Malaysian banks: Debt recovery, Ethics and CSR

1.0 Introduction

Risks exist in all types of businesses, and financial institutions are not excluded. An area of risk for financial institutions such as banks is outstanding loans or non-performing loans (NPL) arising from defaulters of financial instruments such as housing loans, personal loans, hire purchase and credit cards. We have already seen the adverse effects of failure to collect outstanding loans in the case of the U.S. subprime mortgage crisis that began with “California-based New Century Financial, the second largest subprime lender in 2006, filing for bankruptcy after struggling with buyback demands for defaulting mortgages” (Alfaro & Kim, 2008), followed by other financial institutions and later spiraling into a global financial crisis. The effects are still felt today as different countries have different economic recovery resources and abilities.

Thus, does the legal right of the banks to collect outstanding loans from defaulters also give them the right to be absolved from the responsibility to ensure that the means, processes and methods used to collect outstanding loans are proper, professional and ethical?

One can argue that if the collection of the outstanding loans is being carried out by the banks’ employees, then the banks must ensure proper, professional and ethical means, processes and methods. Another can argue that if the banks outsourced the debt recovery function to a debt-collection service provider, the banks are no longer responsible because the debt-collection service provider, as a duly registered company, is an independent legal entity by itself, and thus, have their own policies and practices.

Is the above a loophole for the banks to absolve from the responsibility and blame should the outsourced debt-collection service provider employ high-handed techniques such as threats and other physical and mental abuses to collect outstanding loans from defaulters?

Let us consider a recent case in Malaysia as reported in several local dailies such as the Nanyang Siang Pau, Sin Chew Daily, China Press and the Star (of May 13, 2010), that a man died after receiving 120 text messages on his mobile phone from debt collectors, reference: “Man dies after getting debt collectors’ 120 SMSes” http://thestar.com.my/news/story.asp?file=/2010/5/13/nation/6247439&sec=nation. Moreover, it appears that there have been many abusive cases, so much so that several Malaysian non-governmental organisations (NGOs) has condemned the high-handed actions of the debt collectors engaged by the banks as reported in the New Straits Times (of May 14, 2010), Malaysian Mirror and the Bernama news agency, references: “NGOs slam threatening debt collection methods” http://www.malaysianmirror.com/nationaldetail/6-national/39926-ngos-slam-threatening-debt-collection-methods- and http://www.bernama.com/bernama/v5/newsgeneral.php?id=498227.

Futhermore, in the National Consumer Complaints Centre Annual Report 2009, under the category of complaints made against financial institutions, the following are the key complaints:

• Assignment of non-performing loans (to debt collection companies where strong-arm tactics are used to harass and collect debts)
• Unfair interest, charges and penalties
• Fraudulent ATM transactions (inadequate security or safeguards)
• Unfair contract terms
• Misleading advertisements
• Use of unprofessional or unauthorized credit tip-off service providers (providing outdated, non-updated or invalid information)

(2009, pp. 25-26)

Figure 1-1: Number of Complaints against Malaysian Financial Institutions, 2009

(NCCC, 2009, p. 8)

So, are the banks responsible for the actions and behaviour of the debt-collection companies they engage? To answer the question, let us first better understand what is ethics and corporate social responsibility [a.k.a. Corporate Responsibility (CR)].

2.0 Ethics and CSR

2.1 Company Reputation and Financial Performance

A common but very important management excellence theme that Collins & Porras’ Built to Last, Collins’ Good to Great, and Brown & Turner’s The Admirable Company share is that a company’s reputation fuels its financial performance.

A company’s reputation vis-à-vis financial performance can be built from the following foundation components:

• Quality of management – Ethics (corporate governance, code of conduct)
• Financial soundness
• Quality of goods and services – People and process dependent
• People management – Talent management (development, attraction and retention) to achieve high performance and ensure quality of goods and services
• Value as a long-term investment – The value chain/value network
• Capacity to innovate – Differentiation and competitive advantage
• Quality of marketing – Customer engagement (attraction and retention)
• Community, social and environmental responsibility (CSR) – embedded as part of corporate strategy and performance
• Use of corporate assets

What are the benefits of gaining high reputation vis-à-vis high financial performance? “Sir Clive Thompson, then CEO of Rentokil – Britain’s most admired company in 1994, summarised the benefits as:

• Customers may gain reassurance from the knowledge that they are in good hands
• Employees can derive great pride from being part of the very best
• Shareholders can feel reassured that their company has been judged to be the best by a group of highly credible judges
• Standing within the local community, from whom we want to attract good employees, increases
• Suppliers [partners] will potentially enhance their own reputations by such a prestigious award”

(Brown & Turner, 2008, p. 1)

Furthermore, “research has also shown that a good reputation:

• Can lead to superior financial performance
• Encourages shareholders to invest in the company
• Attracts good staff
• Helps in [attracting and] retaining customers”

(Brown & Turner, 2008, pp. 3-4)

2.2 Ethics

Ethics involves the study and practice of moral values, issues and choices. Ethics is concerned with what is right versus wrong, good versus bad and the “in-between” situations or issues generally known as the grey areas. Being ethical means complying to or upholding a set of moral principles, and this relates to discipline.

According to Jim Collins in Good to Great, high performing or great companies possesses a culture of discipline (Figure 2-1). “All companies have a culture, some companies have discipline, but few companies have a culture of discipline. When you have disciplined people, you don’t need hierarchy. When you have disciplined thought, you don’t need bureaucracy. When you have disciplined action, you don’t need excessive controls. When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance” (2008, p. 13 and pp. 120-123).

Figure 2-1: The Good-to-Great Matrix of Creative Discipline

(Collins, 2008, p. 122)

2.3 Corporate Social Responsibility (CSR)

Today, CSR is gaining attention and interest among leading Malaysian companies, the government and NGOs. While some companies are totally sold out on CSR by incorporating CSR as part of their business strategies, others are less enthusiastic, wondering if such efforts are just public relations stunts or corporate image-building activities.

