remarks

Transparency: AmCham Speakers’ Series Breakfast

February 14, 2007

Good morning.  (And thank you, Weston, for that kind introduction.)  It’s a pleasure to be here today with the American Chamber of Commerce.  Since I arrived in the Czech Republic this fall, I’ve spoken with many of you and heard your observations and concerns about the Czech business climate.  I speak today as someone who is impressed with the enormous potential here, and the incredible changes that have already taken place.

Before I go further, let me congratulate AmCham for its success in building a close relationship with the Cabinet and the Parliament of the Czech Republic.  We saw the effect of that relationship last week, when the AmCham reception at our Residence drew a large number of political leaders from different parties, including the Prime Minister and the Chairman of the largest opposition party.  A dialogue between government and business is not only beneficial, it is a must – a mutually-reinforcing relationship to promote a better business climate and reduce inefficiencies in the economy.  AmCham should be proud of what it has achieved.  Reforms to bankruptcy laws and the commercial registration process are major milestones.  They could not have been achieved without the work of so many in this room.  I’ve truly enjoyed working with your organization during my first months, and I look forward to years of close collaboration.  Right now we’re working together on a number of exciting projects.  On the legal reform side, we’ve invited American bankruptcy experts to the Czech Republic to share with Czech judges and administrators their experience with chapter 11 implementation.  And in the area of Economic Development, the Embassy and AmCham will travel to Ostrava next month for a business roundtable and meetings with political leadership.

In thinking about AmCham’s achievements, it struck me that a common theme is transparency.  These are reforms that make it easier to do business by creating a level playing field, by reducing red tape and by eliminating unnecessary bureaucracy.  An AmCham member and business leader remarked to me the other day that “transparency”, in part, means ‘simplification.’  He’s right.  Simplification puts business and government on the same team.  Streamlined laws and regulations let businesses do what they do best – create jobs, generate prosperity, create opportunity.  But I think transparency is that and more.  Simple, clear and open – transparency is a way of doing business.

As a corporate lawyer for the past 25 years, transparency is a subject close to my heart.  It’s an issue to which I plan to devote considerable energy during my time in the Czech Republic.  I suggest that a discussion of transparency may cause some to roll their eyes and say here we go again.  But I want to focus on this issue because it’s a challenge for every country – including the United States.  Since we all struggle with it, I believe we should all talk about it. An open dialogue gives us a better chance to discover – together – solutions that work.  We all share common goals of improving our economies, strengthening our countries and creating opportunity.  I believe that improved transparency is part of the solution to accomplish those goals.

The Czech economy continues to grow at an impressive pace.  Huge credit goes to Czech entrepreneurs, workers and researchers.  They have been quick to embrace the benefits that arise from a free and open market economy.  But unfortunately, the prosperity of today may be jeopardized tomorrow by lingering corruption and a nagging lack of transparency.  Add to that high taxes, excessive bureaucracy, and labor market inflexibility.  These are liabilities that could eventually outweigh the attractions that have led so many foreign investors to look to the Czech Republic since the early 1990s as a place to do business.  Countries to the East are hungry for foreign investment.  The Czech Republic can not afford complacency or status quo.

Let me discuss transparency a little more and try to apply it to our situation.  Transparency International ranked the Czech Republic 46 out of 163 countries on its
“Corruption Perceptions Index.”  This was an improvement of only one place from 2005.  They noted, and others agreed, that the government procurement process and excessive political influence in public contracting are issues here.

A November 2006 report by the OECD’s Working Group on bribery highlighted that the Czech Republic does not yet impose liability for bribery of foreign public officials, as required by the Anti-Bribery Convention, and urges the government to put in place sanctions that are effective, proportionate and dissuasive.

Equally troubling, the World Bank found that the Czech Republic is the most corrupt country in Central Europe.  And it’s the only country of the eight Central European countries that joined the EU in 2004 where corruption has gotten worse in the last 3 years.  They estimate that the informal “Bribe Tax” represents 3.6% of business revenues  in this country. 

Without question, this is a drain on the economy and a warning signal for current and future business people.  And it’s taking its toll on the political system too.  Over two-thirds of Czechs believe that the political situation, corruption and economic crime worsened last year, according to a poll released in January.  Some citizens are growing weary, and some observers predict a decline in political participation as a result.  For a country that has worked so hard to achieve democracy and has accomplished to much in a relatively short period of time, this is a state of affairs that must change.  And it can change, So when we talk about transparency, we’re talking about concrete measures that open up a society and an economy to all participants.  We’re also talking about fostering an attitude that resists cynicism and a defeated, get-along-go-along attitude.  I ask you to join me in this effort.  In fact, I ask you to lead this effort.

