Private Sector Corruption and Martha Stewart

Ravi PERERA

While everybody loves to talk about corruption in the public sector, we for some reason lose this enthusiasm when it comes to the goings on in our large and vocal private sector.

When confronted with the evidently outrageous incidents of bribery taking place during his short-lived premiership, Ranil Wickremasinghe, famously observed “ for there to be bribe takers there has to be bribe givers”. This superior sounding statement is of course not replete with hitherto unknown insights.

Even a first year law student would point out that bribery is an offence that requires two participants. Because we are in the habit of cheering even the most commonplace statements of our politicians they have perhaps decided that no intellectual effort is required when addressing the Sri Lankan public.

This observation was made when addressing some high-ranking business leaders sometimes referred to as captains of industry of this country. Strangely, even these men of the world were perturbed by the persistent demands made on them by the politicians running the country this self proclaimed advocate of clean politics was Prime Minister and turned to him for protection.

Despite the haughty tone and manner of his response, this politician could not have found a more friendly audience in Colombo. There is hardly any difference in the minds of these movers and shakers of the city and that of Mr. Wickramasinghe when it comes to the ideal scenario for this much-wronged country.

But this community of interests between the business magnates and their preferred political leader has to accommodate the greedy snouts in the trough. Ranil’s blithe observation, while diverting attention from the grubby fingers of his ministers to the slick private sector operatives, leaves no doubt as to on whose side he will ultimately be if pushed to take a position.

Those little politico boys are demanding candy only because you bad grown-ups are laying them in front of them.

This put-down by their favourite politician perhaps reveals more about our private sector ethos than was actually intended to by him. It could well be that in the final analysis the prevalent corruption in this society emanates from our business world.

An under-developed system provides businessmen plenty of dark uncharted spaces to operate in. Taking advantage of a weak system they can make windfall profits in all kinds of manner.

It may just be a matter of importing an item like cars and then dumping them on a government department at a big profit, with the active cooperation of the political/department leadership.

Another common method is to win a contract for building a public utility like a road to certain specifications/material, and then end up doing it with inferior material. Whatever the method chosen, the path to riches is through the patronage of politicians and officials.

In this situation it is a simple matter of common sense that the businessmen begin to “look after” their patrons.

They both operate on the basis of self-interest at any cost and it is only a natural conclusion that by joining hands there is more to gain.

But not all private sector corruption is connected to public officials. Even if there is no public servant in sight, corruption seems to be rampant in this sector. It is now considered the standard practice for those in the construction business to offer kickbacks to directors of companies with whom they have contracts of work.

As we know an incorporated entity like a company is a complex institution with varied stakeholders. When an official of a company is receiving money under the table from a contractor, whose interests is he serving? Certainly, it cannot be the interests of those stakeholders.

Any action of company officials, which violate either the laws or our sense of ethics, diminishes the prestige of that company and threatens its corporate image. It is commonly believed that gifts and commissions lubricate almost every activity of our private sector. When a company buys furniture, both the purchasing officer and the director approving payment will receive privately at least a double bed from Moratuwa. When the company books a sea-side resort for their annual outing the director concerned will get a separate weekend for the family with the compliments of the hotel.

We are supposed to be a hospitable race and this kind of generosity may warm the hearts of those preaching the virtues of giving and receiving. But at the time of receiving the favour that company official was acting in the name of an incorporated body. Had he declared the gift to his peers in whose opinion there is minimal conflict of interest and in any event the matter so trivial, all’s well. But we know there is very little of this kind if transparency in our systems.

At even a higher level, there are suspicions that the big players and insiders manipulate our tiny stock market to the detriment of the small investors and the market. The standards expected from insiders in these matters can be illustrated by the famous Martha Stewart case in the USA.

Martha Stewart built up a large fortune as a life-style brand leader. Second in a family of six children she displayed her commitment and entrepreneurship from a young age, organising neighborhood parties and gatherings at the age of ten. After graduating with a degree in Art History, Martha became a Wall Street stockbroker.

Later she began a catering service, which was soon diversified in to range of kitchen and garden services eventually making her name synonymous with stylish living. Martha Stewart was legendry for her attention to detail even fretting about things like the shape of the coffee pot on her televised shows. She undoubtedly worked very hard for her success.

One of Martha’s good friends was Samuel Waksal, the CEO of the Biotech company Imclone Systems. Waksal was arrested for insider dealing on the allegation that he tipped his family and friends of the Federal Drug Administration’s (FDA) refusal to review Imclone’s application for the cancer treatment drug, Erbitux. Waksal had sold 200,000 shares of the company held by him.

Martha had only about 4000 shares in Imclone, which she sold. When questioned she pointed out that she had left instructions with her stockbroker to sell these shares if they went below $60. The value of shares held by Martha Stewart in Imclone was only a fraction of her total assets. Despite her explanation the troubles that began for her did not go away. Martha eventually had to serve a term of imprisonment. Although free now, her image as an American icon has suffered grievously.

If we were to adopt these standards in assessing insider influence in our stock market we will probably find armies of Waksals and Marthas presently going about Colombo without a care in the world. Such is the reality of our private sector even in the mind of a person like Ranil Wickramasinghe.

We can perhaps agree with him when he says that on the balance, the economically powerful giver is more culpable than the financially hard-pressed receiver. Whether we have the political will and the personal qualities required to fight the scourge of corruption remains to be seen. But if we are serious about it, corruption has to be fought in all sectors and against both the receiver as well as the giver.