Breaking the Chains of Corruption

AudenciaBertrand Venard, Professor of Strategy at Audencia School of Management.

Russian executives are learning the economic logic of resisting corruption. Focusing on one's own personal behaviour is no longer enough.

Ethics courses are a staple of business school students but now a French professor is going a step further and teaching executives that corruption is never good for business.

Bertrand Venard, Professor of Strategy at Audencia School of Management and a research fellow at Wharton, was one of the authors of a guide for the United Nations, called Principles of Responsible Management Education. He also advises senior executives of Russian companies in Moscow.

Some academics have argued that corruption is a necessary phase of economic development, that it can provide business with an escape route from stifling bureaucracy and that ethics come later, once economic development is firmly underway.

Professor Venard crunched the World Bank's numbers on the quality of institutions, the level of economic development and the degree of perceived corruption. What he found debunks the idea that corruption can enhance efficiency, grease the wheels of business or generate growth in adverse conditions.

The only case that can be made for corruption, he said, is that it may circumvent restrictions on trade. However the overwhelming evidence is that low quality institutions, such as the lack of independent courts or heavy regulation, are the cause of corruption.

Several other factors make Russia prone to corruption. Its main exports, raw materials and defense, are lucrative fields for bribery, Venard said. As many as 40 to 50 judges are dismissed every year, indicating two problems, he said: corrupt judges, and the persecution of honest judges. In the west judges are very rarely dismissed. The difficulty of starting a new business is another indication of the bureaucracy's inability to function. The frequent changing of rules and procedures creates an opportunity for red tape. Russia has maximum penalties for various types of bribes, allowing the corrupt to calculate their risk and reward. Under the UK Bribery Act there is no limit to the fine.

Other laws have actually regressed. In 2014 a new law on state purchases came into effect that made procurement less transparent, as paper-based federal contracts replaced the electronic system of open tenders. "This will bring us back to the pre-Internet age, to what we had in the 1990s," Igor Artemyev, head of Federal Antimonopoly Service, told Vedomosti last year.

Venard confirmed that electronic tenders would increase transparency but new laws are needed, too: "We should say that in order to get permission for a project, you provide certain documents and the process will be completed in 2 months. If you don't get a reply, then it will be authorized automatically."

A good sign is that Russia signed the OECD Bribery Convention and ratified it in 2012. It entails regular reports and comparison with other countries, along with clear recommendations.

On Transparency International's scale of perceived corruption, Russia ranked 127 out of 177 countries in 2013. It received the same score (28 out of 100) but moved up from 133 as other CIS countries slipped. On the World Bank's ease of doing business survey, however, Russia saw one of the best improvements, to 92 from 112, out of 189.

Compliance specialists like Kroll and international companies like Aecom have observed in interviews with The Moscow Times that some younger Russian executives and politicians in their 40s already behave more transparently than the older generation raised under communism.

Rather than waiting for generational change, Venard says Russians should redirect their national pride (corruption hurts the nation) and draw on the country's strengths.  After all, Venard said, they threw off the shackles of communism. Russians can defeat corruption.