnership projects”.
Since May 2011, India has been one among 161 countries that are party to the United Nations Convention Against Corruption which draws attention to the need for preventing and addressing private sector corruption. “The purpose of this project is to create awareness on the need for a system of incentives, both within organisations and in the competitive landscape they work in, so as to strengthen an environment where companies are more willing to self-report an incident of corruption”.
While the studies observe that “India is well on the way to achieving comprehensive legislative coverage for probity in public procurement in India”, the country had no “specific legislation addressing corruption in the private sector.” In fact the Ministry of Home Affairs is contemplating an amendment in the Indian Penal Code (IPC) to include bribery as an offence within the private sector among other unethical and fraudulent practices being followed.
The bill to amend the IPC also contains provisions for “the investigative roles of selected organisations to look at private sector management”. The Ministry of Corporate Affairs, which has drafted the Companies Bill, 2012, seeks to criminalise a number of offences. The government has also drafted the ‘Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisations Bill 2011′.
The UNODC studies point out that what “currently exists are broad offences against different legislations” even as “amendments and enactments remain pending”.
There are several recommendations contained in the Corporate Integrity report. These include “a need to create legal liability of legal entities along with the liability of natural and legal persons who are proved to have committed acts of corruption. This liability of an entity must be different and additional to the liability of the person.
“Secondly, what is required are legal provisions by which there are reduced sanctions, punishments and penalties for self-disclosure or for cooperating with law enforcement during investigations, such as commercial and operational sanctions, legal sanctions, and reputational sanctions.
“Thirdly, it is important to include in legislation the requirement for companies beyond a certain threshold to have a whistleblower mechanism or some form of internal reporting channels of corruption, as well as some form of external audit. Protection of witnesses, experts and victims is also a much required area that needs to be addressed”.
The UNODC calls for better sensitisation of personnel in privately-owned enterprises. The first report states: “High targets and tight deadlines, low orientation of the management’s focus on ethical issues along with a highly dynamic and competitive market are some of the reasons cited for corruption in the Indian business sector. Most companies have a code of ethics, but there is very little adherence as they remain voluntary codes. The challenges to small and medium sized companies in an environment such as this are even greater”.
Even as the report acknowledges that strong legislation is effective only with effective implementation, it has recommended “a balance between incentives and sanctions to strengthen corporate integrity”.
In the light of such observations it is not surprising that the UNODC has found the need to insert what might amount to be a disclaimer: “Both research teams faced several challenges during the process of eliciting information and opinions. Responses were not forthcoming from the selected entities on queries about corruption and areas vulnerable to corruption. Most entities were silent, reticent or cautious in their responses. Whatever little was received by way of responses around practice were more statements of intent rather than how these are translated into practice on the ground.”
The research teams thereafter “undertook a course correction and focused on obtaining information on practical difficulties encountered” and gleaned information from official reports of the Comptroller and Auditor General of India and the Central Information Commission.
The first UNODC report repeatedly stressed the need to provide legal protection to whistleblowers. It added that the “reluctance and fear to talk about corruption is an important area that needs to be addressed”.
In 2002, the then Department of Company Affairs (DCA) under the Ministry of Finance and Company Affairs had set up a commission headed by Naresh Chandra (former Cabinet Secretary and India’s Ambassador to the United States) to examine various corporate governance issues, including regulatory mechanisms to monitor actions of a company’s management and its directors to mitigate risks which may stem from the misdeeds of corporate officers.
The UNODC highlights a particular observation made by the Naresh Chandra commission, namely, that “unlike in many other countries, the need for strong and effective corporate governance in India does not emerge from financial crisis; it stems from increasing international competition resulting from the liberalisation or opening (up) of (the) economy, and several large scams…”
One can only hope that the saying attributed to Samuel Johnson—”The road to hell is paved with good intentions”—does not ring true.
It may not be inappropriate here to quote from F Scott Fitzgerald’s book The Great Gatsby, “They were careless people, Tom and Daisy. They smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made.”
Is the Indian corporate sector serious about cleaning up the mess within?
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