By Michael Seo
In the United States, we tend to think of corruption as the exception rather than the norm. However, in some of the most impoverished settings in frontier markets, the reality is different but so are the market dynamics as social entrepreneurship flourishes. So we ask, how can social entrepreneurs nudge markets toward transparency and integrity in contexts where ethical behaviour, transparency and governance are anomalies?
The consequences of corruption are immense and indisputable. Inversely, so are the benefits of trustworthy systems. Research from the IMF, “The Cost of Corruption”, suggests that countries perceived to be less corrupt collect 4 percent of GDP more in taxes than those at the same level of economic development with the highest levels of corruption. And if all countries were to reduce corruption in a similar way, they could gain $1 trillion in lost tax revenues or 1.25 percent of global GDP. The gains that could be achieved on a macro-level are staggering but for social entrepreneurs launching small growth businesses in markets perceived to be corrupt, everyday activities translate to on-the-ground challenges.
In June, we wrote a guest blog describing how the COVID-19 crisis has compressed and funneled misconduct where acute corruption can occur. In such situations there is a precarious balance in which massive and exigent response funding scenarios must be tethered to accountability.
In August, several audit reports revealed significant irregularities at the Kenya Medical Supplies Authority (KEMSA). The irregularities extended to COVID-19 emergency funds totaling approximately USD398 million which could not be accounted for. The reports of KEMSA mismanagement were followed by the news that USAID and the Global Fund suspended and threatened to withdraw USD3.7 billion of aid to Kenya. I asked my staff, Kenyan colleagues, health officials, vendors and patients what they thought of the KEMSA news. None were surprised; they expressed a sense of resignation accompanied by a slight shrug. The bleakness is unsettling, even more so as a social enterprise.
Broadly speaking, social enterprises seek to improve the lives of vulnerable individuals and communities through a business lens. Many social entrepreneurs operate in resource-poor informal settings where the need is unmistakable but institutional safeguards are lax or underdeveloped. Our own experiences at ReaMedica Health (RMH) attest to the difficulties of navigating systemic corruption.
The Centers for Disease Control (CDC) define community immunity, also known as herd immunity, as a “situation in which a sufficient proportion of a population is immune to an infectious disease to make its spread from person to person unlikely. Even individuals not vaccinated (such as newborns and those with chronic illnesses) are offered some protection because the disease has little opportunity to spread within the community.”
The metaphor of corruption as a contagion and the difficulty of achieving community immunity is frighteningly timely and fitting. Threshold estimates vary but generally effective community immunity ensues when four-out-of-five persons in a community are immune. While a starting point of 80% is daunting, this also means that each individual and their actions are imperative for success.
Consequently, simple measures have powerful effects. Start from the inside out by determining what areas to reinforce or build appropriate behaviours, communicate with staff members repeatedly, plan accordingly and accept that you will encounter more obstacles than wins.
Build a common understanding
Corruption is complicated. Therefore, one of the first things to do is to define and codify what “corruption” is and is not for your organisation. The RMH definition of corruption is founded on authority and the ability to deny, limit or delay access to services beyond the publicly known prices, processes and timelines. We include this definition as part of the language in our standard engagement and employment agreements. We do this because our staff and partners are in a position of authority which can easily be abused, intentionally, inadvertently and opportunistically.
Share accountability, not blame
Overcharging patients and theft are the most common ways individual employees acquire benefits for themselves at the expense of the patients and the business. Singular acts typically require at least some complicity through willful ignorance and turning a blind eye can result in termination. So, we tried something different.
When we discovered that stocks of medicine were missing or patients were being undercharged or missing charges entirely, we only informed the staff of the discrepancies. There were no accusations of bad acts nor did we try to “investigate” the circumstances and people involved. We only raised the matter in our staff meeting that the inventory and services registries did not reconcile with the revenue.
The staff members were informed that the amount in question would be equally divided and deducted from each employee’s next wage disbursement. After the first month’s deduction and a good amount of grumbling, the staff members became more vigilant in monitoring themselves. After several months, the shortfalls declined, a few spontaneous resignations were submitted, and the numbers were reconciled.
Research and expect to wait
Corruption thrives on ambiguity and opacity; at times you know where you are and at other times you are left in the fog. Whenever possible, research what prices or fees are in the public domain, particularly for licenses and registrations. Often there is the listed or public fee and at the time of application or inspection an “expedited” fee. Unsurprisingly, choosing the “non-expedited” filings often means the processing timelines go from weeks to months.
Every official business exists as a legal entity and registrations, accreditations and licenses are intended to protect not only the organisation but those they serve as well. And in a situation of must-have, ramifications are severe. From our own experience, over the past two years we have been inspected 11 times and licenses and several of the permits took 10 months or more to attain after we were told it would take one to three months.
Assess what is really happening
The easiest way to determine if you are in a dubious situation is to insist on payments to bank accounts or organizational mobile money accounts. Whenever possible, avoid cash payments or mobile money payments to personal numbers and if you must pay in cash ask for a signed receipt or a signed voucher. Scan the receipts and email a copy to the signer. We do this because email has legal standing in Kenya as confirmation and corroboration.
The irony of systemic corruption is that on a transactional level, it can be incredibly efficient. Whom to contact, how much the “facilitation” transaction costs and the timeline of action is an open secret. But transparency is a one-way mirror; those in the position of power quickly know what parties are willing to engage and that too becomes an open secret. At RMH avoiding compromising situations is not a quixotic moral crusade but rather a self-preservation stratagem. We try not to engage in questionable acts and actors because we leave ourselves open to be manipulated in the future.
While it may seem obvious, principle-based decision making is often more time consuming and comes at a cost because neutrality does not fit within the context of corruption. But at times the most powerful and only sovereignty you have is the power to not engage. And in that regard, social entrepreneurs and social enterprises are truly on the frontlines of the corruption pandemic.
Michael Seo is the Managing Partner & Founder of ReaMedica Health.