11 Feb 2014
The Real Rick’s Cafe – Building a Business in Casablanca
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You may remember Rick’s Café Americain as the gin joint in the movie Casablanca. For years Rick’s existed only on film. When Kathy Kriger, an American entrepreneur living in Casablanca, decided to bring Rick’s Café to life, she had no idea how hard it would be. In this episode Kriger tells The Business how corruption and lack of connections almost cost her her life-savings, and Harvard Business School professor Karthik Ramanna shares his advice on maintaining integrity in corrupt environments.

The Business is a Harvard Business School podcast. Twice a month during the academic year, host Brian Kenny will bring you a new take on the business world through unexpected stories, and conversations with business leaders, entrepreneurs and faculty members. Subscribe on iTunesU.

 

Transcript

CASABLANCA FILM MUSIC AND DIALOGUE
“With the coming of the second world war, many eyes in imprisoned Europe turned hopefully, or desperately, toward the freedom of the Americas. And so a torturous roundabout refugee trail sprang up… then by train, or auto, or foot across the rim of Africa, to Casablanca in French Morocco.

Brian Kenny: Coming to you from Cambridge, Massachusetts, nowhere near Casablanca, I'm Brian Kenny and this is "The Business," the official podcast of the Harvard Business School.

In this edition we're tackling a tough, and enduring, and global problem: Corruption.

In the 1942 classic film, Casablanca, corruption played a pivotal role. People were desperate to flee the war, if they could get letters of transit to safety.

DIALOGUE FROM FILM: You can ask any price you want, but you must give me those letters....

BK: And it didn't always go so well:

DIALOGUE FROM FILM: Get away from that phone! I would advise you not to interfere. I was willing to shoot Captain Renault and I'm willing to shoot you. Shut up! Put that phone down. Get me the radio tower. Put it down!

BK: Casablanca is now the commercial center of Morocco. It has haute couture and Muslim culture and yes, it still has corruption. It's not the most corrupt place in the world, not by a long shot. Last year the anti-corruption agency, "Transparency International" ranked 177 countries based on how corrupt they were perceived to be. Nobody had a perfect score, not even Denmark, which was the closest to squeaky clean. Two-thirds of all countries were in the nasty, corrupt, bottom half. Lining the very bottom? Sudan, Afghanistan, North Korea, and Somalia. So, if you're looking for evidence of corrupt practices anywhere, in any country in the world, including the U-S, you can find it.

DIALOGUE FROM FILM: Everybody is to leave here immediately. This café is closed until further notice. Clear the room at once! How can you close me up? On what ground? I’m shocked! Shocked to find that gambling is going on here. Your winnings, sir.

BK: That's the policeman pocketing his winnings at Rick's Cafe Americain, the gin joint the American Rick runs in the film. Humphrey Bogart played Monsieur Rick in the movie. In reality, there was never a Rick's Café, but there is now.

Kathy Kriger: I'm Kathy Kriger. My title, you could say, is Madame Rick, owner of Rick's Cafe, the Rick's cafe.

BK: Kathy Kriger's written a book about her adventures as an American entrepreneur in Morocco.

KK: It's called: Rick's Cafe-Bringing the Film Legend to Life in Casablanca.

BK: There is no gambling going on at the real Rick's Café, but there is a well-stocked bar and a staff of many Moroccans. The decor is lush and intimate with lamps that look a lot like what you'll see in the movie.

KK: I was buying lamps like crazy.

BK: There's Sam on the piano.

MUSIC FROM KRIGER'S RICK'S CAFE: AS TIME GOES BY

BK: Oh, wait a minute. His name is ISSAM and he's one of the bosses here. But let me tell you about the big boss, Kathy Kriger.

She founded her own travel agency in Portland, Oregon with 800 dollars. She eventually moved to Tokyo during the boom times in Japan. She joined the Foreign Commercial Service of the U.S. federal government and that brought her to Czechoslovakia, and eventually to Morocco. Her role as a commercial attached was to help American companies that wanted to invest in Morocco. It lasted a while, but when 9-11 came around, she decided it was time to leave government work and fulfill an entrepreneurial dream.

