Governance

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Governance Integrity Systems
Core Course on Governance and
Anticorruption PRMPS, WBIGP INT
Presented by Bob Barnes Consultant, ECSPE
February 15, 2005
Presented to
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Why Does Good Governance, Ethics and Integrity
Matter?

• The high correlation between good governance and
  the effectiveness of developmental assistance
• The principle of conditionality
• The principle of selectivity

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Why Does Integrity Matter?

• High levels of unethical and corrupt behavior in
  a countrys public and private sectors deter
  Foreign Direct Investment (FDI) and inhibit
  growth
• The ethical reputation of companies as a growing
  investment factor after the Enron disaster,
  this trend is likely to grow even stronger

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Why Do Ethics and Integrity Matter?

• Public confidence in government is key to a
  stable, functioning democracy
• Unethical behavior in the public sector seriously
  undermines public confidence

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Ethics and Values What Are They?

• One practical definition of ethics that set of
  criteria or principles a person uses when
  selecting a course of action in the face of
  competing values
• Values can be ethical values (truthfulness,
  respect for others) or ethically neutral values
  (ambition, wish to be respected, desire for
  wealth, etc)
• Making Ethical Decisions, The Josepheson
  Institute of Ethics

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Universal Values

• Descriptive values the way things are
• Vary from country to country, company to company,
  organization to organization, and person to
  person
• No country has a monopoly on virtue
• Political scandals in the West
• Enron, Arthur Anderson, many others

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Universal Values and Ethics

• Aspirational values the way things should be
• Aspirational values vs Culture the myths of
  thats the way things are done here (or there)
• Core aspirational values are widely shared across
  religions and cultures

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Ethical Dilemmas

• A true ethical dilemma occurs when one is faced
  by conflicting ethical values
• Honesty vs. Kindness (the white lie)
• Compliance with procedures vs. Justice
• An unknowing ethical dilemma occurs when one is
  faced by conflicting values, but does not realize
  it
• The value of ethics training

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Ethical Dilemmas

• A false ethical dilemma occurs when a person is
  faced with a choice between an ethical value and
  an ethically neutral or even unethical value
• Honesty vs personal success
• The key false dilemma in Enron?

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Ethical Dilemmas

• Unethical behavior occurs when a false ethical
  dilemma is resolved in favor of the ethically
  neutral or unethical value
• Lie to make yourself look better, gain wealth, or
  shift blame
• The key question Cui Bono? (Who benefits?)

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The Goals of a System of Ethics

• Clearly define the aspirational values (the
  ought)
• Examples of Codes of Conduct/Ethics
• The World Bank Code of Professional Ethics
• Institute of Internal Auditors
• International Chamber of Commerce Rules of
  Conduct to Combat Extortion and Bribery
• www.iit.edu/departments/csep/PublicWWW/
• Contains links to codes and other ethics
  resources on-line

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The Goals of a System of Ethics

• Align descriptive values (the is) with
  aspirational values (the ought)
• Mechanisms
• Guidance/training
• Compliance enforcement
• Positive incentives

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The Goals of a System of Ethics

• Minimize ethical dilemmas
• Mechanisms
• Adjust criteria for success remove pressure to
  be unethical
• Transparency of interests
• Internal mechanisms for advice

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The Goals of a System of Ethics

• Provide a framework for resolving ethical
  dilemmas that do occur
• Mechanisms
• Ombudsman
• Secure channels for reporting misconduct
• Effective no retaliation protection for
  whistleblowers

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Two Approaches to Attain the Goal

• Compliance-based ethics management
• Extensive and detailed mandatory rules
• Prescriptive (you must)
• Proscriptive (you must not)
• Extensive investigation and control mechanisms
• Penalties for non-compliance

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Two Approaches to Attain the Goal

• Integrity-based management
• General statements of ethical values
• Professional socialization
• Incentives for ethical behavior
• Internal mechanisms for help and advice
• Which is the correct approach?
• Janos Bertok, SIGMA Public Management Forum IV,
  No.1, 1998

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The Ultimate Compliance-Based System?

• Everything that is not prohibited is mandatory,
  and we are watching you at all times.
• Would you want this system?
• Could an economy survive this system?

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Is Integrity-Based Ethics Management Sufficient?

• If men were angels, no government would be
  necessary. If angels were to govern men, neither
  external nor internal controls on government
  would be necessary. In framing a government
  which is to be administered by men over men, the
  great difficulty lies in this you must first
  enable the government to control the governed
  and in the next place oblige it to control
  itself.
• James Madison, The Federalist Papers No. 51

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Ethics Management Systems

• The answer Both are required
• The challenge finding the right balance

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Elements of An Ethics Infrastructure

• Political commitment
• An effective legal framework
• Efficient accountability mechanisms
• Workable codes of conduct
• OECD, Public Management Occasional Paper No. 14

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Elements of an Ethics Infrastructure

• Professional socialization mechanisms, including
  training
• Supportive public service conditions
• An ethics coordinating body
• An active civic society, including the media
• OECD, Public Management Occasional Paper
  No. 14

