Things They Never Taught You at Harvard Business School — Part 5

Or There’s No Such Thing as Dirty Money

Rule 21: The cost of corruption kills most but not all deals.

Corruption is responsible for much of the underdevelopment of the Third World. Zaire is a good example of how corruption can strangle development. At the turn of the century, the external debt of Zaire, which the country was having difficulty servicing, was approximately $6 billion. It was alleged that Mobuto Sese Seko had amassed a personal fortune of $8 billion. That’s the equivalent of the President of the United States amassing a personal fortune of $35.8 trillion. Mind you, we’d have to repeal the two-term limit and the economy would never have grown so large in the first place if it had such a drag placed upon it. Besides its ability to stop needed projects from being done, corruption can also kill normal business deals. I was once sent on a fool’s errand to Cairo by a Kuwaiti businessman who had purchased agriculturally zoned land outside of Heliopolis, which he wanted to turn into a water slide park. In order to get the deal done it required the consent of the Minister of Agriculture to re-zone the land as well as a consent from the Minister of Transportation because of the land’s proximity to the airport as well as a permit from the Minister of Tourism. Setting aside the issue of whether this was a viable commercial deal in the first place, the amount of the bribes that needed to be paid to the three Ministers alone killed all possibility of any profits being realized. When you add that together with bribes that would need to be paid to less important functionaries, the effective sunk cost would have become so great as to never be recoverable. This happens all too often in the Third World. Too many people try to get a piece of the pie so that deals become unviable. In some cases, the only way to ensure that a deal gets done is to concentrate the necessary payment in the hands of the top man and rely on his power to keep all the underlings either at bay or happy. Yet bribery and corruption are pretty much universally accepted and practiced. Many societies are quite open and unashamed about it. A friend of mine was once at a dinner with President Daniel Arap Moi of Kenya and the US Ambassador to Kenya. They were discussing the need for aid to Africa and the Ambassador stated that one problem that the US was facing in terms of giving aid was that the money didn’t always end up being used for the purpose for which it was intended. Moi replied, ‘Yes, but what do we do with the money? We put it on deposit with your banks in New York, so everyone’s a winner.’ That’s an extreme example, but what is the real difference between paying the strongman of a Third World country and paying a bunch of lawyers to lobby congress to change or amend laws in favor of certain vested interests that will profit therefrom? That’s still a form of corruption, in my opinion. Can corruption obtain lucrative deals? Absolutely! Do you have any idea how much money Halliburton has made out of Iraq since 2003. Do you believe those deals were obtained through transparent competitive bidding? How about Airbus Industries? Do you think they got all their international sales through straight up competition with Boeing based on the quality of their aircraft? There was a joke going around the Middle East that went there were three companies bidding on a contract, an American, a French and a Lebanese company. The American company bid $1 million for the job, the French company bid $2million and the Lebanese company bid $3 million. Before the winning bid was announced, the Lebanese representative asked to talk to the gentleman responsible for choosing the winning bid. The Lebanese man asserted that his bid was the best bid and should be chosen. The company representative was incredulous at this assertion as the bid was three times that of the American company. The Lebanese man said you don’t understand how my bid works. It’s the best bid. “Explain it to me then, how does it work?” replied the contractor. The Lebanese said, “It’s a million for you, a million for me and a million to get the American to do the work.” As a Palestinian colleague once said to me, “If you want to eat from the pie, offer someone else a bite first.”

Rule 22: If someone tells you that they are a Nigerian Prince and that they have access to $40 million in surplus funds that were generated as a result of over budgeting on a purchase of fighter planes and that they just need $10,000 and your bank account details and some of your company’s letterhead to unblock the money and they will give you a commission of 30% to assist him, don’t.

The point of this is that crooks are everywhere, and some are obvious, but unfortunately some are not. In the immortal words of the songwriter Woody Guthrie, some men will rob you with a gun and some with a fountain pen. The question is, how do you screen for and weed out the crooks?

Rule 23: A lot of times you just need luck.

If anyone ever tells you, they can beat the market consistently or that they have a formula that will provide a business or commercial edge in any industry, they are lying. The only edge you can ever get is through corruption and even then, you can’t always rely on it. See rule number 21 above. Some things when they go wrong can never be put right. When it comes to business and the markets, we all try to guess and prognosticate, but no one will ever be able accurately to predict what will happen. I don’t care how many regression analyses or monte carlos you run. As the great historian J. H. Plumb once said, “if you want to know what will happen in the economy in the future you would be as well advised to consult an astrologer as to consult an economist”. So, remember, when dealing in the foreign exchange, share, commodities, housing or any other markets, either the price will go up, or it will go down.

Rule 24: In the long run, there is no such thing as dirty money.

I’m sure you’ve all heard the famous Yorkshire expression relating to the sewage and sanitation industries; ‘where there’s muck there’s brass.’ No matter how a fortune is obtained, time will legitimize it. One of the best known and best respected companies in Asia and Britain was and is Jardine Matheson. The founders, William Jardine and James Matheson made a fortune selling opium in China. In other words, they were drug dealers. But today their descendants are fawned upon and toadied to in the best society. I predict that the grandchildren of Pablo Escobar and Saddam Hussein will also be admitted into the best ranks of so-called society and their ancestors no matter how illegally or brutally they obtained their fortunes will be viewed as colorful if not romantic swashbucklers of a bygone era. Money at the end of the day is the great leveler, and however it is obtained, it is fungible and equal. For example, the Emperor Hadrian had pay toilets installed in the coliseum in Rome. One day a bag of coins, the takings from the toilets was brought to him. One of his courtiers asked if he didn’t think it was beneath him to obtain money in this manner and that the nature of its acquisition thus tainted the money itself. The Emperor put his hand in the bag and pulled out a fistful of coins and brought them up to his nose, sniffed them and said, “It smells like money to me.”

Rule 25: If you can’t fuck ’em, suck ‘em!

I have heard that this business aphorism is attributed to Nelson Rockefeller, but I can’t verify that he said it. In any case, it’s obvious to us all what this means in the business world. And if you’re in the oldest profession, you can do both.

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