03 Dec 2012  HBS Cases

HBS Cases: Against the Grain

Dealing with pervasive, institutionalized corruption is tough but not impossible. A new case study on Tanzania joins a series of cases in professor Karthik Ramanna's research that explore the deep-seated problems of corruption as well as multiple entrepreneurial paths to combat it.

 

Corruption doesn't announce itself with a capital C. It is subtler and thornier than that—as one HBS student found out the hard way during a recent summer internship in Tanzania.

In a new case detailing his experience, the student struggles to navigate the systemic abuses and institutional weaknesses that underlie corruption everywhere. As an emerging professional he must also weigh the trust value of the personal relationships he is forming; his own comfort zone for ethical trade-offs; and the inherent uncertainties of making decisions without precise information, decisions that could affect many people.

"There is a central tension in the case between the student feeling at once helpless against a corrupt system and surprisingly powerful given his novitiate status."

The case, Against the Grain: Jim Teague in Tanzania, was written by the student using a pseudonym under the supervision of Associate Professor Karthik Ramanna, the Henry B. Arthur Fellow of business ethics at Harvard Business School.

In a nutshell, the case goes like this: "Jim" accepts a summer internship as a loan officer from a US-based social investment firm seeking a high-impact agribusiness project in rural Africa. A small company in Tanzania seems to fit the bill, but it faces health-safety issues with the potential to spread E. coli throughout the region. Another problem: It's not clear whether the local agency flagging the potential crisis is identifying a real issue or just seeking a payoff (it has a reputation for the latter). It's a quandary for Jim's employer, of course, but withdrawing investment at the 11th hour would also put many poor farmers' livelihoods in jeopardy.

Like many case studies prepared for classroom discussion, "Against the Grain" ends on a cliffhanger: What should Jim do? The array of ethical choices forms the basis of discussion in the MBA required course Leadership and Corporate Accountability.

Supply and demand

"Corruption can be defined as paying for a good or service in contravention of an ethical norm," says Ramanna, noting/adding that economic tools of supply and demand can be applied to studying the phenomenon of corruption.

On the demand side, it is true that corrupt government officials sometimes garner a degree of sympathy from the public, legitimizing their bribe-taking. Public officials' salaries, particularly in developing countries, are often meager. Some, like police officers, it can be argued, require additional income just to ensure a basic standard of living.

On the supply side, corruption prevails because people find themselves paying bribes under duress. Even when one's life is not at stake, says Ramanna, if paying a bribe makes the difference between waiting years or mere days for a permit or license, it is tempting to many individuals to just pay up.

As the "Against the Grain" case suggests, pervasive corruption entails a spectrum of complex personal, societal, and economic phenomena without an easily identifiable response.

As Jim spotted an increasing number of red flags during his hectic summer in Tanzania, he had to consider not only his US employer and his HBS position, but also his local client, his client's employees and their families, customers throughout the region, and all the suppliers for the client's business including struggling farmers who depended on the business for their livelihoods.

"Jim wondered why he didn't see the problems earlier," Ramanna says. "He wondered what he could have done better to make the situation different. There were so many moving parts and so little information."

"Smart, ethical managers, who have a long-term view, can be encouraged to form special-interest groups to address corruption in their societies."

Corruption is a problem that looms bigger than one person's ability to confront and resolve, Ramanna says. Everyone who faces it feels some degree of helplessness. And Jim's helplessness was juxtaposed with the fact that, for all his relative youth and inexperience, he had been put into a position of remarkable power over the lives of so many people he barely knew or understood.

"The goodwill earned and accrued by earlier generations of HBS graduates has endowed the current generation of HBS students with access to incredible opportunities; with these opportunities comes a great deal of power," Ramanna says. "There is a central tension in the case between the student feeling at once helpless against a corrupt system and surprisingly powerful given his novitiate status. This is a moment that cries out for leadership; it is a moment that makes a leader.

"The case is intentionally brief," he continues. "We don't know whether the local agency Jim had to deal with was in fact corrupt, and he didn't know either."

