November 8, 2006

Private Sector Corruption… win/win?

Earlier today, one of my business development guys (let's call him JM) went to follow up on a quote he dropped off a couple days ago to be signed by the number 2 executive at a large company. JM had met with this executive a couple times and the executive had introduced him to the IT manager for follow up. JM and his direct supervisor met with this IT manager a number of times, including as recently as two weeks ago.

Today, the executive requested that the proposal which had been given to the IT Manager months before be attached to the quote so that he could approve it. The IT Manager was called and, forgetting that it was this same executive who had introduced him to JM, he claimed never to have met JM, never to have received any proposal, and basically, he had never heard of our company. The executive asked the IT Manager to go look for the proposal. JM waited, and waited for over an hour before deciding to come back to the office to get another copy.

In another context, one might interpret this incident as perhaps a personal problem the IT Manager might have with JM. But in the context of this country, we understand exactly what the problem is. The IT Manager gets his products/services from companies who give him a percentage of the deal. He is in fact known for that. If you don't play the game, he punishes you.

The case of this IT manager is not unique. We experience private sector corruption on almost all the deals that we are faced with. There is an expectation that you have to increase the amount of the invoice between 10 and 50%, sometimes more, and give the extra to the decision maker. They call it "surfacturation" or overbilling in English. Sometimes part will go to to the decision maker and he will split with others along the line like the accountant who will hold up payment if he does not get his share.

We have made a conscious choice not to go that route but it has come at a cost that we never expected would be so high. In one case, a manager at a company for which we had already signed a contract threatened us with making our life "hell" if we did not "thank him" for his committee vote in our favor. We did not comply. He followed through with his threat. Certain purchases for which we already had written orders were passed to competitors. Certain of our invoices approved for payment ended up torn and in the trash. And so on and so on.

Trying to go through the top is not a workable option either. You might be close the owner or General Manager and he might like your proposal. However, if he is not an IT expert (which most are not), he will ask for the opinion of others in the company. If these people decide that they want to block you because they don't have a personal interest in the deal, they will make up all sorts of excuses to prove to the boss that your proposal is not a good one or otherwise badmouth your product or company.

Sometimes, the person at the top is worse than those working for him. We have been asked a number of times what "envelope" was planned for the General Manager. Even expatriate managers play the game. It does not take them long in this country to discover how to increase their income exponentially.

A couple weeks ago, about two dozen private sector companies in this country signed an Ethics charter. Nice initiative but the companies read like a Whose Who of the most corrupt private sector companies in the country! The specific examples I listed in this blog were in companies which signed the Charter.

When I came back to this country to do business, I specifically avoided government clients because I expected to face corruption and it was important to me not to do business that way. I wanted to prove that ethical business practices could also lead to success. I was laughed at more times than I can recall.

The shock came not from the expected public sector corruption but from the corruption in the private sector, including – especially - multinationals. After a while, you begin to wonder if you are the one who is wrong. Educated and successful business people will justify their corrupt practices in saying that it is a win/win. The client gets the product; you get the contract and get paid; because you increased your price by the amount of the "commission" to the decision makers so you don't lose any money; the decision makers are happy, you are happy, the company is happy. I have had a number of arguments with friends and sometimes staff who feel that my intransigent style is hurting our ability to do business. They are right in the short term anyway but I just won't bend.

One of my parent's friends told me when I arrived that "honesty is a luxury." I did not really understand what she meant at the time. Today, I understand. Is it selfish to pass up contracts for ethical reasons while employee salaries are late? Can you operate in a vacuum avoiding accepted business practices?

Those are not easy questions to answer when you can't meet your obligations and you begin to wonder if it is worth it. Many of my friends who decided not to bend went back to the US. Others decided to stay and play the game. A few are like me, stubbornly idealistic and believe that in the long run, honesty will pay off. I sure hope we are right...

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