Governance & Integrity Systems

1. The World Bank Governance & Integrity Systems Core Course on Governance and Anticorruption PRMPS, WBIGP & INT Presented by: Bob Barnes Consultant, ECSPE Presented to: February 15, 2005

2. The high correlation between good governance and the effectiveness of developmental assistance The principle of conditionality The principle of selectivity Why Does Good Governance, Ethics and Integrity Matter?

3. High levels of unethical and corrupt behavior in a country’s public and private sectors deter Foreign Direct Investment (FDI) and inhibit growth The ethical reputation of companies as a growing investment factor – after the Enron disaster, this trend is likely to grow even stronger Why Does Integrity Matter?

4. Public confidence in government is key to a stable, functioning democracy Unethical behavior in the public sector seriously undermines public confidence Why Do Ethics and Integrity Matter?

5. One practical definition of ethics: that set of criteria or principles a person uses when selecting a course of action in the face of competing values Values can be ethical values (truthfulness, respect for others) or ethically neutral values (ambition, wish to be respected, desire for wealth, etc)* *Making Ethical Decisions, The Josepheson Institute of Ethics Ethics and Values – What Are They?

6. Descriptive values – the way things are Vary from country to country, company to company, organization to organization, and person to person No country has a monopoly on virtue Political scandals in the West Enron, Arthur Anderson, many others Universal Values

7. Aspirational values – the way things should be Aspirational values vs Culture – the myths of “that’s the way things are done here (or there)” Core aspirational values are widely shared across religions and cultures Universal Values and Ethics

8. A true ethical dilemma occurs when one is faced by conflicting ethical values Honesty vs. Kindness (the white lie) Compliance with procedures vs. Justice An unknowing ethical dilemma occurs when one is faced by conflicting values, but does not realize it The value of ethics training Ethical Dilemmas

9. A false ethical dilemma occurs when a person is faced with a choice between an ethical value and an ethically neutral or even unethical value Honesty vs personal success The key false dilemma in Enron? Ethical Dilemmas

10. Unethical behavior occurs when a false ethical dilemma is resolved in favor of the ethically neutral or unethical value Lie to make yourself look better, gain wealth, or shift blame The key question: Cui Bono? (Who benefits?) Ethical Dilemmas

11. Clearly define the aspirational values (the ought) Examples of Codes of Conduct/Ethics The World Bank Code of Professional Ethics Institute of Internal Auditors International Chamber of Commerce Rules of Conduct to Combat Extortion and Bribery www.iit.edu/departments/csep/PublicWWW/ Contains links to codes and other ethics resources on-line The Goals of a System of Ethics

12. Align descriptive values (the is) with aspirational values (the ought) Mechanisms Guidance/training Compliance enforcement Positive incentives The Goals of a System of Ethics

13. Minimize ethical dilemmas Mechanisms Adjust criteria for success – remove pressure to be unethical Transparency of interests Internal mechanisms for advice The Goals of a System of Ethics

14. Provide a framework for resolving ethical dilemmas that do occur Mechanisms Ombudsman Secure channels for reporting misconduct Effective “no retaliation” protection for whistleblowers The Goals of a System of Ethics

15. Compliance-based ethics management Extensive and detailed mandatory rules Prescriptive (you must) Proscriptive (you must not) Extensive investigation and control mechanisms Penalties for non-compliance Two Approaches to Attain the Goal*

16. Integrity-based management General statements of ethical values Professional socialization Incentives for ethical behavior Internal mechanisms for help and advice Which is the correct approach? *Janos Bertok, SIGMA Public Management Forum IV, No.1, 1998 Two Approaches to Attain the Goal*

17. “Everything that is not prohibited is mandatory, and we are watching you at all times.” Would you want this system? Could an economy survive this system? The Ultimate Compliance-Based System?

18. “If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.” James Madison, The Federalist Papers No. 51 Is Integrity-Based Ethics Management Sufficient?

