There was an awkward silence after Terry Rhodes introduced himself to a group of government officials in a West African capital. The purpose of the meeting was to discuss the license that his company, Celtel International, needed to set up mobile phone service. Rhodes and his partner Dr. Mo Ibrahim founded Celtel in 1998 with a resolve to do business in sub-Saharan Africa by playing it clean. Thanks to persistence and an understanding of local politics, they had already set up phone service in a few neighboring countries without a single bribe. Rhodes hoped this meeting would clear the way to securing a license for which they had already paid the statutory fee of $750,000.
Instead, the officials had little to say, and only later did Rhodes learn why. One of them had sent a fax that morning to Celtel’s Amsterdam headquarters. The fax listed the government representatives who would attend the meeting. Next to the names were monetary amounts, totaling about $50,000. These were payments demanded in exchange for attendance at the meeting. Further bribes would be necessary to close the deal. Due to poor telephone service, Rhodes was unaware of the fax when he met the officials. They looked as though they were expecting something, and when nothing was forthcoming, the meeting reached a deadlock.
The corruption is obvious enough in this situation. Yet if we look at how business is practiced around the world, it is often not so clear what is corrupt and what is not. We typically identify corruption with side payments, cronyism, and nepotism, but all of these activities can be entirely legitimate if practiced responsibly in the right cultural context. Corruption is activity that corrupts—it undermines the system in which it occurs. Because business systems can work very differently, different kinds of activity corrupt them.
Lee Kam Sheung started the Chinese food products firm Lee Kum Kee Ltd. (LKK) as a small oyster sauce business in 1888. By 2005 the family-owned company employed 3900 workers and was selling its products in 80 countries. Lee’s grandson Man Tat was Group Chairman and had appointed his four sons to serve as chairmen and/or CEOs of various divisions.
Man Tat was aware of the importance of bringing managerial expertise into his growing company. He addressed this need partly by sending his sons to business schools in the U.S. and then persuading them to join the company. But he also set out to recruit non-family professionals as board members and high-level managers. He sought persons who, in his words, “were culturally attuned to the firm, and to family as CEOs of its divisions.” That is, he wanted professional managers who were comfortable with nepotism.
Westerners tend to associate nepotism with the lazy and incompetent relative on the staff. Yet it can have its advantages in a Confucian culture, where loyalty to the family is paramount. While a Western grandfather may go easy on his grandson, a Chinese grandfather has authority. He may extract more work from family members than from anyone else. They may not be the most talented available candidates for the job, but grandfather knows their strengths and weaknesses intimately and can assign them duties that take advantage of their particular skills.
Nepotism becomes corrupt when elders do not exercise this kind of care in placing relatives. Responsible nepotism, however, can be perfectly legitimate for a company in the right cultural setting, as LKK illustrates.
The same goes for cronyism. A purchasing agent in Taiwan may award a contract to an old friend rather than the lowest bidder, because the friend can be trusted to deliver a good product. This kind of responsible cronyism (known as guanxi) has been a foundation for business in this part of the world for centuries. It becomes corrupt only when the agent favors friends simply because they are friends, rather than because they can be trusted to do it right.
Many of these cultural differences derive from the fact that Western cultures are based on rules and transparency, while most of the world’s cultures are relationship-based. Westerners trust rule-based institutions, while others trust their friends and family instead and are therefore especially keen to cultivate strong relationships.
Gifts to officials can play an important role in relationship building. For example, Korean businessmen who are granted a meeting with an important official may bring an envelope full of cash, as a token of gratitude. They may send the official a generous gift in observance of a wedding, or condolence gift in case of death in the family. Within limits, these gifts merely signal a commitment to the relationship. Personal connections of this kind historically helped to align the powerful chaebol (family-owned firms) with government policies, resulting in Korea’s economic success story.
Culturally appropriate gift-giving can, of course, easily slip into quid-pro-quo bribery, as it frequently does in Korea. Side payments are a constant temptation in a relationship-based system, because they are a short cut to the slow and laborious process of building a relationship based on trust.
The West has its own temptations. Due to an increasing reliance on rules and transparency, relationships and personal authority have weakened over the years. Supervision is relatively light, and the system relies largely on voluntary compliance with ethical and legal norms. This creates an efficient economy, but there is a constant temptation to cheat or take short cuts. This is corruption, no less than bribery. Its effects are amply illustrated by the recent crisis in the Western financial system, when a few irresponsible players precipitated a global credit freeze.
Even bribery in West Africa can be seen as a responsible practice gone awry. In a traditional village context, African leaders frequently earned respect by judiciously endowing their subjects with gifts and favors. This was not simply a patronage system but a form of rational redistribution. The chief channeled wealth to where it was most needed, providing the community greater survival advantage. With the coming of colonialism and Western-style institutions, men frequently left villages to take government jobs in the capital. They continued to use gifts as a means of obtaining influence but left behind the social context that structured and guided the practice. Responsible generosity became irresponsible influence peddling.
Business executives operating in Africa today should try to earn the influence they need through responsible generosity, perhaps by building infrastructure or schools in lieu of payments to officials or political parties. Here and in general, the key to avoiding corruption is to understand what makes a business culture work, and to stick to practices that reinforce the system rather than tearing it apart.
Note: For a more detailed discussion see the author’s “Corruption from a Cross-cultural Perspective,” to appear in Cross-Cultural Management: An International Journal. The Celtel experience is further described in the 2008 London Business School case study Terry Rhodes by A. Karim, T. Putimahtama, and J. Mullins. The LKK story is told in the 2005 IMD case study Lee Kum Kee Co. Ltd.: The Family Recipe by C. Lief and J. L. Ward.