Certainly, we should not ignore the progress that has been made.  Czech tax legislation now expressly denies deduction of foreign bribe payments.  Bribery penalties for public officials have been stiffened.  The dialogue between citizens and politicians on key issues like the possible U.S. radar facility is now characterized by an openness that most democracies would envy.  Moreover, I see a growing acknowledgement that a lack of transparency threatens the long-term prospects of Czech economic growth.  But more needs to be done.  Sustainable prosperity depends on further reforms.

What’s your role in all of this?  I’m a big believer in the power of business and the responsibility that comes with it.  Entrepreneurs, business owners, and successful companies not only create jobs, they shape attitudes.  Many of you represent companies that use a value statement or code of ethics to govern your activities.  In sticking to these values, you’re resisting the damaging ethic of “anything goes”.  Your firms are key players in your communities.  By being good corporate citizens, you are a positive force for change and, in the process, are strengthening an institution of democracy.

Corporate Social Responsibility is a topic that’s frequently discussed, but difficult to pin down.

That said, I think all good corporate citizens have a few things in common.  The noted businessman and scholar Ben Heineman says that corporate citizenship includes these three elements:

One, a commitment to strong, sustained economic performance;

Two, rigorous compliance with accounting and legal requirements; and

Three, ethical actions beyond what the law requires.

Businesses don’t serve their communities, employees, or shareholders by going bankrupt.  That’s why a focus on economic performance has to come first.  I would never encourage a company to take on corporate social responsibility that doesn’t make sense to their bottom line.  But I also wouldn’t advise pursuing a strategy based only on the short-term bottom line.  Corporate social responsibility that works is one that’s imaginative and compelling.  One that grows naturally from your mission and values.

In looking at corporate social responsibility from a risk-reward standpoint, the costs are, of course, easier to quantify than the benefits.  I’ve seen some companies approach it just as a cost of doing business – a box to check.  But research shows that a strong corporate social responsibility strategy has clear rewards.  There’s the human resources benefit – it increases employee loyalty and retention.  It helps your company attract the best talent.  There’s a marketing benefit – it cultivates customer loyalty.  It builds your brand.  And there’s a third benefit.  Corporate social responsibility fortifies your company’s most important asset – its reputation.  This is where corporate social responsibility and transparency connect.  This is how corporate social responsibility and transparency can ultimately serve as a catalyst for change in the business environment.

From my past and current work, I know that around the world, U.S. companies are leading corporate citizens.  It’s inspiring to see the ways in which they’ve brought that tradition to their operations in the Czech Republic.  While I hope to learn more today, and in months to come, about your companies’ activities, here are a few of many, many good examples.

Johnson & Johnson’s Credo dates from 1943 and outlines the corporation’s responsibility to customers, employees, the community and stockholders.  Their credo is alive and well in the Czech Republic, where the company’s work on Children’s health, Mental Health, and Advancing Healthcare Knowledge earned them the Top Corporate Philanthropist award.

Given some of Proctor and Gamble’s best-known products, it’s no surprise that they focus on mothers.  They’ve worked with the Via Foundation to support a network of “Mot hers’ Centers” throughout the Czech Republic.  These centers are established by and for mothers on maternity leave.  They offer programs to help women remain engaged in their communities while they’re out of the workforce.  More than 100 centers have been established so far.  It’s a great way to support a key customer segment, and it also keeps the local workforce strong. 

GE Money Bank takes a multi-tiered approach that emphasizes employee engagement.  Their Elfun Volunteers support the work of nearly 550 employees in schools, orphanages, and summer camps.  For every 15 hours that an employee contributes, he or she receives one day of paid vacation.  Their supply chain and environmental practices emphasize sustainability.  Underpinning it all, GE implemented Triple Bottom Line reporting to inform stakeholders about the economic, social and environmental aspects of their activities.

And it’s not only American firms in the Czech Republic that take corporate social responsibility seriously.  Crystal manufacturer Preciosa is one of the country’s pioneers of corporate philanthropy.  Their Preciosa Foundation supports good works in the company’s home town.  Their portfolio includes education, sports, social welfare, health, environment, the arts, and cultural history.

I know there are many, many more stories of corporate citizenship in the audience.  Some of you may be aware of the U.S. State Department’s ACE Award for corporate citizenship.  Every spring, U.S. ambassadors around the world nominate one U.S. company in their country for their corporate social responsibility work.  It’s an extremely competitive award, and I k now we have excellent candidates here in the Czech Republic.  I’m looking forward to sharing some of our local success stories with Washington.