When discussing the case in the classroom, some students puzzled whether Jim didn't suffer from a "savior complex." Could he really have landed in Tanzania thinking it would be simple to evaluate and assist an agribusiness in a deeply complex society? But other students rejected this criticism, arguing that one is never fully prepared for the challenges life throws out.

Entrepreneurs tackle corruption

Several other cases from Ramanna's research suggest multiple entrepreneurial approaches to combating corruption.

The case Rospil.info, coauthored with HBS professor Paul M. Healy and research associate Matthew Shaffer, focuses on the Russian anticorruption blogger Alexey Navalny, who advocates tech-savvy ways to expose and encourage prosecution of unethical dealings by the country's government officials. Navalny's strident activism and unwillingness to compromise, however, makes him a divisive character among business leaders who share his principles but question the ultimate effectiveness of his approach. Is it in their firms' best interests to support someone so politically divisive?

Navalny was detained last July by Russian authorities, ironically, on charges of embezzlement. The charges, which date back to 2009, allege that he defrauded the Russian region of Kirov. "Rospil.info" discusses the charges and considers whether they are politically motivated—a way for Navalny's powerful opponents to silence his anticorruption activities. The deputy governor of Kirov called the charges "complete nonsense."

Another case, Caijing Magazine, set in China, looks at how an inside-outsider, Wang Boming, uses his independent financial newsmagazine to carefully and gradually shift the norms against corrupt practices in business and government in his country. Of course, dealing with China's hypersensitive national propaganda apparatus means that Wang has to be especially delicate in choosing whom to go after and when. The case, cowritten with HBS senior researcher G.A. Donovan, raises questions about how to be pragmatic in the face of pervasive corruption, so that one can have a long-term positive impact on a corrupt system, says Ramanna.

A third case, I Paid a Bribe (Dot) Com, cowritten with Rachna Tahilyani, concerns an innovative website in India that encourages members of the public to address corruption by self-reporting their experiences online. Since corruption flourishes where information is murky, the goal is transparency, leveraging the ubiquity and anonymity of the Internet. People who have endured incidents like being shaken down by police officers or government officials, for example, feel it cathartic to go online and describe what happened. In addition to accumulating reports of corruption, the site, run by the Bangalore-based nonprofit Janaagraha, also generates heatmaps showing hotspots where bribes are more likely to be demanded.

BribesIn addition, the founders of the website, spouses Ramesh and Swati Ramanathan, use another tactic: a poster campaign in which private citizens are encouraged to report whether a bribe was demanded by an official in cooperating governments, in some South India districts. The poster, which is required to be hung in bureaucrats' offices in clear view, asks visitors to text their experiences to ipaidabribe.com. The data is automatically compiled into online reports.

The case raises questions about whether and how a website and poster campaign can really make a dent in a problem as pervasive as corruption in India. And, if so, what can the website do to generate and sustain bribe reporting on a scale that can have an impact? There are also issues with the credibility of self-reports and concerns that the model can be hijacked to discredit honest officials for political or personal gain.

A problem of the commons, and solutions

Because of his background in political economy, Ramanna sees corruption as a problem of the commons. Beyond Jim's experience in "Against the Grain," Ramanna points to Russia as an example of a business environment where managers continually confront a set of unviable choices. Managers he respects have said that in Russia it is almost impossible not to pay bribes to get things done. Why? Because local and federal laws conflict as if by design, which leads to gaps that some officials believe they can exploit.

But, across the globe, Ramanna says, managers and leaders routinely organize to address problems of the commons. He points to his research on the political economy of accounting standards, where he finds that firms and industries worldwide systematically organize to redefine even the most basic rules around what constitutes "income" and "assets" in an economy. "In many societies, managers of large companies have the power to change the rules of the game, particularly if they band together to form special-interest groups," he says.

