Closing the open door to corruption in financial institutions

continued from yesterday

‘Conflict of interest’

Another significant threat to good governance and ethical behaviour is ‘conflict of interest’. This has been a subject of great importance in recent scandals where agents and professionals failed to exercise proper judgement on behalf of their principals. Decision- makers usually have a priority of duties that they are expected to fulfil.

A conflict of interest confuses and distracts the decision- maker from that priority of duty, resulting in harm when legal and ethical expectations are not fulfilled.

Looking at the bigger picture, during good times, success feeds greed and caution is thrown to the winds. Ambitious managers tend to forget good governance and accountability, and success often helps them to get away with it.

They take more risks to expand their businesses, and the shareholders tend to encourage them as long as they succeed.

For example, a very large group of successfull companies in Sri Lanka, carrying one of the oldest and most respected brand names, got into financial difficulties recently and started collapsing like a house of cards. Closer scrutiny revealed a dubious corporate structure and operations that they were very far from good governance.

There were over 250 companies in the group, with a complex holding company structure that was hard to trace.

They all had the same chairman and many common directors. Formal management procedures and internal controls were almost nonexistent. Some companies were regulated while others were not.

In a criminal breach of trust, the unregulated ones used their common name to mobilise public deposits by offering very high interest rates. The Chairman of the group and many of the directors are currently in remand custody. Probably for the first time in the world, a Sri Lankan court has sanctioned the conduct of a board meeting in prison a resolution to sell the assets of a company to refund the depositors’ money!

In conclusion, I would like to draw your attention on following four important points.

* How to promote the concept of ‘public interest’ on the subject among private sector business leaders.

* How to educate the media on ethical reporting of unethical practices of the private sector business leaders.

* How to tackle the unregulated private sector business leaders that are dealing with public money.

Though it is nothing to do with corruption, I think it might be interesting to the academia to redefine the SWOT Analysis framework to include internal threats as well as external threats.