Stay out of the shadows: Mexican companies, government move to improve business ethics and values.

A trucker slips 500 pesos to a police officer to a void having his rig impounded. An executive seeking a contract with a foreign government pays a multi-million dollar "success fee" to the government's representative, a condition for winning the contract. A worker diverts money from his employer to his own small business.

Whether on a large or small scale, corrupt practices like these can drain businesses--and the economy--of millions of dollars each year. In Mexico, the World Bank estimates that corruption costs nearly 10% of the nation's gross domestic product, more than the government spends yearly on education.

In addition to wholesale corruption, many legal, but perhaps unethical, practices can make a business less efficient and less competitive. From gossip to excessive personal use of the Internet, the way employees spend their time affects their company's reputation--and its bottom line.

To combat unethical--and sometimes illegal--practices and enhance competitiveness, a growing number of companies in Mexico are spelling out new ethical codes. More significantly, they are demanding employees live up to these standards, or face serious consequences.

Because corruption in business is intimately connected to government impropriety, the ethical climate will not change without the involvement of both the private and public sectors, human resources experts and government officials said. Although problems persist, government authorities are taking steps to reduce corruption and Mexico is party to several new international conventions that take aim at bribes and other unethical practices.

DARK PATH TO GOVERNMENT CONTRACTS

Last year, the anti-corruption watchdog Transparency International conducted a survey about bribes in what it called "15 emerging market countries," including Mexico and Argentina. It found that a large number of bribes are paid in developing countries, by both domestic businesses and those from industrialized nations, despite the fact that there are anti-bribery laws on the books in many of those countries.

"The laws are not being properly enforced," said Transparency International Chairman Peter Eigen when the survey results were released. There is "no doubt that large numbers of multinational corporations from the richest nations are pursuing a criminal course to win contracts in the leading emerging market economies of the world."

Because laws vary widely from country to country, there is a movement afoot to establish an international, uniform set of anti-corruption rules. In the past several years, there has been tougher enforcement of some countries' anti-corruption laws, and several international conventions on corruption have been signed or are currently being negotiated.

Mexico is one of 35 countries that have signed the Organization for Economic Cooperation and Development (OECD) anti-bribery convention and one of 31 parties to the Inter-American Convention Against Corruption. In addition, a United Nations anti-corruption pact will be signed here in December.

Companies are taking note. Transparency International found nearly half its survey respondents said they were either reviewing their practices or already had a program in place to help them comply with the OECD convention.

"It's a matter of self-protection," said Aliza Chelminsky, who heads Mexico's transparency unit within the federal comptroller's office. "Under the conventions, companies can be fined hundreds of millions of dollars if they pay or take a bribe."

NO MORE MORDIDAS

In Mexico, there has long been an expectation that a mordida, or bribe, is often a necessary part of life.

"The culture is sometimes a little permissive in matters of ethics," said Horacio Andrade, a corporate culture expert at the consulting firm Sinapsis. Although there is a movement for change, he added, "Mexico has had a reputation for corruption."

Chelminsky agreed. "Many business people have said that it is often easier to pay the bribe than to get through the regulations in Mexico," she said. Her office is charged with educating businesses, government offices and the general public about the benefits of integrity.

"Our main challenge is for the business community to understand that ethics is good business," she said. "If someone ... is issuing invoices for personal business, for example, there is a deviation of the company's human and financial resources."

She also noted that a lackluster ethical reputation could color a company's financial ratings.

"The international financial community, analysts, and the international banks are all paying more and more attention to a company's ethical conduct," she said.

Chelminsky also expects that Mexican consumers will soon begin to use their purchasing power to rebuke unethical companies, similar to the way many U.S. shoppers chose not to buy Nike products when it was publicized that the firm was using child labor.

To spread the word about ethics, Chelminsky's unit has created extensive training programs and promotional materials for companies and universities to use. They've also persuaded a number of companies--including bread company Bimbo and juice maker del Valle--to display the program's symbol: an unbitten apple with the words "For a Mexico with integrity, no more bribes."

All federal secretariats display the symbol, she said. More importantly, the official continued, each one is also involved in the anti-corruption fight by having its own integrity program and controls to prevent graft.

PUT IT IN WRITING

Increasingly, companies are beginning to formalize their ethical standards. Human resources professionals gave BUSINESS MEXICO some advice for companies just getting started.

First, when starting an integrity program, it is important to remember that ethics is a sensitive issue.