If companies see CSR as mere philanthropy or charity and nothing more, then they do not yet clearly understand what CSR is. CSR, when properly understood, is not what you do with your money once you have made it but how you make your money.

There is no single universally accepted definition of CSR. The vast amount of CSR literature, including corporate CSR reports, defines CSR differently, although the core elements of CSR are present in those many definitions. Some examples are listed in Table 2-1.

Table 2-1: Example Definitions of CSR

(Crane, Matten & Spence, 2008, pp. 6-7)

From the perspective of academic research and literature, “one of the most long-standing and widely cited definitions of CSR” is Archie Carroll’s Pyramid of CSR as per Figure 2-2 (Crane et al, 2008, pp. 57-58; Carroll, 1991, pp. 39-48).

Figure 2-2: Carroll’s Pyramid of CSR

Thus, we can argue that CSR needs to become part of the company’s DNA i.e. how it runs its business, how it manages its risks, how it strategizes for future survival and growth, and how it manages its relationships with multiple stakeholders i.e. the shareholders, customers, employees, suppliers, competitors, regulators and the community in which the company operates, and society as a whole.

Today, CSR is also important from the sustainability point of view i.e. how long can Earth or resources sustain our economic activities at the present economic rate and in the present form? Consider these simple examples – if a well-known restaurant is dependent on the sole proprietor, who is also the chef, and there are no succession plans, then that restaurant is not a sustainable business. It will only last as long as the sole proprietor/chef ‘s lifespan or ability to work. We all know that oil will run out one day in the future. Many of us will not be around to see that ‘one-day’. Thus, in the very long-term, oil companies are not sustainable.

CSR is an ethical framework that when used correctly and strategically, enables companies to develop innovative ways to create value and new ways of operations that may be more efficient in resource utilization and will benefit the company in the long-term.

There are six core characteristics that represent the essential features of CSR. They are:

• Voluntary – in the majority of CSR literature and CSR concepts, corporate voluntarism or responsibilities beyond the minimum legal requirement is the main thrust of CSR activities. Critics of CSR argue that voluntarism is CSR’s main flaw because “legally mandated accountability” is where the importance lies. However, global competitive business pressures are now increasingly driving corporate CSR activities


• Internalizing or Managing externalities – Externalities refer to the positive and negative side effects of a company’s economic activities that are borne by other people such as the local community where the company operates, and is not taken into account by the company in its decision making processes nor included into the market price for goods and services. However, government regulations can legally require the company to internalize the cost of the externalities


• Multiple stakeholder orientation – In the concept of CSR, companies do not only have responsibilities to shareholders but also to a variety of stakeholders such as employees, suppliers, and consumers. This is because the operational network of the company involves more than just a company-consumer relationship


• Alignment of social and economic responsibilities – CSR is not in conflict with the companies’ objective to seek profits, but rather when economic and social responsibilities are aligned, companies can continue to generate profitability while being socially responsible


• Practices and Values – CSR is not only about establishing a set of “business practices and strategies that deal with social issues” but also the philosophy or values underlining those practices and strategies, which gives rise to numerous and continuous debates about why companies do it


• Beyond philanthropy – CSR is not merely charity, but concerns or involves the entire company’s core business operations’ impact on society and the environment

(Crane et al, 2008, pp. 7-9)

To adopt CSR, most companies (e.g. banks and other financial institutions) can begin by focusing their CSR efforts or activities into four business dimensions i.e. the workplace, marketplace, community, and environment, and addressing example issues and challenges as follows:

i) The Marketplace

• Company reputation
• Corporate governance and Code of conduct
• Business transactions code of ethics e.g. in procurement
• Product and Service responsibility
• Customer service level – professionalism and quality
• Value Chain/Value Network and Outsourcing (e.g. partners’ performance quality and professionalism, code of conduct and quality audits)

ii) The Workplace

• Health and safety issues
• Culture development and sustainability
• Work-life balance
• Human capital development
• Talent management – attraction, development and retention

iii) The Community

• Company reputation
• Social impact of business transactions and contribution
• Alignment of core business to community investment
• Employee volunteering

iv) The Environment

• Reduce environmental or carbon footprint (energy, water, waste)
• Environmental impact studies
• Effects on biodiversity
• Sustainability of resources

3.0 Stakeholder Engagement

CSR does not only concern the company and society, but involves all of the company’s stakeholders.

In Integrated Strategy: Market and Non-Market Components, Baron had categorized the stakeholders into two groups or components i.e. market and non-market (1995, pp. 47-48). The market component comprises the stakeholders such as customers, competitors, employees, and partners and suppliers, as shown in Figure 2-3. The non-market component comprises of NGOs, media, society or community, government, regulators, and environmental safety and standards organisations. Being concerned about or affected by social, ethical and professionalism issues, both the market and non-market components can exert differing degrees of social responsibility pressures or motivations on the company – in this case, the banks and debt-recovery service providers.

Figure 2-3: Stakeholders of a company: Motivations for CSR

The stakeholders, irrespective of whether they belong to the market or non-market components can be in the position of holding the company accountable for the social issues and resulting financial or economic impact. The stakeholders can also be champions for the company, slow the business progress of the company, or choose not to be involved. Should the company totally ignore the social responsibility pressures or motivations exerted by the stakeholders the consequences could prove disastrous in the long-term.

For e.g. if the debt-collectors engaged by the bank continues to use strong-arm tactics to collect debts and results in public police cases of assault and battery, serious injuries or deaths – accidental or otherwise, the negative publicity generated can cause serious reputational damage to the bank. Communities and society may easily perceive or conclude that the bank readily resorts to and condones acts of gangsterism to recover debts. Depending on the severity of the issue, NGOs, activists and even political parties can call for and orchestrate boycotts against the bank. The media and the Internet can easily be brought in to increase the negative publicity to a regional or global level creating adverse effects on the bank’s corporate image and reputation, customer confidence and support, and even shifting business to the bank’s competitors.

