ambassador remarks

Transparency, Business Ethics, and Corporate Social Responsibility

Remarks to Canadian Chamber of Commerce
June 19, 2007

Good afternoon.  Thank you, Peter Formanek for the opportunity to be here today with the Canadian Chamber of Commerce.  I would also like to recognize my colleague Ambassador Calcott.  It is indeed a pleasure to be with our close friends and neighbors to the north.  Having spent the last twenty-five years living in Wisconsin, I truly understand what it means to live up north.   

Since President Bush’s visit to Prague a few weeks ago, there has been a much discussion about the direction of U.S. – Czech relations.  Issues such as defense cooperation, the Visa Waiver Program, and the continuing effort to encourage transparency in our two countries are at the top of the list.  In his speech here, President Bush highlighted another shared interest that makes our bilateral relationship a special one – our mutual support of democracy and representative government.  After decades of struggle against the corrosive influence of Communism, the Czech Republic is today doing important work to affect change in places where citizens still struggle under repressive regimes.  And for that, we applaud them.

A key element of any well-functioning democracy is robust dialogue – dialogue between citizens, government, business, and numerous other stakeholders.  The current debate on missile defense has reinforced for me that it’s not always a neat and clean process. Dialogue can be contentious, it can be heated, and it can be uncomfortable.  But it’s essential.

That’s why I’m especially happy to speak with the Canadian Chamber of Commerce today.  I believe strongly in the role that foreign chambers of commerce play in creating a channel for constructive communication between government and business. While each of the chambers represents different, though often overlapping, constituencies, they have many common aims - such as creating a more open and simplified business environment.

Nothing nurtures a healthy business climate like openness and transparency.  Likewise, nothing stymies creativity, entrepreneurship, and efficiency like corruption and excessive bureaucracy.

Businesses must contribute to the ideals of openness and transparency.   As you know, one of the most famous recent corruption cases in the United States occurred in the private sector.  You all remember the story -- the massive energy conglomerate Enron was brought down by a web of opaque and complex financial practices –largely through the efforts of one whistleblower who finally alerted her bosses, public investigators, and ultimately the Congress.

The Enron case began six years ago and it was a wake-up call: since then our democracy has weathered many storms in an effort to make corporate America more legally and ethically responsible.  The Sarbanes-Oxley Act, passed by Congress in 2002, contains far-reaching provisions that force companies to implement strict internal controls for their financial dealings and accounting procedures.  As a corporate lawyer for most of my life, I can tell you that conforming to laws and behaving in a transparent fashion has been the norm among my clients rather than the exception.  And I think that’s true for most companies.

When I’m not explaining missile defense or visas or hosting the President, I am spending a lot of my time these days speaking about transparency, ethics in business and government, and living up to the highest standards of democracy.

The reason is that this is very much a part of the transatlantic dialogue today.  As economies grow, as our global network of trade and information becomes more complex and interconnected, several things start happening, and I’m sure they come as no surprise to you:

- competition becomes more fierce;
- commerce itself is less and less restrained by national customs and laws;
- regulation and bureaucracy multiply;
- globalization pulls the decision-making-process apart;
- and political leaders often get caught in the middle.

In this environment ‘who’ is accountable and ‘what’ is transparent seem harder to define.

Yet, democracy, at least in the western liberal sense, derives its legitimacy from consensual, cooperative and connective power-sharing – in other words, it is non-coercive and decentralized -- part of the magic formula for transparency.  When power is diffused throughout the system; it’s harder to cheat.  Similarly, when civil society serves to monitor and influence transactions throughout the system, it’s harder to cheat. 

Now let’s look at things closer to home.  The Czech economy continues to expand at an impressive pace.  Czech managers, entrepreneurs, workers and researchers have been quick to respond to the opportunities of a free and open market economy and to channel profit into growth for the nation as a whole.

But unfortunately the prosperity of today may be jeopardized tomorrow by high taxes, excessive bureaucracy, labor market inflexibility and less than full transparency in business deals and practices.  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.  Similar to all countries, the Czech Republic cannot afford complacency or the status quo. 

How big is the problem?  It’s a problem that is difficult to get your arms around.  However, at least two respected institutions have issued discouraging reports.  Transparency International ranked the Czech Republic 46 out of 163 countries on its “Corruption Perceptions Index.”  They note that the government procurement process and excessive political influence in public contracting are issues here.  And the World Bank found that the Czech Republic is the most corrupt country in Central Europe.  The Bank estimates that the informal “Bribe Tax” represents 3.6% of business revenues in this country. 

