Management and staff become distracted and demoralised as they investigate what went wrong and respond to legal, regulatory and enforcement actions. In some recent cases, costs have soared into the billions, significantly affecting earnings.
In addition to the external fallout, as customers and partners distance themselves from a troubled company, there are daunting internal costs. Failing to actively prevent corruption allows employees and third parties to rationalize stealing from the company. Companies with anti-corruption programmes that enable bribe payments are also highly susceptible to theft and financial statement manipulation.
Companies that do not take steps to assess and manage corruption risk stand a greater chance of being caught in the anti-corruption net. With the passing of the Foreign Corrupt Practices Act (FCPA) in 1977, the US took the early initiative in enforcement. Under the act, any company listed on a US exchange or with significant operations in the US is subject to the rules and regulations of the US Department of Justice, regardless of where corruption occurs geographically. More recently, enforcement has become a more global affair, with the US working closely with authorities in other countries. In the last years, at least 20 of the 37 government signatories to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials began one or more investigations into corruption, up from 12 in 2006.
Looked at logically, bribes do not make good business sense. They may not alter the situation in any way and there is no contract to enforce if the services paid for are not rendered. Having paid once, a company also opens the door to future and perhaps larger demands and becomes susceptible to blackmail. “If you pay someone $1,000 for a service, do you think the next time they will only ask for $1,000?” says Albert Wong, head of policy and external relations at Shell International. He tells his staff to avoid this slippery slope by refusing the first demand.
While companies cannot control how governments and competitors behave, there are tools available to help level the playing field. One example is the so-called “integrity pact,” where all parties sign an enforceable agreement not to engage in corruption. Our survey highlights the importance of getting everyone to play by the same rules. Almost 45% of respondents say they currently avoid certain markets or opportunities because of corruption risks and almost 40% say they have lost bids because of corrupt officials.
A global PwC report shows that:
• Almost 80% of respondents say their company has some form of programme in place to prevent and detect corruption, but only 22% are very confident that it identifies and mitigates the risk of corruption.
• Slightly less than half say their programme is clearly communicated and enforced, while 28% say there are problems with either the communication or the enforcement of their anti-corruption programme.
• Rigorous risk assessment, a crucial step in programme design, is overlooked by more than half of those surveyed, and only 25% perform proactive risk assessments or monitoring.
• Only 40% of respondents believe their current controls are effective at identifying high-risk business partners or suspect disbursements.
The potential of corruption may always be present; however, companies can learn from others and set up a robust and proactive anti-corruption programme to mitigate their risk.
You may find more about confronting corruption here.