Corporate social responsibility in the Czech Republic

It’s important to note that corporate social responsibility isn’t just an American business value.  More and more, it’s a global value.  Yet some people still say that corporate social responsibility – or transparency, or an economy without corruption – can’t work as well in the Czech Republic as it does in other countries.  A recent survey found that every third Czech admitted to paying a bribe.  And while I often hear Czechs express their frustration with the system as it is, there remains, in some circles, a lingering sense of “that’s just how it’s done here.”  That needs to change.  And it can change.

Some say philanthropy – not just corporate philanthropy, but any giving – is a foreign concept in the Czech Republic.  I disagree.  I look at the vibrant NGO sector, at organizations like Nadace Via and the Donors’ Forum.  I see how many companies, both Czech and international, have robust corporate social responsibility programs here.  The most successful programs aren’t top-down efforts imposed by foreign managers.  Rather, they are projects that have grown organically.  They arose to meet a need, either among employees or in the larger community.  These are efforts that acknowledge that companies don’t operate in a vacuum – they have a stake in the health of their neighborhood and country.  The most successful programs are shaped by employees, and give workers a greater sense of ownership.

To flourish, even a global value must adapt to the local climate.  Corporate social responsibility has made great strides in the Czech Republic, thanks to the efforts of business leaders like you.  I hope to see corporate social responsibility take deeper root among Czech small and mid-sized businesses as the economy matures.  No effort is too small, and all efforts are contagious.  I hope to see more Czech business and government leaders publicly recognize the value that good corporate citizens create.  Finally, I’d like to see a legal climate that’s more favorable toward corporate social responsibility – for example, greater tax incentives for corporate giving.

An AmCham member recently shared with me the results of a study showing that the majority of companies in the Czech Republic do not have or actively use a statement of values.  That’s an opportunity for progress.  Each of you, with your tremendous influence, can educate other managers on how values and ethics on the corporate level translate to transparency and fair play at the national level.  The AmCham is leading the way with its Code of Busines Practices.  I encourage the Chamber to use its visibility to spark dialogue on this issue.

Reaching the next generation of business leaders is also critical.  Again, I see AmCham playing a central role.  This is one of the country’s best forums for up-and-comers to learn from experienced leaders.  The AmCham’s Mentoring Program is one venue, but I see all the Chamber’s work as an opportunity to educate tomorrow’s business leaders on the importance of these issues.

I want the Embassy to practice what we preach.  So as we talk about transparency and corporate citizenship, my management team is taking a hard look at what we can do better.  In fact, transparency is a major component of the two hottest items on the bilateral agenda:  visas and missile defense.  We’re looking at how we can simplify the visa program.  President Bush is working to move the Czech Republic closer to visa waiver.  In the meantime, I want to make the process of applying for a visa more simple and more friendly.  Our new AmCham Business Visa Program is one example.  I encourage you and your employees to take advantage of this new service, and give us feedback on how it’s working.

On missile defense, we know that much of the public concern about the proposed facility can be addressed by greater flow of information and transparency.  As I mentioned earlier, the Czech government’s response in the month since Washington first made our offer to begin talks on the proposed radar facility has been a model of openness.  But residents continue to complain that they don’t have adequate information about the U.S. proposal.  This week the embassy has launched a new web page to provide more information.  I’ll be traveling to the region on Friday, and early next month will be participating in a televised debate.

I know that both visas and missile defense are important for many AmCham members.  In the question and answer session I’d be happy to hear your thoughts about where both are headed, and of course answer any questions you may have.

We’ve continued to work with NGOs and partner institutions to bring speakers from the U.S., arrange seminars, and stimulate a dialogue among sectors of Czech society.  With our new American Center, we feel we have a splendid platform to co-host more high-visibility events to raise corporate social responsibility’s profile.  We’re always exploring ways to make the U.S. Embassy a better corporate citizen.  Learning about your corporate social responsibility programs has inspired us.  It also made us realize that we could be doing more.  So we’re taking best practices from your companies and other embassies to begin a U.S. Embassy volunteerism program.  I see it as a way to build morale among our American and Czech employees.  It’s a shift in our corporate culture.  But I’m convinced that the benefits will make our efforts worthwhile.

As I mentioned at the start, you’ll hear me speak frequently about these issues in the next few years.  We’re planning events focusing on corporate social responsibility, rule of law, and transparency.  And I will raise this subject regularly in my conversations with Czech officials.

However, I believe real change needs to be led from within.  As leaders within the Czech business community, each of you is an ideal advocate for corporate citizenship, transparency, and solid business ethics.  I urge you to insist on change.  The U.S. Embassy stands ready to reinforce your efforts.  I welcome your ideas on how we can most effectively work together to achieve these most important goals.

Thanks again to the AmCham for all that you do.  I’ve enjoyed being here this morning, and I look forward to working with each of you in the years ahead.