Business Times

Combating Corporate Corruption – The boardroom battle
By Damith Kurunduhewa

The focal point for the just concluded presidential election campaign 2010 - by foremost candidates was curbing corruption in the state controlled realm. It is nothing but common knowledge and experience that the state managed ventures have been plagued with stunning detections of corrupt deals or initiatives. Be it fraud, misuse, waste, swindling or white collar theft - all of them - ruined significant funds, resources and prospects of the nation under the regimes of all colours. It therefore is only rational to articulate that all those events hindered the growth of the nation well below the preferred velocity over decades of governance – or simply by the lack of it.

In contrast, the corporate zone is acknowledged to be less-corrupt. Even though this perspective remains rather uncontested, when we do a bit of deep sea diving into this sphere, we discover the fragility of this perception in the waters of reality. Whilst walking down in the corporate memory lane, we recollect (slightly exposed and largely concealed) cases of corporate raiding, insider trading, underground funding, tariff evasion, ill-concerted acquisitions, enforced mergers, shady share transactions, bribing for favours or preference, regulatory breach and illegitimate real estate deals – to name a few.

A company policy - ‘doing it right always’ – or a parallel could proudly be displayed at the reception, but it may well not be case behind the blinds.

Fiddling the setting up ops:
Once, a senior director of a company proposed and convinced the board to set up a new production plant in a rural area (instead of a semi-urban area), citing the land extent, proportional price benefit, economical labour and earning vista for rural youth etc.

In generic sense, this looks authentic and logical – but it was different in this particular situation. This was a doomed land of a desperate seller, and the director influenced the company to purchase it while earning a (discreet) broker commission. Subsequently, the company realized that the operating costs are exceedingly high owing to locality constraints. Lately, the plant was closed down.

The stakeholders - unknowingly - had to stomach the cost of both corruption and waste in the name of business expansion. Purchasing of lands, constructing of complexes and renting in buildings for business are core areas that could lead to corruption at the setting up.

Sourcing scams
Corruption in sourcing – be it local or foreign - can grind down the growth, viability, and net revenue of the business in many invisible ways. This applies to sourcing of raw material, finished products and even services. Any corruptive action in these domains result an excessive company funds being gushed out. Subsequently, the pricing at the ‘end user point’ naturally is pitched at a higher bracket. Then it requires costly marketing drives as well to stay competitive. This is preventable expenditure.

Once, a procurement director set up a stealthy overseas company in concert with a willing offshore front that supplied merchandize for the company in which he held the deciding authority. Every item imported - had his (corruptly) inbuilt profit component that formed a high landing value.

The company paid elevated prices for purchases and also paid higher import tariffs that could have been less otherwise. Elsewhere, an outsourced service provider ‘purchased’ the divisional head of a client company by absorbing him into the shadow pay roll of theirs. The corporate unknowingly paid for inferior service continuously - simply due to his corrupt and obligatory decree.

Inventory deceptions
The corruption in relation to the inventory – be it corporate assets or the stocks on sale – is no longer an infrequent phenomenon. In some cases, well designed corruptive activities take place during the inbound flow of supplies. In some cases, the corruption takes place during bonded warehousing. Or it happens at the re-distributing upstream transition.

Once, a company director had secretly re-designed the layout of the production zone so that the delivery verification (by its final security barrier) was by-passed via the revised layout blueprint itself. The purpose was to accomplish deeply planned stock pilfering while positioning himself above suspicion.

In another case of corporate corruption – siphoning of fuel from each inbound consignment on a daily basis as a teamed up effort was detected recently after 8 years of unnoticed existence of the fraud. It certainly produced a constant loss to the company. The company administration would have ‘privately’ been ridiculed by the fraud architects for nearly a decade. Yet again, this was not corruption committed by lower ranks of the business, but an organized subtle felony by some in the upper echelons by using their hierarchical position and authority to manoeuver the controls.

Swindling of funds
The corruption on liquid funds takes place by manipulating company accounts, operating zombie disbursement records, scheming dual payments on solitary invoices etc. Once, a senior manager of a finance division was detected for her corrupt practices on liquid funds by altering the accounts over a period of time. At the confession, she had no accurate idea on the total swindled (as it was just free outflow of company wealth). Therefore, she preferred to admit the amount detected by the company. It may be that the detected amount by the company was still less and she only was trying to settle at it by quoting a frail memory. Nevertheless, the detected amount reached millions. It’s again the bottom line revenue efficiency that suffered.

Boardroom battles
The challenge before corporate boards and audit committees is to initiate effective controls to prevent and minimize corruption in the business as much as practicably possible. The efficiency depends on the intensity of synergized thrust exerted by the board to keep the organization closer to ’zero corruption status’ at all levels.

Often we plan to have controls on lower-grade staff, who generally are destined to get corrupt to meet their daily ends - out of sheer desperation than on purpose. For instance, a poorly paid worker woman stealing a pack of milk powder from the company pantry to feed her feeble infant - and a well rewarded director prudently selling a product formula or the next year business plan to a rival competitor should never be weighed by the same scale.

Just gaze at the comparative magnitude of corruption and the stability damage caused in these two occasions. No debate, we need to prevent both; but many boards are yet to prioritize the matter and controls.

Combating to reach zero corruption status is essentially a top-down approach in any business. The battle must begin at the boardroom itself. The supreme call is that “you are wanted for action - from voice to motion !!!”

(The writer is enterprise risk management and BCP specialist, pragmatic trainer and the CEO of Strategic Risk Solutions. He can be reached at or via web

Top to the page  |  E-mail  |  views[1]
Other Business Times Articles
Top team needed to lift Sri Lanka’s economy
World- famous McCurry may come to Sri Lanka
ODEL expands, looks at new investors
Hemas hotels prepare for rejuvenation
Templeton ‘hold’ won’t affect foreign fund flows
Double Decker bus tours hit Colombo
Comment - All over bar the shouting
Economic development -- In search of consensus
JKH expanding leisure sector
SMEs to get training package from EFC
Ceylinco Life rewards 155 children with Pranama Scholarships
District Chambers of Commerce to set up financial institution
Janashakthi joins national fight against H1N1 virus
Cathay rewards winners of online promotion
Emirates, Visa team up to offer free tourist visas during Dubai Shopping Festival
Film-making ever evolving and challenging – young advertsing industry specialist
Supply chains: Plan for the future from fork to farm
Many considered him as their ‘working guru’
Price of food up this month
Sri Lanka export-promotion delegation to visit Croatia
SLIIT to offer Business degree
Swedish tourists set to storm Sri Lanka
DANKOTUWA features in new Twinings UK ad
Vallibel Finance maintains profitability
Dialog wins leadership award in Mobile Services Market
Hayleys MGT reports profit of US$ 1.9 mln. at end of 3Q
More graduate chemists pass out this year
Fitch affirms Sri Lanka's People's Leasing Finance at 'BBB-(lka)'
Spence Maritime chairman to attend Harvard Business School
Welcome to Sri Lanka’s bird-friendly hotel
Combating Corporate Corruption – The boardroom battle
Sri Lanka Tourism and CNN Collaborate on Global Campaign


Reproduction of articles permitted when used without any alterations to contents and a link to the source page.
© Copyright 2010 | Wijeya Newspapers Ltd.Colombo. Sri Lanka. All Rights Reserved.| Site best viewed in IE ver 6.0 @ 1024 x 768 resolution