Panel V (Corruption and Transparency)
First International Conference on Corporate Governance and Economic Growth in Russia
Moscow, Marriott Grand Hotel – June 3, 2004
As we are all aware, Russia today must deal with the problems of corruption and lack of transparency. Let me describe a man who illustrates those problems:
He holds the position of a professional and businessman. If he behaved more honestly, people would feel more comfortable doing business with his countrymen. But he chooses instead to take the easy path of fraud and corruption. When he does so, he undermines confidence not only in himself, but in the whole system of which he is a part.
I refer to the American lawyer who defrauded the Russian company that I began to represent in the Fall of 1998. And he did not act alone. He had the help and participation of English, French, Irish, Swedish, and Japanese nationals as well.
Now let me tell you about two other men. They are Yuli Vorontzov, then the Russian Amabassador to the United States, and Arkady Volsky, then and now President of the Russian Union of Industrialists and Enterpreneurs. It was they who decided to meet this problem of corruption and lack of transparency head on, to abide by the rule of law, and to seek a judicial and ultimately successful resolution of the case I have described. And it was my honor and privilege to have been selected as the attorney to pursue that case.
I think of that experience often when I hear about corruption and lack of transparency in Russia. I think of that when I hear people from the West single out Russia as though it had a monopoly on such problems. Would not fairness and balance demand an equally critical analysis of business systems failures that over the last several years have given us Enron, WorldCom, Global Crossing, Arthur Andersen, Tyco, Adelphia, Ahold, and Parmalat? If anything recent experience has shown us that corruption and lack of transparency are truly pervasive problems knowing no boundaries and demanding systemic solutions.
To deal with these problems, many effective methods were developed in the 20th Century, especially the rise of independent certified public accounting and the policing of securities markets. But we make a great error if we limit ourselves to these tools. We need to be creative and build new systems to deal with all the new ways that fraud and misconduct can and do occur.
I want to share with you one innovative approach that has made great strides in the U.S., and which I believe could have considerable benefit here. It is called the Independent Private Sector Inspector General, or IPSIG in English. (I can only imagine what that spells in Russian!) The concept is to create an independent monitor, privately run, with full access to the monitored company’s operations. It is an independent mechanism equally effective at monitoring a company for payment of bribes as for unfair labor practices. An IPSIG is a private sector firm with legal, auditing, investigative, management, and loss prevention skills. It is employed by an organization to ensure compliance with laws and regulations. It serves to deter, prevent, uncover, and report unethical and illegal conduct by, within and against the business organization. It draws from the insight of the journalist H.L. Mencken, who said, “Conscience is the inner voice that tells us.that someone might be looking.”
For example, my law firm served in the role of an independent monitor to ensure the integrity of one of the most important projects in recent U.S. history, the clean up of the World Trade Center. The IPSIG approach leads to systemic change and structural reform in companies and whole industries. The IPSIG model continues to evolve and is adaptable to many different kinds of industries worldwide.
Last year when Vladamir Potanin was in New York City, at an event sponsored by the National Council on Corporate Governance, he said that he wished the Americans who were there would come to know Russia better and that we would find good partners and good friends. His words rang true to me because that indeed has been my experience. Last year I was given the honor of becoming an arbitrator on the Joint Commission on Corporate Ethics in Russia. Now I have been given a new opportunity to participate in the Russian-American joint venture company Business Transparency and Integrity International, or BTII for short, which is dedicated to promoting business integrity and transparency in Russia. The IPSIG model is only one of the leading edge approaches that we are bringing to Russia.
Looking to the future, I see a Russia which will include:
- a stock exchange organized around the highest principles and most advanced business methodologies in good corporate conduct;
- companies that will seek listing on that stock exchange based on their ability to achieve excellence in their own corporate conduct and by such listing will be readily identifiable for their commitment to best practices;
- an investment fund which will seek out such companies supporting their growth and development by affording them access to capital at preferred rates;
- a private insurance entity funded by the Russian business sector that will insure investors against fraud and corruption up to fixed limits, thereby increasing investor confidence and tearing down an unnecessary and artificial barrier to the full funding of Russian business opportunities; and
- the movement of Russian companies onto public stock exchanges outside of Russia, further expanding the role of Russian business in the world business community.President Putin has put forward the Russian economic agenda in his recent state of the nation address: a convertible Ruble, reduced inflation, and a doubling of the size of Russia’s economy by 2010. In all of this business integrity, transparency, good corporate governance, and social responsibility will be the engine not the brake. Has Russia achieved this yet? No, not yet. But that is the future. Those who embrace that future will lead Russia’s next stage of business development. If that happens, and I think it will, Russian business will have an enormous competitive edge in the world. And the West will have much to learn.