Royal Dutch Shell plc .com Rotating Header Image

Corruption and Leadership: An Endless Cycle?

By Meika Jensen

Corruption is a growing issue in a world that is nearing complete transparency – these problems are not out in the open. Many schools, from top undergraduate business programs to top masters degree programs, are taking them on with increased education, but what about the professional world which already exists?

In 2008, Pricewaterhouse Coopers commissioned a study on corporate corruption entitled Confronting Corruption. In the study, some astounding levels of corruption were revealed. Of the 390 senior executives interviewed for the study, sixty-three percent stated that they had experienced some form of corruption, while forty-five percent stated that their company had forgone business opportunities in a particular market, environment or sector because that area was feared to be corrupted.

Clearly then, the problem of corporate corruption is rampant. Confronting Corruption recommends more stringent anti-corruption strategies and policies, but is such a recommendation realistic in today’s corporate world that abhors federal meddling?

The oil industry in particular has a severe problem with corruption, in large part due to the extremely lucrative nature and limited supply of the necessary commodity, especially when considered in light of the relative poverty of most citizens within countries that have significant quantities of oil.

One example is Nigeria, which, according to Reuters news source, has experienced literally billions of dollars in corruption costs. The Nigerian National Petroleum Corporation (NNPC) embezzled this money by underpaying royalties, not depositing dividends, refusing to publicly reveal the quantity of oil produced and secreting away over three million barrels of oil. Additionally, foreign companies in the country have also underpaid on their taxes, meaning that the country itself is not receiving its share for the natural resource it provides. In other words, as the NNPC and foreign oil companies make significant profits, over 100 million Nigerians live on less than one dollar per day.

International observers, as well as watchdog and monitoring organization clamor for Nigeria and other countries to operate corruption-free, and to reinvest the oil companies’ profit into their countries’ infrastructure. While this may seem to be the socially responsible action, is such an expectation realistic in the face of huge oil conglomerates and incredibly high profit margins? As the Financial Times reports, a recent commission by transparency groups has called for National Oil Companies (NOC), as well as multinational conglomerates, to provide complete transparency of their profits as a first step in the process. While international companies like BP and Exxon Mobil have better transparency rating than NOCs (some of which have a transparency rating of zero percent) all groups rate extremely poor in reporting payments and profits.

 

However, while oil companies have exceedingly high profits and seem unlikely to give up these high margins (despite transparency or without it), there may still be hope. One method to increase the prosperity of the oil-providing country is for governments of oil rich countries to aggressively promote a diversified economy. Ideally, the seed money for such a diversification would stem from the taxation of the country’s natural resource: oil. Once a country has a more diversified economy, even if profit margins in the oil sector remain relatively similar (and a relatively small amounts of these profits go towards reinvestment in the home country’s infrastructure), a more diversified economy can help citizens emerge from abject poverty as well as sustain a reasonably functioning middle class. In this way, oil companies – by merely paying the taxes owed – would serve a social mission while continuing to extract strong profits for their shareholders. The question is whether transparency measures will be effective in starting this fresh, upstanding cycle.

Comments are closed.

%d bloggers like this: