Lecture by Jim Wesberry on the Panel "Good Governance of Public Sector Enterprises: Issues of Ethics and Accountability" in the Practitioners Summit of the 2015 CReCER Conference “Preserving Economic Gains and Investing in the Future: Promoting Growth through Improved Financial Accountability" May 7, 2015, Quito, Ecuador (Short Version)

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The Responsibility for the “Ethical Environment
in State Owned Enterprises
Lecture by Jim Wesberry on the Panel "Good Governance of Public Sector
Enterprises: Issues of Ethics and Accountability" in the
Practitioners Summit of the 2015 CReCER Conference
“Preserving Economic Gains and Investing in the Future: Promoting Growth
through Improved Financial Accountability"
May 7, 2015, Quito, Ecuador
"It is necessary that men
know evil to be ableto
prevent it and dedicate
themselves to doing good"
Confucius, 500 B.C.
Objective
Many centuries ago in China a wise old man was asked, "Whatcan we do
about the corruption a lack of obedience and ethics among our children?"
He replied, "Well, you must start with their grandparents."
My desire in this talk, as a grandfather of 13 grandchildren, is to leave you
with what I think is most important in the searchfor ethics by state
enterprises:
The president or chief executive of the enterprise and all all itssenior
executivesare the key persons in establishing andmaintaining the "tone
at the top" that affects the integrity, ethics and other factors essential to a
positive“ethical environment.”
Exemplary conduct by all seniorexecutives is essentialto demonstrate a sound
"tone at the top" and guarantee an "ethicalenvironment."

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The "ethicalenvironment" is even more important than legislation, enterprise
policy, codes of ethics or any other instrument or practice employed in pursuit
of ethical conduct.
Confucian Ethics
Confucius was the first and perhaps the greatestphilosopheron the
importance of ethics in the public sectorand the importance of projecting an
image of integrity and honestyby the highest officials.
PeterDrucker, one of the 20th
Century’s greatestauthorities on management
and an admirer of Confucius observed: “…if there ever is a viable"ethics of
organization," itwillalmostcertainlyhave to adoptthe key concepts which have
madeConfucianethics both durable and effective.”
"Ethics" is related to the study of the practices and standards of right and
wrong, i.e. goodand evil. The term "ethics" is defined as the discipline dealing
with what is goodand what is bad and with moral duties and obligations.
Ethics has been called "the science ofthe ideal human nature". It is the
combination of ideals, beliefs and standards that characterize or are inherent
in a group, community, people or nation.
"Ethical" conductis that which merits moral approval or, in its most common
usage, it is considered that which is accordwith acceptedstandards of
professionalconduct. In our hemisphere ethics is based upon Judeo-Christian
traditions of morality and righteousness but there are also other ancient
traditions such as those of Confucius that in many respects coincide with our
more modern ones.
Unlike many of the other philosophers one, Confucius, had a very special
interest in ethics in the public sector. He often spoke of the "governor" or
"ruler" posts that today we callthe "chiefexecutive or CEO." His teachings
survived over more than two millennia. Greatinterest in his teachings is
currently resurging in China, after having been nearly abandoned under the
Mao regime.
“Togovern is to correct. If you set an examplebe being correct,
who would dareto remain incorrect?” - Confucius

