Business | General
Please deliver us from insiders
The high-profile arrests of some of the senior executives of real estate and financial services companies in Dubai have generated an unprecedented open discussion in the public domain of the need to curb this social and economic evil. In most cases, the arrested executives are being investigated for alleged cases of accepting bribes or kick-backs in return for awarding a deal or using inside information to trade in real estate.
- By Babu Das AugustineBanking Editor
- Published: 23:53 August 29, 2008
The high-profile arrests of some of the senior executives of real estate and financial services companies in Dubai have generated an unprecedented open discussion in the public domain of the need to curb this social and economic evil. In most cases, the arrested executives are being investigated for alleged cases of accepting bribes or kick-backs in return for awarding a deal or using inside information to trade in real estate.
From a very narrow, quantitative perspective, none of these alleged acts of corruption have any significant direct consequence on Dubai's economy, balance sheets of the companies or shareholder values. Especially in the context that the economy is growing at double digits and the real estate sector (where most alleged cases of corruption occurred) is delivering returns in the range of 50 to 70 per cent per year.
For the sake of argument, consider the case of a purchase manager favouring one supplier of electrical switches against another in return for a bribe. If both suppliers have identical products and price, there is hardly any financial loss for the company. In most cases the suppliers absorb the bribe amount as a cost of doing business.
Take a look at another scenario, where an official of a real estate firm uses his influence to sell a piece of land owned by him to the company he works for at a higher price than the market value, and pockets the margin. Here too, the potential losses for the company and its shareholders are quickly absorbed by the surging real estate prices, making the losses merely notional.
Then why the big fuss?
Well, I think, rightly the government's concern is the destabilising effect of corruption on the economy and society rather than the immediate financial consequences.
It's universal
Although corruption is often viewed as some sort of sub-Saharan affliction closely linked to underdevelopment, global experience shows it is universal, and the developed world is as vulnerable as the developing nations.
The scandalous collapse of multinationals such as Enron and WorldCom that resulted from corporate corruption are still fresh in our memory. In recent years, senior executives of leading European companies such as Siemens and Volkswagen were embroiled in major bribery cases.
While the Asian financial crisis in the late 1990s was a byproduct of corruption and nepotism, the African story highlights the starkest destabilising effects of corruption on some of the world's poorest economies.
According to World Bank data, as much as $30 billion in aid for Africa during the past four decades has ended up in the foreign bank accounts of the ruling elite and middlemen.
Another myth associated with corruption is that it is often linked to government, and termed as abuse of a public office for private gains.
In this age of liberalised market economies, corporate corruption is bound to have more economic and social costs. It is anybody's guess as to whether a senior company director trading in shares using insider information, or appointing a not-so-qualified relative to a high position, could have more disastrous consequences than a municipal inspector waiving a parking fine in return for a small bribe.
In the broader business context, corruption should be viewed as the abuse by 'insiders' of the 'outsiders'. The only way to overcome this universal evil is eternal vigilance on insiders by all stakeholders in the economy.
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