While the above has not yet happened in Malaysia, we can draw CSR concept similarities to some publicized real cases in other countries or industries such as:

• The Alison Turner vs. Halifax Bank landmark case (Mother sues bank, 2007)
• The ICICI Bank (India’s second largest bank) harassment case (M. Raja, 2007)
• Another ICICI Bank harassment case (Sharma, 2010)
• The Nike child labour cases in Pakistan and Cambodia in the 1990s (Cushman Jr., 1998; Boggan, 2001)
• The current Foxconn Technology employee suicides and labour conditions case in China (10th suicide case, 2010; Move to curb, 2010; Suicide No. 10, 2010; Taiwan activists protest, 2010; Foxconn suicides shed, 2010)

In the Foxconn case, activists in Hong Kong had called for the boycott of the Apple iPhone because Foxconn, as a contract manufacturer, also manufactures the iPhone for Apple, Inc. (HK activists push, 2010).

The above cases and the earlier case of bank-appointed debt-collectors using strong-arm and harassment tactics in Malaysia are not surprising because it is a CSR myth if we think that “companies will compete in a ‘race to the top’ over ethics” (Blowfield & Murray, 2008, p. 354). In reality, “although companies may present themselves as socially responsible, there are many areas in which they deliberately pursue acts of social irresponsibility” (Blowfield & Murray, 2008, p. 354; Doane, 2005, p. 23-29).

4.0 Conclusions

We now return to the question, “Are the banks responsible for the actions and behaviour of the debt-collection companies they engage?” The answer is ‘Yes’.

Irrespective of CSR, banks are the key organisations in any country’s financial structure, and are expected to function with high standards of professionalism, trust and financial stability. Banks who officially or legally appoints or engage any other company as its business partner or supplier of products and services needs to ensure that the business partner or supplier is also of repute as it directly reflects upon the banks. When we include CSR, we have a stronger argument.

However, in Malaysia, CSR and corporate governance (CG) are only at the infancy stages when compared “to other Asian countries such as Singapore, Thailand and South Korea” (Haron, Ibrahim, Ismail, Quah, Kader Ali, Zainuddin & Nasruddin, 2007, p. 5). While there is awareness, the adoption, practice and reporting of CSR and CG is very slow or low.

From the research conducted by the Malaysia University of Science (Universiti Sains Malaysia) www.usm.my/bi, sponsored by the Malaysian Accountancy Research and Education Foundation (MAREF) http://www.maref.org.my/ and the Malaysian Institute of Integrity (IIM) http://www.iim.com.my/ (Haron, et al, 2007), out of the 200 Malaysian public-listed companies, only 28 responses were received for the CSR questionnaire, and 30 responses for the ethical orientations questionnaire, sent to the companies’ board of directors. Is this an indication that ethics and CSR are not important? Or there is nothing much to disclose when it comes to ethics and CSR, thus, the poor response? It is also interesting to note that none of the 200 public-listed companies included a bank (Haron et al, 2007, p. 1 and pp. 146-150).

Furthermore, NGOs in Malaysia are relatively weak as champions of the consumers given the existing laws on freedom of speech and expression, freedom of information, and freedom of assembly and association (SUARAM, 2009). This is further magnified by a poor consumer rights culture, and the fact that the main dailies or press/media are owned or controlled by the major political parties.

In summary, Malaysian banks (and other companies) do possess the power and ability to behave and perform much better, and consumers in Malaysia, including loan or payment defaulters, deserve to be treated in a professional and civic manner. Collectively, we need to march forward to increase our competitiveness, innovativeness, economic wealth and welfare, and ensure sustainability as a future developed nation. Thus, debt-collection strong-arm and harassment tactics are best left to the stone-age era.

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Malaysia and Corruption

UPDATED


1.0 Introduction

“Corruption” is an English word we often hear in conversations or read about in newspapers, in various online forums and blog sites, especially when the topics are of the sensational, political and related to people in authority.

The Oxford Advanced Learner’s Dictionary, 7th Edition (OALD) offers three definitions for the word “corruption”:

“1. dishonest or illegal behaviour, especially of people in authority;
2. the act or effect of making somebody change from moral to immoral standards of behaviour;
3. the form of a word or phrase that has become changed from its original form in some way: The word ‘holiday’ is a corruption of ‘holy day’.”

In the context of moral and ethics, the OALD’s third definition is certainly not applicable and surely, there is nothing holy about corruption!

So, what is corruption? We can define corruption as the abuse of one’s position for personal gain or for the benefit of an individual or group to who one owes allegiance. For e.g., a public official in charge of approving building safety plans may become corrupt by accepting monies to approve sub-standard building safety plans. A purchasing manager in an organisation may become corrupt by approving and buying stationeries at higher prices from a supplier due to commissions from the supplier.

Corruption occurs whenever a person in authority accepts, solicits or extorts a payment, or when a private agent offers a payment to circumvent an issue, a regulation or the law for personal or competitive advantage.

Corruption is a two-way process, usually involving members of both the public and private sectors or within the private sector, who engage in illegal, illegitimate and unethical actions or behaviour that eventually affects a country’s economic prospects and degrade its social and political institutions.

Corruption is a symptom of weakness in the political, legal, social and business or economic systems. Corruption is not new and is not limited to certain countries of the world. Today, corruption is a global phenomenon and its severity varies from country to country – usually more prevalent in less developed or developing countries (Alatas, 1990).

In the present era of increased international trade and globalisation, most progressive governments are advocating transparency i.e. activities should be carried out in an open, transparent and accountable manner.

1.1 Types of Corruption

There are several types of corruption. The major or common types are bribery, patronage, nepotism, electoral fraud and manipulation, theft of state assets, diversion of revenues, and evasion of taxes.

