The news that the World Bank has banned companies from the Philippines and China due to alleged corruption has elicited almost the same response from the Philippine and Chinese governments. What corruption? Both governments are saying that maybe what the World Bank considers corrupt isn’t corrupt by their standards.
Oh well… corruption is corruption and even if we can claim some cultural tolerance for some practices the West considers corrupt, it does not mean we shouldn’t reconsider what is acceptable behavior. Even before the World Bank came out with the results of its investigation, I have heard from industry sources talk about how tough it is to compete with Chinese bidders for big public works projects because they play by our dirty rules.
That’s why it is not surprising the World Bank found out what they did after investigating the Chinese and Filipino firms involved in a road project in the Philippines. According to an Agence France Presse report, investigation by the bank “uncovered evidence of a major cartel involving local and international firms bidding on contracts under phase one of the Philippines National Roads Improvement and Management Program, known as NRIMP 1.”
The probe “closely analyzed the procurement process the firms participated in and conducted numerous interviews before closing the investigations and initiating sanctions proceedings against the entities,” a World Bank release said. The World Bank said it had stopped about $33 million from being awarded. “This is one of our most important and far-reaching cases, and it highlights the effectiveness of the World Bank’s investigative and sanctions process,” said Leonard McCarthy, World Bank vice president for integrity.
Thank heavens for this proactive stance of the World Bank against corruption, something apparently tolerated by third world countries like China and the Philippines. But China is now a world power and it must start acting like one. China’s record in the Philippines, specially in projects undertaken in collusion with people within our present administration have been sadly questionable. The ZTE-broadband and NorthRail projects come to mind. I am sure there are others that have managed to remain below media’s radar screen.
I have been told that top Chinese leaders want to improve China’s international image. In fact, a senior Foreign Ministry official is coming here precisely to see how that can be done here. Our unsolicited advice is: greatly improve transparency. Avoid shady deals with our corrupt officials. Play it clean and by the book. China must do its share to help the Filipino people clean up our government too.
Transparency
Speaking of transparency, it seems the former US Treasury Secretary has a lot to explain regarding the circumstances behind the recent large bailout of Bank of America. According to an article in the Wall Street Journal, US Treasury officials had apparently been fiddling with corporate transparency that is essential to a functioning market.
Remember the merger of Bank of America with Merrill Lynch? Apparently, Bank of America chief executive Kenneth Lewis rushed to see Treasury secretary Henry Paulson and Federal Reserve chairman Ben Bernanke in mid-December. He found out that BA was going to lose more than a few billion dollars if it consummated the merger.
Paulson and Bernanke supposedly suggested it was in BofA’s own interest, and also the nation’s, to still go ahead with the merger. They offered Mr. Lewis a $138-billion package of taxpayer-funded incentives not to scrap the deal, the WSJ reported.
Mr. Lewis kept his mouth shut. The deal closed Jan. 1, valued at $24 billion. In the past five trading days, Bank of America’s market capitalization has dropped 45 percent, wiping away a sum greater than the Merrill transaction itself.
Mr. Lewis is now being faulted by shareholders for failing to disclose the loss as soon as he knew it. Had they known of the problems, shareholders might have pressed to recut or kill the merger deal before it closed.
The WSJ notes that both federal and Delaware state laws require companies to disclose important news, especially in the periods around a big takeover deal. The WSJ article pointed out that “if the Merrill losses were concrete enough to seek a government lifeline, they were concrete enough to report immediately to the company’s owners, its shareholders.”
The WSJ wondered: Did Mr. Lewis stay quiet on his own or at the request — subtle or explicit — of Messrs. Bernanke and Paulson? According to the WSJ, in a conference call last week Mr. Lewis said that “we spoke to and were in close coordination with officials from both the Treasury and the Federal Reserve,” adding that “the government was firmly of the view that terminating or delaying the closing . . . could result in serious systemic harm.”
The WSJ warned: “Investors understand the markets are in a state of emergency. But they can quickly lose confidence when they suspect that the building block of investing, quick and thorough disclosure, may be subject to government fiat. That breeds more conspiracy theories and fear over the long term.”
“It’s bizarre. Is the government complicit in nondisclosure?” one Delaware lawyer reportedly asked. Corporate-law observers said the Merrill deal puts the federal government on an inevitable crash course with shareholders-rights attorneys. By Delaware laws, board directors’ loyalties are to shareholders, not to the federal government or a vague national interest.
“If it’s harmful to your company, I don’t believe Mr. Paulson could impose his will on you to act against your shareholder interest,” WSJ quotes an attorney with a major law firm as having said. Lawyers said that it is possible a new legal standard could eventually emerge from transactions like Merrill: that of a “national-interest” doctrine, absolving companies of governance actions that may be potentially harmful to shareholders, but are important to an economic or defense emergency.
Wow. This is tough. Screwing shareholders in the national interest is no way to win back investor confidence. Yet, they also couldn’t have allowed Merrill Lynch to implode like Lehman. This only means this crisis has a long way to go yet. And officials will just be feeling their way through the mess almost blindly.
Gift certificates
I got this e-mail from Bea Ledesma.
Hi! My mom told me about your article today about the one year validity of GCs and I wholeheartedly agree! I also hate how the staff of retailers treat you differently as soon as they see that you’re paying with a GC— as though the gift check had no real value.
Although I think Rustan’s now requires you to finish the entire GC in a single transaction, SM doesn’t. You can use their GC in as many transactions as you want.
Anyway I wanted to ask if you could share the email of someone at DTI who I can also forward complaints to. Would appreciate it! Thanks!
Q and A
Dr. Ernie E is sharing some Q and A for people in their 50s.
Q: Why should 50+ year old people use valet parking?
A: Valets don’t forget where they park your car.
Q: Is it common for 50+ year olds to have problems with short term memory storage?
A: Storing memory is not a problem, retrieving it is a problem.
Q: Where should 50+ year olds look for eye glasses?
A: On their foreheads.
Boo Chanco’s e-mail address is bchanco@gmail.com