KK: For me the biggest challenge was this was this was the project of my life. I actually emptied out the U.S. government equivalent of a 401K, and the contributions I’d made to my federal retirement that I would never receive because I just liquidated my contributions. I have no real estate in the states; nothing. So I was gambling everything. And I had, also, the money of my friends.

BK: The friends who helped bankroll Kathy Kriger were called "The Usual Suspects." They believed in her. She believed in herself. She put over a million dollars into the project. She bought a ramshackle riad, a once glorious home with a courtyard in a once glorious part of Casablanca. But like many savvy business people, she ran into one bureaucratic roadblock after another.

KK: They don't do entrepreneurship well. The nature here is you do business with a rich client of a bank who wants money for his son to do something, or for friends or relatives; everything is connected. And they don't take a gamble on people that just have an idea that’s good, no matter how fantastic it was.

Karthik Ramanna: I just see corruption as one of the biggest impediments to growth and progress in many emerging market countries including, for example India, which is where I grew up.

BK: This is Karthik Ramanna. He’s an Associate Professor of Business Administration at Harvard Business School and he teaches about the intersection of ethics, economics, and the law.

KR: Corruption is a particularly difficult problem to solve because in some sense, everybody can point at someone else and say, “Oh but they're doing it, too”. So it is what we would call sort of a problem of the commons and the continued presence of corruption does result, if you must, in a continued degeneration in social values across society, or in values across society, but at the same time, it's very hard to organize a consensus, if you must, to say, “No” to corrupt practices.

BK: Of course, when you start any business enterprise, especially in a foreign land, it helps to have a local ally, someone from the region who can help you navigate your way. Madame Rick, Kathy Kriger, found her local ally in someone she says had integrity and pull.

KK: There was one person who I trusted to go to and ask advice. And I would follow that advice, whatever he said. That was one of my best contacts from the commercial side. He was the Governor of Casablanca and looking back if he hadn't been in that place at that time, I never would, probably, would have had the courage to think about the idea.

BK: The idea of starting a business in a foreign country is daunting enough. Karthik Ramanna says enlisting the help of peers inside the country, is exactly the right thing to do. But first, be clear of your own set of scruples.

KR: I think it's important that anyone who's going to be engaged in this process sits down and, if you must, makes a list physically or in their mind of what are some lines that they absolutely won't cross. Those perimeters should define, if you must, the values of your organization. They should guide the kind of people you hire, they should guide the kind of business relationships you engage or enter into, they should guide the kind of suppliers and customers you deal with, and, of course, they should guide your relationships with government. It's also important to constantly have sounding boards, if you must. It's very easy to be immersed in a context that might be corrupt and say, "Oh, everybody's doing it, therefore, it's okay." Which is why I think having this commitment to a set of values before the fact, and then constantly having a community of peers or people you respect, people who are willing to say, “No” to you. Having that community to sound ideas off over the course of the actual difficult decisions that you're going to have to make.

BK: Karthik Ramanna has his own “guidestar” when it comes to teaching his students what to do if they're ever confronted with bribery, or kickbacks, or any kind of corrupt practice. He cites the work of Albert O. Hirschman, the economist and social scientist, who laid out this framework for dealing with difficult ethical situations. You have three options. He calls them: Exit, Voice, and Loyalty.

Let's take exit, meaning you just leave.

KR: If you're an American doing business in a foreign country and a bribe is asked of you, you should just say no. Not only because it is unethical and immoral, but also because you're very likely to face consequences back here in the United States. If you're part of a large multi-national organization than the Foreign Corrupt Practices Act here in the United States or the Anti-Bribery Act in the United Kingdom is likely to have the ability to prosecute you back home. So, there should be absolutely no doubt in your mind that engaging in any form of bribery is wrong. If you feel in any way coerced or forced in this context, then exit is perhaps the most advisable context. So if you're, for example, an American doing business in Russia and you're being faced with the situation where you feel you’re being extorted or government officials are demanding bribes and you feel you have no other recourse, then your best bet is to just leave.