The most common form of bribery usually involves payments and/or family holiday packages given by individuals or companies to government officials in return for favours such as award of government contracts, licenses and permits. At one time or another, we may have been guilty of corruption ourselves when we bribe a police constable against issuing a traffic offence summons for exceeding the speed limit or running a red stop light.

Government officials using their position, power or influence to award contracts or obtain good jobs or unfair advantages for members of their own families practices a form of corruption known as nepotism. Corruption also includes vote buying and violation or manipulation of electoral laws on campaign financing. Theft of state assets by officials charged with their stewardship is also corruption.

1.2 Corruption in Malaysia

Malaysia is not without issues and challenges of corruption. The question is to what depth and width does corruption exists in Malaysia?

Towards the last few years of former prime minister, Tun Dr. Mahathir Mohammad’s premiership, he had strived to address corruption, money politics and nepotism in the United Malays National Organisation (UMNO), the ruling party (Fan, 2003). Similarly, different degrees of corruption exists within the hierarchies of the other Malaysian political parties. Some of these negative activities may be regarded as “petty” corruption, while others may be regarded as “grand” corruption, but their practitioners naturally strive to keep it hidden from public view, thus, the difficulties in proving the existence of corruption.

The Malaysian courts are also sending strong messages against corruption. In a 2006 corruption case, a former Kangar Municipal Council president was sentenced to a four-year jail term and fined Ringgit 405,000 by a Sessions Court that found him guilty on three counts of corruption committed in 1999 of soliciting bribes from a property developer, totaling Ringgit 385,000 and a charge of abusing his position as a public servant by accepting a golf set worth Ringgit 2,500. The jail sentence and fine represents one of the stiffest sentences for corruption (Former Kangar, 2006; RM405,000 fine, 2006).

In another case, “a land settlement officer, who was acquitted of corruption by a lower court last year, saw his hopes dashed when the High Court here yesterday set aside his acquittal and sentenced him to two years’ jail.” He was also fined Ringgit 460,000 on three charges of corruption involving Ringgit 92,000 (Officer’s graft, 2006).

A technician paid a high price for accepting a Ringgit 500 bribe from a project manager in order to speed up the approval plans for a residence and shop premises when the Sessions Court sentenced him to three months’ jail and a fine of Ringgit 10,000 (Technician pays, 2006).

The Malaysian Anti-Corruption Commission (MACC) http://www.sprm.gov.my/, formerly known as the Anti-Corruption Agency (ACA; established October 1967) was established in January 2009, dedicated to the task of keeping corruption in check – investigating complaints and cases, and charging those found guilty for further legal action.

However, despite the Malaysian government’s initiatives to fight and control corruption, Malaysia continues to slip in the international corruption rankings. Back in 2006, in the Transparency International 2006 Corruption Perceptions Index report, Malaysia had fallen five places to 44th place among 163 countries and, “Among 25 countries in the Asia Pacific region, Malaysia ranks 10th where the least corrupt are Singapore, Hong Kong and Japan in that order, with Myanmar as the worst. However, Malaysia scores better than China, India, Indonesia, Thailand and Pakistan.” (Corruption ranking, 2006; Malaysia slips, 2006).

In the latest Transparency International Corruption Perception Index 2009, Malaysia ranked #56, down by nine places from 2008’s #47 (Malaysia’s corruption, 2009; Disturbing spiral, 2009; CPI 2009 Table, 2009).

Transparency International CPI – Malaysia

• 2009: Ranked #56
• 2008: Ranked #47
• 2007: Ranked #43
• 2006: Ranked #44
• 2005: Ranked #39
• 2004: Ranked #39
• 2003: Ranked #37
• 2002: Ranked #33
• 2001: Ranked #36
• 2000: Ranked #36

While there is the Malaysia Anti-Corruption Comission Act 2009 and the MACC to combat and control corruption, much is not publicized for the benefit of the public, and the MACC itself is sometimes subject to criticism about a lack of transparency. Following the 2006 UMNO general assembly, the then prime minister, Tun Abdullah Ahmad Badawi, addressed several key criticisms against his administration and premiership style – one being that the authorities appear to only go after the “small fish”.

Generally, the public is aware that Malaysia, similarly like many other developing countries, experiences possible corruption in the following areas:

• Political corruption
• Political finance
• Vote buying
• Cronyism
• Awarding of government contracts
• Corporate finance
• General procurement, for e.g. military procurement, medical and healthcare (hospitals, pharmaceuticals), educational
• Property development (planning and approvals)
• Licensing and permits
• Imports and exports
• Intellectual property and copyright regulation and enforcement
• Timber industry and illegal logging

While corruption is very difficult to completely eradicate, the key objective for Malaysia is to be able to effectively regulate and keep corruption in-check. The continued and additional efforts of the government to promote and maintain transparency in government activities and also in corporate governance will certainly enhance efforts in combating corruption.

Investor trust and confidence must be maintained and further cultivated to continue to attract foreign direct investments (FDIs) in a continuously increasing competitive regional and international trade environment accelerated by globalisation (Transparency International, 2001; 2003; 2004; 2005; 2006).

2.0 Causes of Corruption

What causes corruption? Research have shown that generally where a country’s institutions of governance are weak, where government’s policies provide room for it, and where government institutions have become corrupt themselves, corruption tends to be more prevalent. While few countries set out to encourage or promote corruption, the causes or sources of corruption are highly contextual – rooted in a country’s political and legal development, social history, bureaucratic traditions, economic conditions and policies.

Certain characteristics of the developing, the less developed or transitional countries tend to unconsciously promote corruption. These countries may be suffering from political unrest or power struggles for the country’s institutions of governance. They may also possess a system of governance that has traditionally been dominated by the military, underdeveloped judicial system and non-existent tradition of the rule of law.

The following are some major factors that may facilitate the growth of corruption.