"Managers are not entirely helpless against the scourge of corruption," Ramanna continues. "Moreover, it is very likely that reducing corruption unleashes new opportunities for growth and value creation. So smart, ethical managers, who have a long-term view, can be encouraged to form special-interest groups to address corruption in their societies."

The case studies, in providing examples of entrepreneurial models against corruption, are a step in that direction.

About the author

Martha Lagace is a freelance writer for Harvard Business School Working Knowledge. She is also a PhD student in social anthropology at Boston University.

Comments

    • Rob Houck
    • Partner, Eaton & Van Winkle

    1st I admit I have not yet read this article in full, but I do think about corruption. It seems to me it is similar to training police in Afghanistan. What is the point unless there is a reliable judiciary and penal system? As to corruption, unless you have a properly vetted, organized and compensated civil service system efficiently enforcing thoughtful regulations, it is very difficult to avoid casual payments (bribes) to move the process along. Certainly if lives are put at risk - as in NY passing improper cement or certifying elevators and cranes or drug or food inspectors passing tainted drugs and foods - there is a real problem. The rest is less serious. The system is particularly dangerous to the outsider - who does not know what is necessary and what is seriously illegal. Even in 1st world countries merchants face shake downs from local thugs and gangs. Personally, I prefer terms that are less loaded with 1st world values . "Corruption" already indicates that the system is improper but suggests that the correction is simple. It is not. I hope my comment does not seem particularly stupid once I have properly read the article! Rob Houck

     
     
     
    • Anonymous

    Corruption as define by Ramanna is paying for something which is legal and usual course of buisness but in control of someone who is on habit of taking advantage of his position. Sticking to that I believe more automation in government machinery requiring less "moving parts" may help in reducing corruption. It is but human nature to gather and exploit all they can with the distinction of what they exploit being dependent on there reach, so personally I believe eradicating corruption is unfeasible. The less human interference, checks, audits or whatever you may call it are there, the more simpler it is to avoid corruption.

     
     
     
    • Hugh Quick
    • home, none

    As the writer has discovered 'corruption' is not a technical problem but a deeply personal one which everyone must confront, whether knowingly or not.

     
     
     
    • Anonymous

    Read all the research, and I must say that unfortunately now a days in the current corporate world, even in the world of a normal person, it is almost impossible to get any work done without Corruption i.e Bribery. And its torment is also described by Muhammad (P.B.U.H) "The one who gives bribery and the one who takes bribery, both will be kicked into Hell". The solution of this problem near to me is that Government must enforce this law and must also educate itself and its people morally. Because all of the problems come from Education system, so do the solution.

     
     
     
    • Anonymous

    Prevention is better than cure. We must identify & weed out the root issues causing corruption first than tackle/ address the corruption per se. Some of IPBC's initiatives are focused on the latter - For ex. once the poster is taken off, the bribe is back on track again. These are quick fixes and donot address the real problems on the ground. It may be so happening that, due to lack of automation people bribe the folks to prioritize their work. One way to address the problem is automate the entire process. Each situation is unique and there cannot be one solution.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    Tanzania and many African countries are a haven for the corrupt. However, this is a universal phenomenon in one shape or the other. There are multiple laws to curb corruption and punish the corrupt but implementation is slow and even absent. Ethics and morals have a back seat and there is absence of transparency as a result of which the corrupt practices go on. Even the legal machinery is mired in corruption and, when those responsible to ensure a corruption-free environment have no guts or teeth to bite the corrupt, it becomes a hopemess situation. The scenario is grim but needs to be faced with determination. A boycott sort of action by better-off countries can lead to improvement by and by.

     
     
     
    • Madhu
    • Employee, http://stonefinder.com/informational_index.php

    This is very weak point for successful business. I think every company adopt clear and strong policies about avoiding corruption in all areas of business. From the top position in the company down to every manager and supervisor, ensure that you send a strong message about maintaining ethical standards. Lead by example with every person who holds a managerial or supervisory position acting ethically at all times. Define unethical conduct -- extortion and bribery, for example -- and create a company code that insists on compliance. Thank you Kartthik sharing your experience.