BK: There's the option of dealing in. Loyalty.

KR: If you are, on the other hand, say for example, a Russian citizen doing business in Russia and you're faced with a corrupt government official who is demanding bribes, or you're in an extortionary situation, the situation does, in fact, become more difficult. Where do you exit to? You are, after all, in your home country. So the question now becomes do you pay up? Are you loyal, in that context, loyal to the corrupt official?

BK: And then there's voice. Speak out.

KR: How can you use voice as a vehicle to combat corruption or prevent payment of bribes. So for example, in Russia, one of the individuals we profiled is a gentleman called Alexei Navalni. He's a real estate lawyer by profession, became deeply distressed by the level of corruption, in both wholesale and retail corruption in his home country, Russia. And over time decided to start using the Internet, in particular, blogging about his experiences with corruption as a way of raising awareness of the issue. His blog became wildly successful and Navalni has now been launched as a successful opposition candidate, perhaps the only credible opposition candidate to Putin in Russia at this time. Of course, this move has come at enormous personal cost to him. He has faced incarceration on numerous occasions, harassment by police in Moscow. So it's not always clear that "voice" is the acceptable way to most people.

BK: But technology has helped the cause, according to Ramanna.

KR: One of the organizations we profiled on this particular point was a group called, I Paid A Bribe dot com (ipaidabribe.com), which is a group based out of Bangalore, India. And they basically have set up a portal where individuals who have been forced to pay a bribe are able to report that on the website. Sometimes they do so anonymously and sometimes they might do so in other ways that expose at least the venue where the bribe was paid.

So there's a text messaging service for individuals particularly in some areas of Bangalore, where when they're dealing with a government official and they are asked to pay a bribe they can text on the spot to this central server and say, “We're being asked to pay a bribe in this particular area.” And so this website can provide these dynamic heat maps of where bribes are being demanded, at what time, and in a sense, real-time reporting of the issue. Technology such as this does raise the salience of the issue, but it’s hard to say this impact is shifting social norms in a particularly productive way.

BK: Kathy Kriger went through heck trying to start Rick's Cafe in Casablanca. Three months before she was supposed to open, they pulled her liquor license; just one more affront.

KR: Almost always, the bribes in these sorts of situations are intended to expedite the process, rather than to actually make it happen. So sometimes it's a question of waiting six months rather than waiting two or three days, which is what you'd get if you paid the bribe.

BK: Rick's Cafe in Casablanca opened up ten years ago. The place is now thriving and Kathy's turning a profit. She sits at the dimly lit corner of the bar every night, greets guests at the door, and loves what she has created with the help of the usual suspects and some local Moroccans.

KK: The saving grace for me was there was no choice ‘cause I had put everything I had into it. They knew they were stuck with me. There was no way I should say, “Well this wasn’t a good idea I guess I’ll go back.” No way! This what I want to do in life.

CASABLANCA FILM MUSIC: AS TIME GOES BY

BK: You heard Karthik Ramanna mention the I Paid A Bribe website. You can find it and check out Kathy Kriger's Rick's Cafe in Casablanca, on our website. You can also listen to previous episodes of "The Business." Go to hbs dot-edu-slash news (hbs.edu/news). Look for "The Business" in the left side bar under “Sources”.

In the next few weeks, check back with us to hear Ethan Bernstein, the author of the award winning paper "The Transparency Paradox". He’ll tell us about how worker productivity changes when management is watching. You might be surprised by what he says.

I'm Brian Kenny with "The Business", the official podcast of Harvard Business School. See you next time; knock on wood...

MUSIC FROM THE FILM CASABLANCA: "KNOCK ON WOOD"