2.1 Political Factors

Levels of corruption are related to the strength of civil independence, such as the level of press freedom, the freedom of individuals to form non-governmental organisations (NGOs), and the presence of active and structured political competition.

In order to keep corruption in-check, there must be adequate transparency. Thus, the citizens of a country must have the ability or access to know about their government’s activities.

The way in which a country implements its political and electoral processes and practices can become a key source of corruption. Political parties based primarily on patron – client relationships and the distribution of patronage may become major sources of corruption. Such political structure or climate is usually accompanied by weak campaign finance legislation and a low level of disclosure required of campaign contributors and political candidates (Transparency International, 2004).

2.2 Legal Factors

The existence of anti-corruption legislation in a country’s legal system affects the level of corruption. However, for laws to be effective, the ability and credibility of the police and judiciary to act against corrupt practices is important.

2.3 Bureaucratic Factors

Several factors exist as a result of bureaucracy. In countries with high regulatory and state-bureaucracy processes, possibility of corruption tends to be higher. This means that where a government imposes many rules and regulations, public officials have a greater opportunity to exploit them, especially where public officials have unaccountable control over the provision of public services, application of the regulations and fee collections.

Also, public servants may be more tempted to engage in corrupt practices where their wages are low or there exists a large disparity between public and private sector wages. Thus, there is a need for effective auditing and monitoring systems within a government. Corruption is more likely to occur when the likelihood of its detection, and its expected detection cost, are relatively low.

2.4 Economic Factors

Corruption is more likely to grow rapidly in countries where governments create monopolistic economic settings. Economic factors are closely linked to bureaucratic factors because if a government’s economic policies are implemented and monitored in a non-participative, non-transparent and non-accountable manner, abuse sets in (Eberlei & Fuhrmann, 2004).

2.5 Transnational Factors

Corruption has strong transnational dimensions. Countries that are perceived today to be very corrupt had systemic corruption introduced during their colonial periods. For e.g. corruption emerged in the former communist states of Eastern Europe and the Soviet Union as the result of the institutions of communist rule. With the collapse of the communist regimes, the power vacuum created was filled in some cases, by old power structures practicing rampant corruption. Despite independence, many countries in transition are found to be suffering from a new colonialism of corruption, fostered by transnational forces.

3.0 Consequences of Corruption

Corruption has severe long-term negative consequences for the quality of governance and efforts to attain sustainable development, resulting in “crony capitalism”.

Corruption is a form of public theft. The funds are diverted from the national treasury, and usually siphoned overseas into private accounts, denying the rightful opportunity to apply them to productive public use, in progressing citizen welfare, education and living standards.

3.1 Political Consequences

Corruption is subtle, eroding the quality of governance and national stability by undermining the legitimacy of the political process. Ordinary citizens are marginalized because corruption is essentially a form of extortion, fostering contempt for the public service and leads to political cynicism.

Corruption distorts decision-making, resulting in the wrong projects, prices and contractors, substandard delivery, and the promotion of corruption at lower levels. It shifts the provision of services away from those who need them.

Once a pattern of successful payoffs is institutionalized, corrupt officials become more audacious raise the asking prices and search for better and more ways to obtain payments. Thus, corruption becomes entrenched, proving resistant to efforts to control it. Also, corruption feeds on itself, creating a widening sphere of illegal payoffs until state structures are completely undermined and years of development are reversed.

3.2 Economic Consequences

A visible consequence of corruption is the impact on a country’s economic development. Corruption compromises the achievement of sustainable development. Bribing results in additional business costs, a burden to small entrepreneurs, and the misallocation of a country’s human capital and talent. Competition becomes focused on the highest bribe, thereby denying the public the advantages of a competitive yet fair marketplace.

The manipulation of government priorities associated with corruption distorts spending on services such as healthcare and education, with serious impacts on the country’s well being, and usually the poor bear the heaviest burden.

3.3 Social Consequences

Corruption violates public trust and erodes social capital. It undermines laws and regulations meant to serve productive social objectives. Eventually, corruption erodes political legitimacy to the point where citizens see little point in following the rules.

This results in the demoralization of the country’s population, leading to a lack of confidence in the state and its institutions, and, in extreme situations, the collapse of the state itself. In such potentially unstable situations, the well educated and qualified people may leave for other countries i.e. the brain drain problem (Sidhu, 2010; Kok & Tee, 2010; Fong, 2010; Move to plug, 2010).

4.0 Controlling Corruption

The effort to control and combat corruption is a complex, long-term process. It must be continual, involving a constant maintenance of the institutions and systems of good governance nationally, regionally and internationally.

4.1 An Integrated Approach

Such an approach that considers the above view may include:

• Undertaking a comprehensive analysis of the incidences, causes and consequences of corruption at the national level
• Instituting reforms in the country’s political, legal, administrative and economic systems. The opportunities for corruption may be reduced through efforts to improve the country’s system of governance and strengthen the institutions of good governance
• Engaging civil society, including non-governmental organisations (NGOs) and the media, in raising public awareness about corruption and monitoring progress in controlling corruption

The primary emphasis is on changing and enhancing existing systems of governance, rather than on blaming individuals. This approach recognizes that without building institutional capacity, even well intended and well-designed policies can lead to poor outcomes.

Since each country faces its own historical, political and social context, thus the specific strategies employed by countries will vary. However, in general, policy responses to corruption typically involves one or more of the following areas:

• Political will and reforms – political will involves the recognition that a healthy system of governance is essential to national welfare. The concept also implies that key leaders recognize the need to work together constructively. Political reform refers to establishing a system of checks and balances to prevent the arbitrary exercise of power
• Administrative reforms – corruption in the public service must be faced from the onset and dealt with as an integral part of the reform process
• Watchdog agencies and other measures of deterrence, e.g. anti-corruption commissions, ombudsman, watchdog units, whistleblower statutes
• The Judiciary – essential to any country hoping to achieve long-term, sustainable success in controlling corruption is an effective, independent, and accountable judicial and law enforcement system
• Media – effective anti-corruption efforts require a genuinely free press able to play its role as a public watchdog
• Civil Society – citizen groups are an essential check on the arbitrary use of government power
• Private sector and international business – the private sector has a crucial role to play in controlling corruption given that corruption commonly occurs at the intersection of the state and marketplace

4.2 The Global Dimension

Just as an integrated effort at the national level of the country are essential to combating corruption, a coordinated approach at the regional or international level must also be used to combat globalised corruption, such as:

• Developing an international code of conduct for political officials, financial institutions, the private sector and others
• Creating and strengthening inter-parliamentary unions
• Improving coordination between policy makers and investigators, particularly in establishing systems or conventions that provide information on offshore accounts held by elected officials under investigation
• Ensuring conformity of anti-corruption laws and regulations to other countries in the region
• Drafting regional cooperative conventions on anti-corruption

5.0 Conclusions

From the discussions in the previous sections, we can summarise the nature and consequences of corruption as follows:

• Corruption is the abuse of public position for personal gain or for the gain of an individual or group to whom one owes allegiance
• Corruption is a two-way process, usually involving the public and private sectors
• Corruption tends to flourish particularly where the quality of governance is weak, and where the institutions of accountability are marginalized
• Corruption undermines good governance, distorting policy, leading to poorer public services and infrastructure, reduced spending on healthcare and education, and serious budgetary problems
• Corruption furthers the social and economic marginalization of the poor. Thus, poverty eradication remains but a dream

And in controlling corruption:

• Controlling corruption is a long-term labour that requires a comprehensive approach at a national level. Reforms should strengthen the institutions and mechanisms of governance to reduce the opportunities for corruption and implement measures to reduce the attraction to engage in corruption
• Political will is essential to the success of anti-corruption initiatives
• Political reforms should include measures to strengthen the rule of law, the role of civil society, build the capacity of parliament, and establish an open, transparent, competitive electoral process
• Administrative reforms should reduce the opportunities and incentives for corrupt behaviour within the public service. There is a need to balance between strengthening rules and regulations, and improving the quality of public service
• Economic reforms to reduce the opportunities for corruption must be carried out in a way that takes into account the political and social context
• Deterrence and enforcement measures are valuable tools to fight corruption. The existence of anti-corruption legislation and the ability to enforce and execute such legislation is necessary for success

References:

Alatas, Syed H. (1990) Corruption: Its Nature, Causes and Functions. Aldershot, England: Avebury

Alatas, Syed H. (1999) Corruption and the Destiny of Asia. Petaling Jaya, Malaysia: Prentice-Hall Malaysia

Aziz, Tunku Abdul (2005) Fighting Corruption: My Mission. Kuala Lumpur, Malaysia: Konrad Adenauer Foundation

Boatright, John R. (2007) Ethics and the Conduct of Business, 5th Edition. Upper Saddle River, NJ: Pearson Prentice Hall

Corruption ranking slips. (2006, November 6). The Star, p. N12

CPI 2009 Table (2009) Transparency International. Accessed from http://www.transparency.org/policy_research/surveys_indices/cpi/2009/cpi_2009_table as at 20 May 2010

Disturbing spiral downward in corruption index. (2009, November 20). The Star Online. Accessed from http://thestar.com.my/news/story.asp?file=/2009/11/20/focus/5145439&sec=focus as at 20 May 2010

Eberlei, Dr. Walter & Fuhrmann, Bettina, et al. (2004) “Fighting Poverty and Corruption.”
Accessed from http://www.gtz.de/de/dokumente/en-corruption-and-poverty.pdf as at 14 November 2006

Fan, Yew Teng (2003) “Can UMNO wipe out corruption?” Aliran.com. Accessed from http://www.aliran.com/oldsite/monthly/2003a/10d.html as at 20 May 2010

Fong, Chan Onn (2010, May 16) “Tracing the brain drain trend.” The Star Online. Accessed from http://thestar.com.my/news/story.asp?file=/2010/5/16/nation/6273783&sec=nation as at 20 May 2010

Former Kangar council chief gets stiff sentence. (2006, November 30). New Straits Times, p. 2

Kok, Cecilia & Tee, Lin Say (2010, February 6) “Stemming the tide and keeping our talent.” The Star Online. Accessed from http://biz.thestar.com.my/news/story.asp?file=/2010/2/6/business/5614304&sec=business as at 20 May 2010

Malaysia's corruption ranking dips, again. (2009, November 19). MySinChew.com. Accessed from http://www.mysinchew.com/node/31709 as at 20 May 2010

Malaysia slips to 44th place on graft index. (2006, November 7). New Straits Times, p. 4

Move to plug brain drain. (2010, May 23). The Star Online. Accessed from http://thestar.com.my/news/story.asp?file=/2010/5/23/nation/6322584&sec=nation as at 26 May 2010

Officer’s graft acquittal set aside, gets 2 years’ jail. (2006, December 1). New Straits Times, p. 12

RM405,000 fine for graft. (2006, November 7). The Star, p. N10

Sidhu, B. K. (2010, January 15) “Give incentives to reverse brain drain from Malaysia.” The Star Online. Accessed from http://biz.thestar.com.my/news/story.asp?file=/2010/1/15/business/5477398&sec=business as at 20 May 2010

Technician pays high price for taking small bribe. (2006, December 1). New Straits Times, p. 12

Transparency International (2006) “Global Corruption Report 2006 – Special Focus: Corruption and Health.”
Accessed from http://www.transparency.org/publications/gcr/gcr_2006 as at 20 May 2010

Transparency International (2005) “Global Corruption Report 2005 – Special Focus: Corruption in Construction and Post-conflict Reconstruction.”
Accessed from http://www.transparency.org/publications/gcr/gcr_2005 as at 20 May 2010

Transparency International (2004) “Global Corruption Report 2004 – Special Focus: Political Corruption.”
Accessed from http://www.transparency.org/publications/gcr/gcr_2004 as at 20 May 2010

Transparency International (2003) “Global Corruption Report 2003 – Special Focus: Access to Information.”
Accessed from http://www.transparency.org/publications/gcr/gcr_2003 as at 20 May 2010

Transparency International (2001) “Global Corruption Report 2001.”
Accessed from http://www.transparency.org/publications/gcr/gcr_2001 as at 20 May 2010

U.S. Agency for International Development (1999) “A Handbook on Fighting Corruption.”
Accessed from http://www.usaid.gov/our_work/democracy_and_governance/publications/pdfs/pnace070.pdf as at 20 May 2010

Powering Malaysia into the next century or into disaster?

