Balancing Over Mud Or the Baby of Corruption: Informality

In June 2017, the Fifth IOS Annual Conference in Regensburg on Corruption in Eastern/Southeastern Europe and Latin America was held. People talked about informality and corruption. The more the discussion lasted, the more we started to wonder. Where is a boundary between informality and conflict of interest or bribe? And why didn’t we hear companies addressing informality issue in their policies and trainings?

Perhaps, some of you have watched Suits (attention, spoilers!). This is a TV series where a charming lawyer Harvey Specter wins and settles cases for his clients. In one episode, a partner got promotion by leveraging information that a managing partner knew about one of the associates being a fraud attorney. This kind of blackmail we consider to be a form of informal practice. Another example is when Harvey Specter gives an occasional compliment to a woman judge and gets his motion awarded based on sympathy.

Term “informality” means different things to different people. Those who have been great at delivering results through people will favor informality. Their main argument is building human relationships. Meaning that human communications cannot be like those that machines do. People have to charm, warm, amuse, surprise, add value, seduce, etc. Others may point at negative side of informality, naming favoritism i.e. giving unfair preferential treatment to one person or group at the expense of another. A good parable to illustrate how people may understand informality is "blind men and the elephant story"- everybody touches part of the animal but understands only the part that he touches. So, shall we regulate people relationships in countries and companies? And where is the line between informality and corruption or conflict of interest?

There is an interesting global project INFormality, which we want to share with you. It is a leading online resource for the world’s open secrets, unwritten rules and hidden practices. This is what they say about informality and their efforts: “Broadly defined as ‘ways of getting things done,’ these invisible, yet powerful informal practices tend to escape articulation in official discourse. We have identified unique research on such practices across disciplines and across areas and created the first Global Map of Informality. The database is searchable by practice, keyword or country.”  

Such map is helpful to businesses as a database of common conflicts of interest to watch out for in the course of doing business in various countries. There are emotion-driven exchanges of gifts or favors and tributes for services, interest-driven know-how, identity-driven practices of solidarity, and power-driven forms of co-optation and control. And, no wonder that such practices are common.

It is very complicated to judge which practices are acceptable in the modern society and which are not. They are deeply rooted all over the world and since they are often hidden from outsiders, yet may appear to be underestimated. As stated in OECD research, “a new generation of more effective anti-corruption strategies can only be adequately developed through an evidence-based understanding of the actual conditions prevailing in the countries where one wants to fight against corruption”.

The same is fair to apply to companies. This means that corporations should seek to understand and track informal practices in countries as a part of risk assessment exercise. This in turn will allow tailoring compliance program to geographies where company conducts its business.

In addition, we want to stress on the importance of transparency in matters of informality. If we look at insider trading regulation, the main idea is to disclose any material information to the public. Finally, if Harvey Specter has to tell a compliment to a judge, it shall be public and in the court room. In such case, the judge will be bound by public opinion and may react differently. This is to say that transparency is not only a weapon against corruption, but also against favoritism and informality.   

During the conference, a participant asked: what if a company uses informal practices but remains compliant with anti-corruption legislation? In our view, the following old saying gives a great response: “If you ride a white horse, you had better not get mud on it because it shows up”. It depends how clean you want your horse to be and how often you want to ride near the mud. It should not be a surprise that one who rides near mud can one day get completely dirty. 

And what is your attitude to invisible yet powerful informal practices?