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The most interesting thing about the teachings ofthe greatphilosopher is that
his main criterion regarding public officials 25 centuries ago is still important
and widely acceptedup to now. He believed in the powerof benevolence,
arguing that rule by example rather than by fear would inspire people to
follow an equally virtuous life. The same principle, in his opinion, should
govern personal relationships.
“If guided byvirtue and regulated bythe rules, the common peoplewill
have a sense of shame and abidebywhatis required of them.”
Confucius emphasized trust - trusting your boss, your employee, your
neighbor, your friend in the hope that this confidence will be returned. He
believed that refraining from offending and building a decentreputation
would encourage goodteamwork, business success,and community spirit.
Confucius was an eternaloptimist. He believed in people. He believed that if
the ruler was a noble man, the people will not only follow him, but will imitate
him. Confucius pointed to the "north" in the compass ofgovernance and
many of his teachings are still very applicable to state and private enterprises,
their officers and their employees.
“ConfucianState Capitalism”
The values of work, education, merit and frugality are common to Confucius
and also to the capitalist system. Moreover, Confucius’conceptthat the
conduct and example of honesty and integrity of the executive (governorin
times of Confucius) and seniorofficials is the key to goodadministration
coincides with what today we call "the tone at the top."
The outstanding economic successesofChina and the four Asian tigers,
Singapore, South Korea, Hong Kong and Taiwan, and similar efforts by
countries that along with China are called the "BRICS"--Brazil, Russia,
India and South Africa -- have given birth to the conceptcalled"State
Capitalism” an economic systemin which the state conducts commercial
economic activity with administration and organizationof the means of
production in a capitalistmanner, including the system of a salaried

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workforce andcentralized management. It is characterizedby the dominance
of state enterprises in the economy.
Some attribute the economic successofChina and the four "Asian tigers" to
Confucian virtues and the important socialrelationships and interpersonal
trust operating in the world of business, aspects sometimescalled"Confucian
Capitalism." Certainly Confucian values such as hard work, family values
and community cohesionas wellas business practices basedon trust can
explain their wealthand Asian commercialsuccess with possibilities of more
efficient, more profitable and less competitive than the methods of classical
capitalism.
Confucius’ philosophy was basedupon free will, not state control. He believed
that societiesand nations would be more stable if there was a bidirectional
flow of duties: the duty of the people to work for the development of the state
balancedwith the government's duty to care for people and to provide for
their welfare.
We canconceptualize these two approaches as "ConfucianState Capitalism"
combining the efficiency aspects ofcapitalismwith the ethicalcharacteristics
of Confucianism thus providing a step forward in the searchfor ethics in state
enterprises. Experimentation and development of this form of "capitalism"
could be the answerto the urgent need to ensure ethics, honesty and integrity
in state enterprises.
The Ethical Environment
The "ethical environment" is even more important than legislation, codes of
ethics or any other instrument or practice employed in the pursuit of ethical
conduct. It is a very special problem in the public sectorand among its
enterprises, often characterizedby many speeches, debates and legal
provisions calling for ethicalbehavior, but simultaneously demonstrating a
poor ethical environment as a result of arrogant, selfishand often blatant
public and private acts by political leaders who having receivedfrom the
populace the privilege of high public office, somehow feellike the legendary
"king" of the popular Latin American song with the claimed right: "I do what

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I want ... my word is the law ... and I keepon being the king. " It's a happy
song but it is sad that politicians observe its words… a very common sad
practice throughout the world, evenwhere the song is neither known, nor
sung.
There are two main maladies involving ethics that characterize state
enterprises:
• The executive or leaderwho does not realize, or care, about the fact
that eachof his actions contributes to the strengthening or weakening of
the ethicalenvironment of the enterprise itself.
• The politicization of the enterprise subjugating its efficiency and ethics
to the wishes of a party or political group.
The ethicalenvironment in a public enterprise consists ofthose efforts and
activities aimed at promoting and maintaining ethical, honest and responsible
behavior, notably including both official and private actions of senior
executives and ethical image that they reflectwith respectto both their
support of ethical conduct and their ownexample. The ethicalenvironment is
part of the broader "controlenvironment". It is one of the components of
internal control describedin the "COSO" report, a document sponsoredby
five prominent professionalorganizations that now have globalacceptance.
The Politicizationof the State Enterprise
A state enterprise must be an apolitical enterprise, a very difficult goalto
achieve in governments surrounded and sometimes consumedby an ambition
and desire to advance the powerof the for the moment dominant or ruling
party. The main two typical problems that result are:
• Overloading the company with partisan employees loyal to the party,
but unnecessary, unqualified and useless.
• Contracting and/or purchasing services and products at higher than
market prices conditioned upon "donations" to finance the party.
Obviously these very common practices destroyany possibility of maintaining
an ethical environment in the enterprise. If management is not sufficiently