Abstract

On May 5, 2010, the Malaysian government announced that we are to have our own nuclear power plant by 2021. References:

Our first nuke plant by 2021

http://thestar.com.my/news/story.asp?file=/2010/5/5/nation/6194127&sec=nation

http://thestar.com.my/news/story.asp?file=/2010/5/4/nation/20100504145101&sec=nation

First nuclear power plant expected in 2021, says Chin

http://www.bernama.com/bernama/v5/newsbusiness.php?id=495465

While it cannot be denied that a developing Malaysia needs more power for industrial growth and sustainability, the questions are: “Are we ready for nuclear power?” and “Will we be able to manage nuclear power with high operational and safety standards that meets or exceeds international standards?”

1. Nuclear Energy

Nuclear energy is energy released during the splitting or fusing of the atomic nuclei. The two key characteristics of a nuclear fission are – the energy per fission is very large, for e.g. the fission of 1 kilogram of Uranium-235 releases 18.7 million kilowatt-hours as heat (a Malaysian family of three persons typically uses less than 250 kilowatt-hours per month), and secondly, the fission process initiates a self-sustaining series of nuclear fissions or chain reaction which results in a continuous release of nuclear energy.

Thus, it is very important to be able to efficiently and safely contain and regulate the nuclear fission process in order to harness the nuclear energy for use.

2. Nuclear Power Reactors

The first large-scale nuclear reactors were built in 1944 in the state of Washington, United States for the manufacture of nuclear weapons material i.e. plutonium, while the power or energy produced was not used. Today, several types or categories of nuclear power reactors exist. There are light-water and heavy-water reactors, propulsion reactors, research reactors, and breeder reactors. Malaysia’s nuclear reactor at the Malaysia Nuclear Agency facility (formerly known as MINT – Malaysian Institute of Nuclear Technology Research) is a research reactor (typically of 1-megawatt or less) used for research purposes and the production of radioactive isotopes for medical and industrial use.

A large, for e.g. a 1,000-megawatt nuclear power reactor contains billions of curies (1 Curie = a unit measure of activity of radioactive substances; named in honour of French physicists Pierre and Marie Curie) of radioactivity during operation and even after shutdown, requiring mandatory safety reactor designs and processes to manage and eliminate the radioactivity from causing harm.

In the early 1980s, more than a hundred nuclear power plants were operating or being built in the United States (USA). Since 1978, no orders for new or additional nuclear plants were made, and some completed plants have not been allowed to operate partly due to the ongoing USA and former Soviet Union (USSR) nuclear arms disarmament talks and treaties.

3. Nuclear Fuels and Wastes

Another major issue or challenge is the management of nuclear fuels and wastes. The hazardous fuels used in nuclear reactors present major management problems. The hazardous fuels must be stored or disposed off.

A typical 1,000-megawatt nuclear power reactor has about 200 fuel elements, one-third of which are replaced each year because of the depletion of the uranium-235 and the buildup of fission products. At the end of its life in the reactor, the fuel is highly radioactive because of the fission products it contains and therefore is still producing a considerable amount of energy. The discharged fuel needs to be placed in water storage pools at the reactor site for a year or more.

At the end of the cooling period the spent fuel elements needs to be shipped in heavily shielded casks either to permanent storage facilities or to a chemical reprocessing plant. At a reprocessing plant, the unused uranium and the plutonium-239 produced in the reactor will be recovered and the radioactive wastes concentrated.

By 2000, reprocessing of spent fuel was prohibited in the United States because of environmental, health, and safety concerns, not to mention that plutonium-239 can be illegally used for weapons manufacture.

The long-term storage of the highly radioactive wastes, which remain biologically hazardous for thousands of years will always be the subject of public controversy, especially in the geographic regions in which the repository is to be located or being proposed to be built to store nuclear wastes.

4a. Nuclear Safety

The two major areas of public concern about nuclear power plants are: (a) the high level of radioactivity, including storage and disposal, and (b) the use of nuclear fuels uranium-235 and plutonium-239 are the materials from which nuclear weapons are made.

High safety needs and know-how:

(i) Radioactive hazards

Radioactive materials emit penetrating, ionizing radiation that can injure and permanently damage living tissues.

(ii) Reactor safety systems

The safety of the nuclear power reactor itself has received the greatest attention. In an operating reactor, the fuel elements contain the largest fraction of the total radioactive inventory.

4b. The Three Mile Island and Chernobyl incidents

Despite the very high safety design and operating standards required to run a nuclear power plant, accidents still do occur. History records the nuclear disasters at Three Mile Island, Pennsylvania, United States in 1979 and at Chernobyl, Ukraine in 1986.

The former was due to operational errors while the later incident was due to unauthorized testing of the reactor that caused two explosions. In the Chernobyl incident, radioactive material spread over Scandinavia and northern Europe. More than 30 people died and about 135,000 people were evacuated.

Can we guarantee Malaysians and our neighbouring countries that a nuclear accident will never occur in Malaysia when we have a nuclear power plant? Should a nuclear accident occur, what evacuation plans can be implemented within a small country like Malaysia or even within the South East Asia region? How and from whom will we secure the expertise to manage our nuclear power plant up to or exceeding international standards?

