Panama’s business organizations are a feuding
lot in recent years,
and if one of them is identified as “the most
influential”
or “the most representative” an argument is
very likely to
ensue. However, APEDE --- the Spanish acronym for the
Panamanian Business
Executives’ Association --- can make a good
claim to such titles.
More than most other business groups, these are the
folks whose main
interest is in Panama’s business climate. As
used here, “business
climate” is something other than whose turn it
is or will be to
steal from the government, which families are in or
out or social page
trivia. These are business managers concerned with
the nuts and bolts
of things like Panamanian labor relations, staying
competitive in an
increasingly global economy and the cost of doing
business.
One of those costs, some say the most unfair burden
of all, is the premium
exacted by corruption. We’re not talking just
about shakedowns
and pilfering by public officials --- although that
sort of thing is
more likely to be on the agenda at APEDE than is the
case with other
business groups --- but also a wide- ranging culture
of “juega
vivo,” wherein employees stealing from their
companies, bosses
cheating their employees and companies shaking down
other companies
by way of monopolistic practices are considered
ordinary features of
the business landscape. APEDE rightly sees all of
this as an impediment
to doing business in Panama, a phenomenon that lowers
the entire country’s
standard of living and exacerbates all of our social
problems. Thus
the group has established a Committee on Ethics and
Good Citizenship,
advocated government transparency and prompted the
business community
to talk about things higher yet deeper than the
bottom line.
Part of that discourse took place on March 26 at the
Union Club, when
APEDE sponsored a discussion with Dr. Philip A.
Nichols of the University
of Pennsylvania’s prestigious Wharton Business
School and Dr. Rudolph
Zepeda, an experienced international banker who now
works as an advisor
for the Federal Reserve Bank of Atlanta. The subject
of the forum was
“Ethics in the Financial Sector,” and
bankers, insurance execs
and businesspeople from sectors that in many cases
were far away from
finance crowded into the Salon Las Perlas to here
what the distinguished
guests had to say.
Nichols, who has observed Russia up close for more
than a decade of
change and who has spent time in Hong Kong and many
of the world’s
other major or emerging business centers, and who
teaches business law,
spoke on the importance of business ethics and the
effect of corruption
on social and economic development. His approach was
primarily cultural.
Zepeda, who ran the Miami branch of a Venezuelan bank
at a time when
that country’s financial sector was rocked by
multiple major scandals,
spoke about corporate governance in the financial
sector. His approach
was primarily technical.
Both speakers concurred about corruption being a bad
thing, and about
the importance of having someone honest and capable
watching and controlling
the people who are supposed to be watching for and
controlling corruption.
However, they stressed very different factors.
For Nichols, corruption is always present but for
cultural or other
social reasons may grow out of control and become
endemic. He rejects
the common Panamanian view that corruption is a fact
of life and nothing
much can be done about it.
For the Wharton professor, a corrupt system is not so
much a matter
of missing laws or in which venal creeps have wormed
their way to the
top, but the end product when “corruption
permeates most of society.”
How can such a thing be measured? “If cops stop
cars and invent
violations,” he said, “that’s an
endemically corrupt
society.
Ten years ago, Nichols said, Russia was endemically
corrupt by that
standard. Today, he said, it’s not. “When a
country reaches
a tipping point --- when people decide that
corruption is no longer
acceptable --- corruption just rockets down.” He
didn’t prescribe
any magic pills. Pointing to the example of Hong
Kong, a pirate’s
haven in which corruption was legendary, and the
principal commercial
gateway to a People’s Republic of China in which
appalling corruption
still holds sway, he said that business leaders
“understood the
need to break with these practices” and thus
prompted the former
British colony to clean up its act.
On the other hand, corruption also has a way of
rising insidiously to
alarming levels. Nichols illustrated the process with
health care in
Greece. There, long before socialized medicine was
instituted, it was
a custom for a patient to give a physician a basket
of food as a gift
when paying a visit for medical treatment. Then
doctors began to ask
for, then demand the basket of food. Once they were
well enough fed,
they began to demand money instead, and it got to the
point that cash
payment in advance was necessary for treatment. So
much for the whole
point of socialized medicine, health care for all
without regard for
ability to pay.
By Nichols’s estimation Panama may have its
problems with corruption,
but it’s not an endemically corrupt society.
“The important
thing,” he said, “is that you people got
together to talk
about this.” He urged the audience to think
flexibly and not just
in reforms to government systems. “If the legal
system is ineffective,”
he advised, “use something else” like press
exposure, social
pressure or influence through families to fight
corruption.
Zepeda’s talk was more of a discourse of on
corporate governance
techniques. He noted four general styles of corporate
governance at
large in today’s world. The Asian norm is that
powerful individuals
dominate the companies and minority shareholders have
zero protection.
In Europe, banks are more likely to hold the dominant
positions and
there are legal protections for investors whose
interest isn’t
controlling. Zepeda generally likes the US corporate
model, in which
there tends to be lots of good public information
about companies whose
shares are traded on securities exchanges, a high
degree of competition
and avenues of legal recourse for shareholders who
have been cheated
combine to make good corporate governance the norm.
By contrast, in
Latin America and other emerging capitalist regions,
laws are weak,
there is little or no transparency and small groups
run companies with
few checks or balances.
So what must a financial institution do to get good
corporate governance?
Zepeda said that for starters, a model must be
chosen, and decisions
made about whether or not its investors will manage
the business and
whether there will be one board of directors or two --
- one for the
bank, for example, and another for a corporation of
which the bank will
be a subsidiary.
Then, critical hiring decisions must be made. Most
important of all,
he said, are the posts of internal auditor and legal
counsel.
Then the sorts of people to be recruited as directors
matters. Zepeda
believes that it’s better to have a board of
directors who are
from outside the company, people who have established
reputations for
rectitude and competence in other fields, who are
properly compensated
and who expected to be informed, get involved and
make decisions that
are in the shareholders’ interests.
Also, and of great importance in the Panamanian
business culture, Zepeda
warned against cozy dealings with relatives.
Then the banker reviewed a couple of high-profile
corporate failures
of recent years. Zepeda attributed the ENRON collapse
primarily to a
lack of transparency that not only deprived
shareholders and regulators
of necessary information, but also kept most of the
directors in the
dark. The importance of keeping tabs on offshore
operations is one of
the key lessons he draws from the debacle. In another
case in which
a US branch of an Irish bank ran up spectacular
losses and nearly brought
the whole company down when the facts came to light,
Zepeda noted that
the company’s directors and internal auditors
really didn’t
understand the nature of the derivatives market in
which their executive
dealt --- all they knew was that he had made a lot of
money at it, so
they turned him loose at shareholder risk without
themselves possessing
the expertise to properly oversee his activities.
For Zepeda, a company needs “a process of self-
evaluation,”
thorough background checks of employees and
directors, and mechanisms
to ensure that control functions are themselves
monitored and controlled.
For him, the fundamentals of good corporate
governance come down to
asking two questions: “Is it reasonable? Does it
make sense?”