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strong to be able to deny the influence of the party in power, it has no chance
of maintaining an ethicalenvironment.
The "Tone at the Top"
It is very clearthat is not the only obligation of senior executives to carry out
their managerialduties effectively and efficiently, but they must also assure
ethical conduct and their own behavior should exemplify before the rest
members of the organization a personal model of honesty and ethical
principle. Nowadays this conceptis known as "The Tone at the Top," the
support provided by seniorexecutives as regards ethicalvalues, both through
official channels and acts, as wellas their own official and private conduct.
The board of directors also has responsibility for the ethicalenvironment and
the controlof the company.
Exemplary behavior
While maintaining a supportive attitude regarding internal controls and is
one of the most important functions of the executive, perhaps most important
is a goodexample. The sayings of "do what you preach" and "actions speak
louder than words" are particularly relevant in the case ofthe credibility of
executives. Tragically, very often the same executives who support ethical
practices and preaching the values of ethicalconduct not follow their own
advice in their personalacts, and thus undermine their own credibility and
that of the companies they represent, and question all officialstatements
directed his subordinates.
An exemplary by seniorexecutives conduct is essentialto maintaining ethical
environment. The tragedy of the world's governments is evident every day in
published in newspapers orbroadcaston televisionnews, and that officials
have been appointed to fill the highest public office are not setting a good
example by their actions;they are actually giving a very bad example and
therefore are destroying the credibility of the company.
More than 3,000 years ago King David of Israeland Judah left us in Psalm 15
a recipe for ethics:

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Walk with integrity
Do what is right
Speak the truth from your heart
Keep your tongue from slander
Do not cause harm to others
Do not speak ill of your fellow
Keep your word ... even if it costs
Do good without expecting reward
Do not accept bribes
Despise vile men
Honor those who serve God
In closing remember the most important thing:
The chief executivehead of the organization and itssenior executives are
the key persons in establishing andmaintaining the "tone at the top" that
affects integrity, ethics and other factors indispensableto assure a positive
"ethical environment".
The greatpoet Alexander Pope describedour human dilemma about the vice
and corruption, so common in our world, when he said:
"Seen so often,
familiar with her face.
We first endure,
then pity,
then embrace. "
But the same Alexander Pope also said:

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"An honest man
is the noblest work
of God
A longer version of this paper is at: http://www.jimwes.com/id128.html
James P. (Jim) Wesberry, Jr. CPA, CFE, CIA, CFSA, CGFM, is an auditor, consultant, researcherof corruption, lecturer
and author. He is editorof seven electronicjournals "Corruption" and"ForensicAudit." It also maintains several web
portals on the Internet. Was CertifiedPublicAccountant for 57 years. He was honored with the designation Contador
Father of the Americas, the highest of the profession of public accounting of our hemisphere, honorreceivedthe highest
honor of the Institute of Internal Auditors calledthe "Bradford Cadmus Award" and received the award for
"Outstanding Achievement overhis career"awarded by USAID. He has been honored three times fortheirservices. He
was an advisor to three General Comptrollers of Peru, Ecuador and three from the US Comptrollers and Bolivia.
Wesberry has played execs positions at the World Bank, USAID, the ComptrollerGeneral of the US,
PricewaterhouseCoopers andthe Institute of PublicAdministration of New York and was Director of Audit of the
Organization of American States. Start exercising theirprofession in Atlanta, Georgia where he had his own firm and was
electedthree times to the Senateof the State. Overthe past 15 years been project managerAnti-Corruption USAID for
the Region of the Americas, and the countries of Mexico, Ecuador and the Philippines. Presently living in Cumbaya,
Ecuador with his wife Lea, peruvian Quivilla, Province of Huanuco. He has seven children, thirteen grandchildren and
one great-granddaughter. More information www.jimwes.com and http://about.me/jimwes