The single most important thing in boosting transparency and fighting corruption, whether in the state or private sector, is the “tone at the top”, three forensic analysts have told Voice. And it is not just saying the right thing; words must be followed up with deeds.
Those organizations that work well from an anti-corruption perspective have a certain degree of corporate governance; it needs to be clearly defined, fair, transparent, and communicated regularly across the whole organization,” explains Lee Coles, a director at PwC. “That doesn’t work if you don’t have the tone at the top… If you do not have that tone, the best structure will not be enough. You still have to have leadership.”
"When someone is considering Hungary as a potential place for a start-up or a greenfield investment, and comes to us to seek advice, they always ask me about corruption. we at AmCham are doing our best to attract foreign direct investment, so I always strive to give a fair answer, something that is true and accurate and would not discourage investors. Frankly, it requires sophisticated communication skills to address the lack of transparency in hungary and present the country as an investor-friendly environment, but in order to maintain our excellent reputation, I refrain from painting the picture any rosier than what it really is."
Tamás Gaidosch, a risk and compliance partner at KPMG, agrees. Tone at the top is, he says, the only way of protecting a company’s name and brand. “It has to be part of the corporate governance and core values of the company. It is driven by top management. The key is to get most people in the organization to buy in, but you also have to have control systems.” It also means taking a zero-tolerance approach. “It boils down to a willingness of the top management to forego business in some circumstances.”
Transparency and the fight against corruption are not, however, simply about industrial self-regulation. Ferenc Biró, head of the Fraud Investigation and Dispute Services department at Ernst & Young, says every company and individual has a responsibility to set a good example, and that there is one very obvious place to start. “How political party financing is regulated in Hungary needs to be cleaned up,” he insists. “We see a number of common slogans; every politician approaches it from the view that transparency is important, that there should be progress, and delivers a common message, but we do not see it being translated into action. The message is consistent over the last 20 years, which is fabulous as this means it remains at the top of the agenda, however ideally actions should closely follow to be able to move forward.”
Gaidosch backs that view. “While we don’t have transparency of party financing, then what can we expect? That should be the first thing to be cleaned.”
A new public procurement act is in preparation, and will be an important indicator of how tough the government plans to get. “In general, the greatest risk to transparency is overly complex regulation which, inevitably, will encourage some to take short cuts,” says Gaidosch. What is needed, he adds, is consistent, predictable enforcement. Biró calls for strict sanctions that should “be applied to each and every individual in the same way… Ethical behavior within the state – that has the effect of changing the environment. Clearly the business community has a responsibility, but at the end of the day it is the state that has the means to drive change.”
Coles adds time to the cocktail of good laws and rigid enforcement. “Ultimately, control has to be rule of law, and the ultimate purveyors of that are the government. We need to make sure they get the laws right, we need them to bed-in, which takes time, and we need them to be enforced. We need patience; all this takes more than one political cycle.”
The three men recently spoke at the AmCham “Self-Cleansing” transparency conference, and agree on much. One interesting area of difference, though, is the direction Hungary is taking. All have worked in the region, and all see Hungary on a par with its neighbors. According to Coles, similar issues and problems affect each country. “Interestingly, from my experience I perceive much greater perception from Hungarians themselves that they have a problem, much more so than from the Czechs or Slovakians.” Similarly, Gaidosch sees nothing specific about the Hungarian market. “I wouldn’t single out Hungary, it is in the middle of the corruption list. I work in the region, and I don’t see much difference.”
But Biró, while broadly in agreement, sees a trend he does not like in Transparency International’s Corruption Perception Index (CPI). “I do not believe that corruption and transparency in Hungary is so much behind our neighbors, our geographic situation and economies dictate much the same whether it is Czech and Hungary or Romania and Hungary. It is fairly consistent, but there is a slight decline for us, while the rest of the region is picking up; the trend is different, and that is worrying. If you look at the CPI list, Poland, which used traditionally to be somewhat less transparent, is now ahead of us. Not substantially, but ahead nonetheless.”
All three say the multi-nationals are leading the fight against corruption in business. “I think we are almost moving into a position where we have two divisions,” says Coles. “The kinds of people talking about corruption and attending the AmCham event are in the first division, with an understanding and acknowledgement of what needs to be done. For those in the second division, it is not that they want to close themselves off to this, but they have not had an opportunity to understand why running that kind of business might work for them. It’s a question of education. There is no real motivation for them, it is extra costs, extra administration, what’s the point? If people like me can sit down and talk with them, it could help with their understanding.”
Gaidosch agrees that the multinationals “are well ahead with anti-fraud legislation. Hungarian firms are a little behind, though the larger Hungarian firms are becoming aligned. SMEs are not on our radar. We do get some inquiries, but investigating a case costs serious money. At SMEs, interpersonal relationships are much bigger, they rely so much on trust, on whether the boss trusts you, and not on controls.”
All three men are optimistic for the future, although Biró believes action must come sooner rather than later. “As long as individuals in the business sphere are prepared to stand up, it is not too late. But there is a very deep need for everyone to act.” Coles sees hope in the newer generation of managers. “The people I work with in the region all, or almost all, come from the post-1989-90 generation, so are young enough to know only capitalism. Among them there is a very thorough understanding of what is “good” and what is not acceptable. In time, it will become a more transparent society.” Gaidosch, too, sees hope in these new managers, but believes that alone may not be enough. “In the private sector especially, there is a new generation of bosses who have worked in international companies, and this acceptance of better behavior will filter down. Inevitably, there will also be some interaction between this new generation and those in the public sector, which will help improve the situation there. But it is not going to happen in the short-term. And until we get an idea of what the public procurement rules will be and something is done about party financing, we won’t have radical change.”
This article was originally printed in the June issue of AmCham's membership magazine Voice under the title "Tone at the top".