19. The answer: Both are required The challenge: finding the right balance Ethics Management Systems

20. Political commitment An effective legal framework Efficient accountability mechanisms Workable codes of conduct *OECD, Public Management Occasional Paper No. 14 Elements of An Ethics Infrastructure*

21. Professional socialization mechanisms, including training Supportive public service conditions An ethics coordinating body An active civic society, including the media *OECD, Public Management Occasional Paper No. 14 Elements of an Ethics Infrastructure*

22. OECD Principles for Managing Ethics in the Public Sector An Example of an Ethics Framework

23. Ethical standards for public service should be clear Ethical standards should be reflected in the legal framework Ethical guidance should be available to public servants *OECD, PUMA Policy Brief No 4 Principles for Managing Ethics in the Public Sector*

24. Public servants should know their rights and obligations when exposing wrongdoing Political commitment to ethics should reinforce the ethical conduct of public servants The decision-making process should be transparent and open to scrutiny *OECD, PUMA Policy Brief No. 4 Principles for Managing Ethics in the Public Service*

25. There should be clear guidelines for interaction between the public and private sectors Managers should demonstrate and promote ethical conduct Management policies, procedures and practices should promote ethical conduct *OECD PUMA Policy Brief No. 4 Principles for Managing Ethics in the Public Service*

26. Public service conditions and management of human resources should promote ethical conduct Adequate accountability mechanisms should be in place within the public service Appropriate procedures and sanctions should exist to deal with misconduct *OECD, PUMA Policy Brief No. 4 Principles for Managing Ethics in the Public Service*

27. Ethics and Leadership The Indispensable Element to an Ethical Organization

28. “What executives do, what they believe and value, and what they reward and whom, are watched, seen, and minutely interpreted throughout the whole organization. And nothing is noticed more quickly - and considered more significant - than a discrepancy between what executives preach and what they expect their associates to practice.” -- Peter Drucker

29. Establish the values, and the hierarchy of values – much more than compliance rules Involve the entire staff in doing so Many things are compliant and legal, but still are wrong Values will let the organization choose to be right, not just “legal” Scrupulously honor the values in your own conduct Responsibilities of Leadership

30. Communicate the values to everyone Insist that your people really do know the rules and values Provide the resources (time and money) for training Provide effective means for people to get reliable and useful advice and guidance anonymously The most effective communication is to reward ethical behavior Responsibilities of Leadership

31. Establish a “complaint friendly environment” Punishing the bearer of bad news just means you will not hear what you need to hear Provide secure, reliable, and anonymous means for staff to report impropriety Follow up on all reports of impropriety With due regard to privacy, publish the core facts of cases of substantiated impropriety Responsibilities of Leadership

32. Be intolerant of unethical behavior, but allow people who commit minor improper acts to survive and succeed Avoid a “cover up at all costs” mentality Give due credit for self-reporting Never make perfection the only acceptable standard Bad news uncovered and reported immediately is always better than bad news covered up and discovered later Responsibilities of Leadership

33. NEVER impose requirements, or accept tasks, that cannot be met without violating the values Your responsibility is to know when you do that – avoid “convenient ignorance” You must be willing to hear and accept “no” from your subordinates You must be willing to say “no” to your superiors, even if it makes you look bad Responsibilities of Leadership

34. The Lessons of Enron A Parable on Ethics

35. Thoughts on some of the causes of, and lessons from, the Enron meltdown The Lessons of Enron

36. Tools, Resources, and Initiatives A (Very) Partial List

37. Key recommendations of the IMF to ensure transparency in fiscal transactions in the public sector Transparency is perhaps the most important element of an ethical system Text included as handout; also available at www.imf.org IMF Code of Good Practices on Fiscal Transparency

38. Very detailed questionnaire (37 pages) Provided as a handout Also available at www.imf.org Designed for self-assessment by government finance officials Relates back to the IMF Code of Good Practices on Fiscal Transparency IMF Questionnaire on Fiscal Transparency

39. OECD Principles of Corporate Governance Provided as handout Available at www.OECD.org Convention on Combating Bribery of Foreign Public Officials in International Business Transactions Available at www.OECD.org Other Resources

40. Wolfsberg Anti-Money Laundering Principles Group of major international banking firms Available at www.wolfsberg-principles.com International Chamber of Commerce, Rules of Conduct to Combat Extortion and Bribery Available at www.iccwbo.org Other Resources

41. Transparency International Source Book 2000, Combating Corruption: The Elements of a National Integrity System Available at www.transparency.org Contains detailed information on anti-corruption initiatives world-wide Contains extremely useful “Best Practices” Annex Other Resources

42. European Institute of Business Ethics “Dilemma Training Device” Training on detecting and resolving ethical dilemmas Information available at www.nyenrode.nl/research/eibe World Bank Institute Many training resources on Corporate Governance and Business Ethics Information available at www.worldbank.org/wbi Other Resources - Training

43. Q&A