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Ethics jury member: Lack of transparency costly

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To promote ethical business conduct and recognize commitment to fight against corruption, Telenor launched its Ethical Company Award last year. The Budapest Business Journal asked David Young, First Vice President of AmCham Hungary, chairman of its transparency subcommittee, and jury member of the Telenor Ethical Company Award, about corruption and ethical conduct in Hungary.

Q: How do you see the current situation with corruption in Hungary?

A: As we know, Hungary is not the most transparent of countries but, it should be pointed out, it is far from being the most corrupt. In my more than 20 years in business in Hungary I have almost never encountered corruption directly. But as an executive search consultant, meeting businesspeople every day, I have heard many stories, which, if only half of them are true, lead me to believe that the lack of transparency makes corruption possible in many parts of the economy.

Q: How do you see the average entrepreneur’s attitude towards corruption?

A: This is a complex topic. First, let me preface this answer by saying that there are many small- and medium-sized businesses that are run absolutely ethically and according to the law. I know many entrepreneurs who take pride in the transparency of their business.

But unfortunately, many businesses have an attitude that tries to justify corruption. The entrepreneurs say, “Everyone does it”; or “If the government taxes so heavily and delivers so little, I have no option but to finagle a little”; or “If I get in trouble, I can buy my way out”.

Many do not see corruption as corruption. A friend told me a story of the Hungarian subsidiary of a Western multinational which was making large, unexplained losses. The headquarters investigated and could not find the source of the losses until they took a look at the local CEO’s house, which was a beautiful new villa in Buda. Working in the garden was a man who said he was the CEO’s father and that he was very proud of his son because he was so smart for building the house with company money. 

For me, this anecdote that building a house with stolen money can be a source of fatherly pride illustrates that something is very wrong with the father’s moral compass. It seems to me that sometimes there is a lack of differentiation between entrepreneurial spirit, smart business thinking and actually breaking the law. 

Q: Tax evasion and other attitudes against the law are considered almost a trend in Hungary. What can be done about this?

A: Clearly corruption and the lack of transparency is a society-wide problem. On the one hand, basic attitudes towards corruption need to change, while on the other, a number of institutional changes need to be made. The list is long, but some changes include that the government and top politicians should set a good example: party financing should be reformed; the way in which laws are drafted and approved should be reformed; government tendering processes must be made more transparent; those who break laws should face consequences; and finally, in all honesty, the media should be playing a more active role in pointing out wrongdoing.

Personally, I feel that it is very important for government officials to demonstrate a strong commitment to the reduction of corruption. In my view, an independent body should be established to fight against corrupt practices. This agency could focus on investigation, prevention and community education.

Q: What are the economic implications of widespread corruption?

A: Lack of transparency is very expensive for a country as a whole and for citizens individually. It does not take a genius to see that corruption adds a cost to everything it touches. Corruption manifests itself in less competition, higher prices and lower quality. Overall, it reduces the attractiveness and competitiveness of the country and reduces the quality of life of the individual. Studies have shown that the reduction of corruption in a country, for example as has taken place in Chile and Hong Kong, increases that country’s economic performance and foreign direct investment.

Q: How can AmCham help Hungarian businesses to fight corruption?

A: The American Chamber of Commerce in Hungary’s mission is to increase Hungary’s competitiveness in the international marketplace. As mentioned earlier, in order to be more competitive Hungary must become more transparent and strive towards higher levels of good corporate governance. In our dialogue with the government we try to emphasize the importance to Hungary’s overall economic standing of improving transparency. We also believe very strongly in education and have several outreach programs touching on good corporate governance at Hungarian universities.

Q: And how could Telenors award help to reach the same goal?

A: Telenor’s Ethical Company Award is quite special in Hungary. The award opens up great possibilities to discuss the sensitive topics of why a company should behave ethically, what are the advantages of paying attention to good corporate governance, and how does a small company maintain its integrity. Open discussion on these topics would be most welcome. Also, clearly, the rewarding of those companies that conduct their business in an ethical way is an intelligent way to focus attention on this issue and to give positive reinforcement to those companies that do behave responsibly. I can only applaud Telenor’s initiative.

David Young is the Managing Partner of Amrop Kohlmann & Young, an international executive search firm. He is the First Vice President of the American Chamber of Commerce in Hungary, chairman of AmCham’s Transparency subcommittee and jury member of the Telenor Ethical Company Award.

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