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OECD Principles for Managing Ethics in the Public
Sector

• An Example of an Ethics Framework

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Principles for Managing Ethics in the Public
Sector

• Ethical standards for public service should be
  clear
• Ethical standards should be reflected in the
  legal framework
• Ethical guidance should be available to public
  servants
• OECD,
  PUMA Policy Brief No 4

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Principles for Managing Ethics in the Public
Service

• Public servants should know their rights and
  obligations when exposing wrongdoing
• Political commitment to ethics should reinforce
  the ethical conduct of public servants
• The decision-making process should be transparent
  and open to scrutiny
• OECD, PUMA Policy Brief No. 4

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Principles for Managing Ethics in the Public
Service

• There should be clear guidelines for interaction
  between the public and private sectors
• Managers should demonstrate and promote ethical
  conduct
• Management policies, procedures and practices
  should promote ethical conduct
• OECD PUMA Policy Brief No. 4

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Principles for Managing Ethics in the Public
Service

• Public service conditions and management of human
  resources should promote ethical conduct
• Adequate accountability mechanisms should be in
  place within the public service
• Appropriate procedures and sanctions should exist
  to deal with misconduct
• OECD, PUMA Policy Brief No. 4
  

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Ethics and Leadership

• The Indispensable Element to an Ethical
  Organization

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• What executives do, what they believe and value,
  and what they reward and whom, are watched, seen,
  and minutely interpreted throughout the whole
  organization. And nothing is noticed more quickly
  - and considered more significant - than a
  discrepancy between what executives preach and
  what they expect their associates to practice.
• -- Peter Drucker

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Responsibilities of Leadership

• Establish the values, and the hierarchy of values
  much more than compliance rules
• Involve the entire staff in doing so
• Many things are compliant and legal, but still
  are wrong
• Values will let the organization choose to be
  right, not just legal
• Scrupulously honor the values in your own conduct

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Responsibilities of Leadership

• Communicate the values to everyone
• Insist that your people really do know the rules
  and values
• Provide the resources (time and money) for
  training
• Provide effective means for people to get
  reliable and useful advice and guidance
  anonymously
• The most effective communication is to reward
  ethical behavior

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Responsibilities of Leadership

• Establish a complaint friendly environment
• Punishing the bearer of bad news just means you
  will not hear what you need to hear
• Provide secure, reliable, and anonymous means for
  staff to report impropriety
• Follow up on all reports of impropriety
• With due regard to privacy, publish the core
  facts of cases of substantiated impropriety

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Responsibilities of Leadership

• Be intolerant of unethical behavior, but allow
  people who commit minor improper acts to survive
  and succeed
• Avoid a cover up at all costs mentality
• Give due credit for self-reporting
• Never make perfection the only acceptable
  standard
• Bad news uncovered and reported immediately is
  always better than bad news covered up and
  discovered later

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Responsibilities of Leadership

• NEVER impose requirements, or accept tasks, that
  cannot be met without violating the values
• Your responsibility is to know when you do that
  avoid convenient ignorance
• You must be willing to hear and accept no from
  your subordinates
• You must be willing to say no to your
  superiors, even if it makes you look bad

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The Lessons of Enron

• A Parable on Ethics

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The Lessons of Enron

• Thoughts on some of the causes of, and lessons
  from, the Enron meltdown

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Tools, Resources, and Initiatives

• A (Very) Partial List

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IMF Code of Good Practices on Fiscal Transparency

• Key recommendations of the IMF to ensure
  transparency in fiscal transactions in the public
  sector
• Transparency is perhaps the most important
  element of an ethical system
• Text included as handout also available at
  www.imf.org

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IMF Questionnaire on Fiscal Transparency

• Very detailed questionnaire (37 pages)
• Provided as a handout
• Also available at www.imf.org
• Designed for self-assessment by government
  finance officials
• Relates back to the IMF Code of Good Practices on
  Fiscal Transparency

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Other Resources

• OECD Principles of Corporate Governance
• Provided as handout
• Available at www.OECD.org
• Convention on Combating Bribery of Foreign Public
  Officials in International Business Transactions
• Available at www.OECD.org

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Other Resources

• Wolfsberg Anti-Money Laundering Principles
• Group of major international banking firms
• Available at www.wolfsberg-principles.com
• International Chamber of Commerce, Rules of
  Conduct to Combat Extortion and Bribery
• Available at www.iccwbo.org

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Other Resources

• Transparency International Source Book 2000,
  Combating Corruption The Elements of a National
  Integrity System
• Available at www.transparency.org
• Contains detailed information on anti-corruption
  initiatives world-wide
• Contains extremely useful Best Practices Annex

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Other Resources - Training

• European Institute of Business Ethics Dilemma
  Training Device
• Training on detecting and resolving ethical
  dilemmas
• Information available at www.nyenrode.nl/research/
  eibe
• World Bank Institute
• Many training resources on Corporate Governance
  and Business Ethics
• Information available at www.worldbank.org/wbi

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QA