5. Other Major Issues and Challenges

Needless to say that any large-scale nuclear power project in Malaysia will not only generate major environmental, health and safety issues and concerns but also serious political and ethical issues within and without Malaysia, which is beyond the scope of this article to discuss in detail but worth highlighting.

6. Conclusion

While there are schools of thoughts supporting and rejecting the use of nuclear energy, it is without doubt that nuclear energy can be very dangerous. The future energy needs of a developing Malaysia, is indeed a challenging issue. At the end of the day, it is the ability to balance the amount of benefits against risks that will win the argument. It is very clear that if we are to have our own nuclear power plant, we certainly cannot and must not manage it like how we currently manage our public toilets … which has seen some significant improvements.

Bibliography:

Abdul Razak, Tan Sri Professor Dato' Dr. Dzulkifli (2006) "Going nuclear? Think again". New Sunday Times, 30 April, p. 34

Ahmad, Arman (2009) "Is nuclear energy the answer?". New Straits Times, 27 June, p. 18 - 19

Cheaper and very much less polluting. (2009) New Sunday Times, 28 June, p. 18

Concerns of radiation are overblown, says agency. (2009) New Straits Times, 2 June, p. B5

Cooperation needed for peaceful uses of nuclear energy. (2006) The Star, 28 November

Hamsawi, Roziana (2008) "Nuclear energy the best option". New Straits Times, 13 November, p. 38

Husni Nuruddin, Nor Azaruddin (2007) "Nuke energy can spur Iran's growth". The Star, 13 March, p. N42

Iran going ahead with atomic plans. (2007). New Straits Times, 16 January

Iran vows to go nuclear faster. (2006) New Straits Times, 25 December, p. 12

Ishak, Nurris & Mei Ling, Chai (2008) "Can Malaysia go nuclear?". New Sunday Times, 29 June, p. 29 & 31

Ishak, Nurris & Mei Ling, Chai (2008) "The lost years". New Sunday Times, 29 June, p. 30

Ishak, Nurris & Mei Ling, Chai (2008) "Three Mile Island, Chernobyl". New Sunday Times, 29 June, p. 30

Ishak, Nurris & Mei Ling, Chai (2008) "15 years to our first nuclear power plant". New Sunday Times, 29 June, p. 31

Johari, Shahriman (2009) "The future looks nuclear". New Straits Times, 2 June, p. B5

Jong: New reactors are safe. (2008) New Sunday Times, 28 June, p. 18

Khoo, Simon (2006) "Are we ready for nuclear energy?". The Sunday Star, 24 December, p. 34

Kok, Cecilia (2009) "Nuclear power - are we ready?". The Star - BizWeek, 30 May, p. SBW19

Mohamad, Suzalie (2007) "Asean nuclear power poser". The Star, 5 June, p. N47

Nuclear Energy. (2007) Encyclopedia Britannica

Nuclear the way to go. (2007) The Star, 29 June

Nuclear Waste Management. (2007) Encyclopedia Britannica

Nuke power plant possible: Singapore has to look ahead. (2008) The Sunday Star, 7 December, p. W50

Pooi Koon, Chong (2009) "Nuclear energy a viable option: Alstom". New Straits Times, 10 January, p. 34

Raj, Hari (2006) “Power source of the future”. The Star – BizWeek, 29 July, p. 8

Singh, Sabaran (2008) "Malaysia to use nuclear energy by 2023". The Star, 20 September, p. N29

Sovacool, Benjamin K. (2009) "Is the nuclear option the right one for Malaysia?". New Straits Times, 12 August, p. 17

Tay, Simon S.C. & Chua, Gavin H. Y. (2007) "Nuclear options seductive, but dangerous". Today, 10 January, p. 8

Thailand to build nuclear power plants. (2007) The Star, 12 June

Thailand to build nuclear power plants for US$6b. (2007) New Straits Times, 12 June

We have expertise to go nuclear. (2009) New Sunday Times, 28 June, p. 18

International Management Mini-Case 1

As an International Manager, what do you think?

CATEGORY:

International Management: Understanding and Managing Differences in Culture

MINI-CASE:

"Batam workers riot over slur"
http://www.straitstimes.com/BreakingNews/SEAsia/Story/STIStory_517794.html

"Indonesia accuses Indian exec over 'stupid' slur"
http://news.malaysia.msn.com/regional/article.aspx?cp-documentid=4047962

R.I.P. Professor C. K. Prahalad

UPDATED:

The recent passing (on April 16, 2010) of brilliant management and strategy guru Professor C. K. Prahalad is a great loss to both academia and industry

He was the Paul and Ruth McCracken Distinguished University Professor of Strategy at the Ross School of Business, The University of Michigan. He is a globally recognised management thinker. In 2007, the Times of London and Suntop Media elected him as the most influential management thinker, while BusinessWeek named him the most influential thinker on business strategy.

Among his published works are The Fortune at the Bottom of the Pyramid, coauthor of Competing for the Future, The Future of Competition, and The New Age of Innovation.

He had won the McKinsey Prize for the best article four times, and had received several honorary doctorates. He had worked and consulted with many of the world's leading companies. He was a board member of NCR Corporation, Pearson PLC, Hindustan Unilever Ltd., The World Resources Institute, and The Indus Entrepreneurs.

Read more:

Leading management thinker C.K. Prahalad passes away at 68
http://www.marketwatch.com/story/leading-management-thinker-ck-prahalad-passes-away-at-68-2010-04-19?reflink=MW_news_stmp

Global CIO: C.K. Prahalad, Management Genius and Humanitarian, RIP
http://www.informationweek.com/news/global-cio/interviews/showArticle.jhtml?articleID=224400624

RIP Prof C.K. Prahalad (includes a few video presentations)
http://www.pluggd.in/c-k-prahalad-death-few-bop-lessons-297/