Ethics over profits: Corporate governance in the fight against corruption

Illustration: TBS

In our society, corruption is widespread, deeply ingrained, and often embedded within institutions. Ideally, any organisation's framework should prevent significant corruption from occurring unnoticed or persisting without the awareness of senior officials, unless they too are involved in the wrongdoing. Unfortunately, this often appears to be the case, as we see unlawful wealth accumulation by certain high-ranking members of the state apparatus.

Warren Buffett once said, "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." Corporate ethics refer to the principles that guide behaviour in the business environment, shaping organisational culture and influencing decision-making at all levels. Ethical corporations prioritise transparency, accountability, and integrity, often recognising that a strong ethical foundation can enhance their reputation and foster customer loyalty.

Profit is the primary driver of most businesses. The relentless pursuit of profit can sometimes lead companies to make decisions that prioritise short-term gains over long-term sustainability. This profit-centric mentality often creates a tension between ethical practices and the desire to maximise financial returns.

When profit becomes the sole focus, companies may resort to unethical practices, including corruption. Corruption can take various forms, such as bribery, fraud, and embezzlement. Although these practices may bring immediate financial gains, they often lead to severe long-term consequences, including legal penalties, loss of reputation, and reduced employee morale.

Effective corporate governance is crucial for fostering economic growth and development. The governance of financial institutions, particularly banks, is especially significant due to their essential function within the financial system.

Bank management is tasked with the dual responsibility of protecting depositors' funds while also enhancing shareholder value. A robust banking system necessitates stringent regulatory measures and a competitive banking landscape.

To maintain competitiveness, banks must prioritise effective corporate governance. There is no question that corporate governance is vital for economic advancement.

The governance of banks holds particular significance as they play a key role in managing public savings and serving as the primary source of financing for businesses. The repercussions of banking failures can lead to substantial economic costs.

Enhancing transparency, improving financial disclosure, strengthening regulatory oversight, and reinforcing corporate governance are essential for effective bank operations. This includes implementing measures that foster accountability and better alignment of shareholder and management interests.

The growing awareness among shareholders about the importance of sound governance, coupled with their willingness to ensure managerial accountability, is encouraging. Nonetheless, this effort remains complex and multifaceted.

Going forward, the focus should be on two key areas: corporate governance in banking and promoting reform initiatives at the international level, especially in developing countries.

Banks are vital to any nation's economy, serving as its lifeblood. Weak corporate governance can pose significant threats to both the economy and the sustainability of banking institutions.

Banks are places where individuals, regardless of their financial status, safely store their funds while also earning returns in the form of profit or interest. They act as custodians of depositors' money, which is then invested to meet shareholder expectations. To achieve this, banks must operate with transparency and accountability, ensuring strong corporate governance for sustainable growth.

Corruption undermines the foundations of a fair and competitive marketplace, distorting resource allocation, eroding trust, and fostering a culture of impunity. For example, a company engaging in bribery to secure contracts may see a temporary profit boost, but it ultimately risks its reputation with stakeholders and regulators.

While the temptations of corruption are present, many companies now embrace ethical business practices as a pathway to sustainable profit. The concept of "ethical profit" promotes the idea that organisations can achieve financial success without compromising their values.

Currently, Bangladesh's banking sector is undergoing a significant transition. To keep pace with evolving trends, banks must maximise earnings while meeting various stakeholders' needs. Ensuring the sector's positive progression requires adherence to regulatory requirements and compliance with both national and international standards.

As the banking industry expands into new products and services and navigates complex risks, a robust regulatory and governance framework becomes even more necessary. This framework must strike a balance: it should protect consumers and the broader economy while also encouraging appropriate risk-taking.

Although bank governance has received less attention than corporate governance, it raises equally important questions about effective governance practices.

A strong compliance program not only prevents unethical behaviour but also fosters a culture of integrity within an organisation. Companies that invest in training and ethical guidelines are better equipped to navigate the business environment's complexities.

To mitigate corruption risks, regulatory frameworks and corporate governance play crucial roles. Governments and organisations worldwide are implementing stricter regulations and compliance requirements to hold companies accountable for their actions.

In Bangladesh, there is a concerning trend of white-collar offenders who misuse their authority to engage in various alleged offences, such as intimidation, extortion, embezzlement, insider trading, and unlawful land acquisition—all in pursuit of rapid wealth accumulation. The scale of these financial gains and the abuse of power by certain figures have reached levels that exceed those of even the most notorious individuals.

In the 2023 Corruption Perceptions Index (CPI) released by Transparency International, Bangladesh has dropped two positions, now ranking 10th from the bottom. This is the lowest position the nation has held since 2008, sharing this ranking with the Central African Republic, Iran, Lebanon, and Zimbabwe.

The last government's failure to uphold its zero-tolerance pledge toward corruption, along with a rise in corrupt practices within the public sector and inadequate measures to curb money laundering, has contributed to what Transparency International Bangladesh describes as a "very serious corruption problem."

The relationship between corporate ethics, profit, and corruption is a critical aspect of modern business. While profit is essential for business survival, it must be balanced with ethical considerations. Companies that prioritise integrity and ethical practices can achieve sustainable success, proving that "ethical profit" is not just an ideal but a viable strategy. By choosing to operate ethically, organisations can foster trust, enhance their reputation, and contribute positively to society, paving the way for a healthier business ecosystem.

We must not fail the next generation by leaving behind a legacy of corruption and ethical lapses. Now is the time for our nation to marshal its resources and rise above these challenges. Overcoming deep-rooted issues of corruption and ethical failures will be difficult, but with dedicated efforts today, we can set the stage for a new generation to lead Bangladesh toward a brighter future.

Ahmed Shamir Sakir is a banker and he can be reached at ahmedshamir082@gmail.com.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.