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Investment, Infrastructure, and Integrity: Public and Private Perspectives

Investment, Infrastructure, and Integrity: Public and Private Perspectives Infrastructure investments, free from corruption?
Well not quite, but progress is on the horizon. Last week, during the World Bank Group and IMF Spring Meetings, the World Bank Group Integrity Vice Presidency hosted an Executive Colloquium featuring corporate, finance, and public sector perspectives on integrity in infrastructure investments.

In her opening remarks, Sri Mulyani  Indrawati, World Bank Managing Director underscored the role of infrastructure investments in development as well as the continued revival of the world economy.   The discussion that followed addressed three key questions: how integrity issues and corrupt environments impact investment decisions and risk management; what steps firms, financial institutions, and governments can take to strengthen anti-corruption efforts in infrastructure investments; and how international institutions, such as the World Bank Group, can help all parties further good governance and reduce integrity risks.

Not surprisingly, participants’ opinions on whether corruption is a demand-side or supply-side problem depended on whether they represented the public or private sector.  This in turn influenced their recommendations for how to improve integrity in infrastructure.  All participants acknowledged that corruption is problematic in both developed and developing countries.

blue_arrow.gifWatch the event in its entirety 
blue_arrow.gifEvent agenda 
blue_arrow.gifPanelist bios 

A number of themes emerged from the conversation which, as expressed by Rashad Kaldany, Vice President of Global Industries, IFC, World Bank Group, represent a ‘consensus’ on the paramount importance of fighting corruption in infrastructure.  This view was further shaped by two Ministers of Finance, senior leaders from GE, Siemens, Standard Chartered Bank and the World Bank Group who participated on the panel. 

A Culture of zero tolerance
Personal responsibility plays an important role.  Peter Solmssen, Member of the Managing Board and General Counsel, Siemens AG, said Siemens employees are instructed to reply to requests for bribes with “I don’t do that” in lieu of passing off responsibility with “our compliance people won’t let me do that.”

Market competitiveness is driving many companies across the world towards stronger compliance and a commitment to integrity in corporate governance.  But according to Karan Bhatia, Vice President and Senior Counsel at General Electric, it takes more than that to bring an end to corruption. In his experience in the public and private sectors, a commitment to fighting corruption translates to an investment in culture, institutions, processes and accountability.  “If you miss one, something breaks down,” Bhatia said.

Identifying the World Bank Group’s Doing Business Indicators as a powerful tool to sensitize a global market on investment risks, panelists discussed whether adding corruption as an additional indicator would be beneficial.  Companies, and likewise governments, should endorse as an integrity principle the notion that clean business is good business.  Recognition of the need to “generate value beyond profit,” as expressed by Julio Rojas, CEO for the Americas, Standard Chartered Bank, provides the standard to hold parties accountable for their transactions and investments.

Financial disclosure: No longer an option
Several panelists prioritized financial disclosure among the effective measures capable of reversing the corruption indicator in some high-risk countries.  Requiring corporations to disclose fees and deposits to foreign government—along the lines of the Extractive Industries Transparency Initiative—is critical to ending corruption.  Some panelists strongly advocated that companies should publicly disclose any commissions paid to local agents.  By the same token, governments need to be more transparent and information relating to major contracts should be publicly disclosed via the Internet. The panel also praised the value of disseminating data that relate to the costs of implementing an infrastructure project in different countries for benchmark comparisons, after factoring in local costs such as labor.

Fostering a “cartel of the good”
Whether it is an alliance among private-sector players or a partnership between governments to fight corruption, either one alone is not enough.  Companies and governments need to work together to promote a “cartel of the good”, as described by Mr. Solmssen.  His Excellency Agus Martowardojo, Minister of Finance in Indonesia emphasized a number of times the need to fortify integrity among public officials and to take strong enforcement action against corrupt actors.  In the Philippines, an “Open Governance” initiative is introducing new standards for governments and companies to mitigate corruption risks compromising the integrity of infrastructure investments.  “It is important to walk the talk on both sides.  Governments and companies need to cooperate to make this work,” said the Honorable Cesar Purisima, Minister of Finance in the Philippines

Panelists advocated that large multinationals must work with small- and medium-sized enterprises to apply integrity principles across the entire supply chain.  And while many companies and governments may still lag behind on an integrity scale, Mr. Rojas contended that it is important to adopt integrity principles along the model of the “Equator principles” to maintain momentum.  One way, according to Janamitra Devan, Vice President of Financial and Private Sector Development at the World Bank Group, is to include asset and liability disclosure as an indicator in the World Bank’s Doing Business Indicators.  He also suggested efforts should be focused on preventing corruption, for example through greater scrutiny of politically exposed persons and stronger mechanisms to reduce the creation of shell companies.

Where some governments may face a challenge, companies may have some positive lessons to share particularly in the areas of procurement capacity and management by incentives. “Today’s leaders are facing a challenge in dealing with public pressure to end corruption.  There has to be a shift in the way we do things and it can only happen with a strong political will, support from the private sector and institutions like the World Bank Group,” said Minister Purisma. 

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