"No one wants to think that their company is not ethical," said Rogelio Villanueva, a representative for the Mayo Foundation and chair of the AMERICAN CHAMBER/MEXICO'S Education Advisorty Council. "But companies have to remember that if everyone knows they have an ethical company, their business will do better and their employees will be happy to work there."

To be successful, it is critical that ethics programs have the commitment of the firm's top executives.

"The program can't simply be left to the human resources department," Chelminsky said. "The ethical ideas must be kept not only in word, but in deed, by people at the highest levels in the company."

This has been put into practice at IBM, which is considered a model for ethics programs. IBM's Mexico general manager Eduardo Razzeto was the person who "put the idea on the table" at the company's semiannual meeting of top executives, said Angelica Galve, the computer giant's human resources director. IBM's top executives created the code's core principles and the personnel department fleshed them out, she said. About 18 high-level managers signed a copy of the ethics guidelines, which are prominently displayed in IBM's building.

To be useful, human resources professionals said, a firm's ethical code must be very clear.

"It must be black and white," Chelminsky said. "It must state very clearly what the company will accept and what it will not accept. It must also be clear that if the code is broken, there will be serious consequences."

Experts recommend the company formulate its own ethical codes rather than adopt a standard set of values.

"Only people in the company know how it works and what it needs," said business consultant Andrade. "Its leadership must decide for itself what direction the company will take."

Still, there are many values that companies have in common. AMCHAM/MEXICO'S Education Coordinating Group compared the ethics codes of 17 member companies and found many values shared by half or more of the firms, but the value echoed by all survey participants was integrity.

Andrade said most companies also have common values like quality, service, respect, teamwork and honesty.

Although the specifics may vary, certain values are considered essential. Experts said businesses seeking to implement high ethical standards must adopt a zero tolerance policy toward bribes.

One Mexican food processing company, which Chelminsky declined to name, has adopted just such a policy.

"They have trained their drivers not to give any bribes," she said. "This company is willing to pay a fee, to have its trucks impounded and for perishable food to go bad. But it will not pay a mordida."

The policy has paid off financially. "The federal police know they won't pay bribes and they no longer stop them to extract money," she said. Over time, "they've saved more than US$100 million because they're not paying off officials."

Once the code has been written, it is important to share it with customers and other companies with which a firm does business.

"If you have a supplier who is unbound by ethics, they will harm you because they are part of your chain," Chelminsky said.

In fact, when choosing suppliers, some companies insist they display the same commitment to integrity and intolerance of corruption that the company does. For example, before U.S.-based Office Depot signs a contract with any supplier, it asks to see the firm's integrity program. Cemex, GE, and Merck have similar requirements for their providers.

At IBM, "we share our ethical code with everyone from software suppliers to our food services provider in the employee cafeteria," said Galve. "If we are going to offer a whole service and product to our customers, it is important our suppliers have similar values and attitudes as we do."

Although writing the code of ethics is the first step, it is only the beginning of an ongoing process.

"The company must ask itself, 'How will these values be converted into behaviors? What actions will be consistent with our values?'" Andrade said. "You can have a code that looks pretty on paper. It may read quite poetically, but it won't mean anything unless it is put into practice."

"You have to sell it to the people in the organization. Employees have to be willing to live the values of the organization," he said. "The ethical code must become a reference mark, so that everyone understands the same things."

Jennifer Dorrah iS BUSINESS MEXICO'S contributing editor.

RELATED ARTICLE: * Taking Action

With the aim of monitoring members' needs in the area of business education and promoting programs for greater competitiveness in human resources departments, last summer AMCHAM/MEXICO invited the presidents of five member companies to form the Business Education Advisory Council. In October, that group asked 20 executives to form the Business Education Coordinating Group.

To gauge what AMCHAM should be doing in the area of education, the "Coordinating Group" conducted a survey over two months administered to both chief executives and human resource directors.

While revealing several diverging opinions, the results showed CEOs and personnel directors from member companies broadly agreed AMCHAM should focus its efforts on initiatives that reinforce all aspects related to positive values, ethics and integrity.

In a 2002 study by Transparencia Mexicana, Mexico City and the State of Mexico were identified as the most corrupt entities in the country, a significant finding that helps justify the concerns of the AMCHAM survey participants.

Achievements made by corporations in the areas of ethics, integrity and values are already beginning to be recognized in Mexico by business organizations. Last November, the Confederation of the Industrial Chambers of Mexico (Concamin) awarded the IBM Corporation the first annual Ethics and Values in Industry prize.

Armando Saliba