If true, this has to be a drain on the economy and a warning signal for the business community.  Corruption takes its toll on the political system too.  Many citizens have grown disillusioned and distrustful of the government.  For a country that has worked so hard to achieve democracy, 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 government and the economy to all participants.  We’re also talking about fostering an attitude that resists cynicism and a defeated, get-along-go-along attitude.  We’re talking about strengthening an important pillar of democracy.

Certainly, we cannot ignore the progress that has been made.  Successes should be celebrated.  Czech tax legislation now expressly denies deduction of foreign bribe payments.  Bribery penalties for public officials have been stiffened and there are new proposals to increase sentences even further.  Recently, a private company worked in cooperation with the police in the arrest of an employee who accepted bribes in exchange for awarding purchasing contracts.  Additionally, the dialogue between citizens and politicians on key issues like the possible U.S. radar facility is increasingly characterized by openness.  I see a growing acknowledgment 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 is your role?  I see a vital and indispensable role for the private sector.  Entrepreneurs, business owners, and successful companies not only create jobs, they shape attitudes.  A business leader 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 influence, can educate other managers on how values and ethics on the corporate level translate to transparency and fair play at the national level.  For those of you who have already implemented a robust code of ethics in your companies, I offer my congratulations.  You are challenging the attitude that “anything goes”.

To me, these twin concepts - ethics and a recognition of the private sector’s leadership role in the community – are at the heart of corporate social responsibility. 

Remember that corporate social responsibility isn’t only about charity and philanthropy. It’s also about companies like yours reshaping business practices around transparency and accountability. Accounting practices, environmental impact reports, codes of ethics, whistleblower protection… All of these are components of good business practices and key measures of transparency.

Legislative reform is important, and the chambers of commerce are doing valuable work in pushing for positive change.  Unfortunately, that takes time.  Corporate social responsibility is, on the other hand,  something you can do right now.  If your company is already active in this area, how can you encourage other companies to do the same?  How can you involve more of your employees?  How can you positively influence your supply chain’s actions?  How can you mentor younger employees, who will be leading companies tomorrow?  By acting with these objectives in mind, the private sector can lead the way.

I want our American Embassy to practice what we preach.  In fact, transparency is a major component of the two hottest items on the bilateral agenda:  visas and missile defense.  President Bush is working to move the Czech Republic closer to visa waiver status.  In the meantime, I want to make the process of applying for a visa simpler and friendlier.  Our efforts to streamline the visa application process are part of this effort.  For instance, starting this month, applicants can arrange an appointment for a visa interview directly over the internet without paying for mailing, faxes, or special delivery.

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.  The Embassy has a regularly updated web page to provide information.  The Czech Government also has a website of its own.  Czech Members of Parliament recently visited our radar facility in the Marshall Islands to gain first hand experience of what the radar looks like and what impact it has on the environment.  Lt. General Obering, the head of the Missile Defense Agency, visited Prague recently to meet with the government as well as the opposition and to answer questions.  And last month, we had American technical experts in Prague to answer questions about the radar.

To promote transparency and corporate social responsibility, we continue 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.  Our American Center gives us a good platform to co-host events like these. I’ve convened a group of CEOs heading Czech, U.S. and international companies to advise us on our activities in these areas.  They identified outreach to students as a key effort – the journalists and CEOs of tomorrow will be crucial opinion leaders.  To that end, I recently addressed a group of students at Masaryk University in Brno on this topic.

Our goal is to make this a multilateral effort.  I recently had lunch with a group of Ambassadors whose countries have a significant investment in this country.  All of us felt strongly that the foreign Chambers of Commerce could be valuable partners in this campaign.  One suggestion was to encourage the major chambers to adopt a common, voluntary code of ethics.  If a critical mass of major foreign investors and key Czech companies signed on to such a code, it would send a powerful signal that this is an issue the private sector takes seriously.  Finally, the U.S. Embassy will host a “Transparency Conference” in September on the 18th, 19th and 20th at the Czech Senate, and we are looking for ways that our partners in this effort can be involved.

So, to conclude, real change comes from within.  If I can lave you with one thought, let me stress that, as business leaders, each of you is an ideal advocate for civic-minded citizenship, transparency, and solid business ethics.  I urge you, and the companies you manage, to lead the way.

Thank you very much.