Stakeholder Trust: A Proposal for a Global Business Ethics Principle

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dowden-nicholsThis article originally appeared on the Russian International Affairs Council blog.

By Patricia E. Dowden and Philip M. Nichols

What standards should businesses observe in their own countries, or abroad? Businesses now have resources and influence that rival or surpass those of governments and certainly of ordinary people.[1] The choices businesses make can profoundly influence the lives of every person on the planet. Businesses, governments, and people now recognize that businesses must do much more than merely obey the law. Yet discerning and agreeing on globally appropriate rules for business behavior has been a formidable and contentious discussion among business leaders and academics.

While acknowledging all of the contentiousness, we now offer a modest proposal for a unifying global business ethics principle:

A basic duty of every organization is to earn stakeholder trust.

This principle is meant to replace a more familiar but flawed imperative: that the basic duty of each business leader is to “maximize shareholder value.” [2] Such a duty has never been explicitly written into corporate law, yet is often practiced by CEOs as a way of avoiding dissatisfied shareholders and being replaced by a similarly dissatisfied Board of Directors. But a single-minded focus on profitability – especially very short-term profitability – has serious limitations and risks to the ongoing enterprise; we will explain why earning and maintaining stakeholder trust – including shareholders — can not only serve businesses’ bottom line over time, but also make the market economies where they operate much more sustainable. Read more…

CIPE Executive Director and Partners Announced in Ethisphere Business Ethics Ranking

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2014 most influential

Ethics is an increasingly important component of doing business for both small and medium sized enterprises to multinational corporations in today’s globalized world. The Center for International Private Enterprise (CIPE) has long been an active advocate for better business practices with its focus on anti-corruption initiatives and promoting corporate social responsibility.

Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices, recognized CIPE leaders and partners for their contributions to advancing business ethics. Ethisphere magazine listed CIPE’s Executive Director John D. Sullivan and Michael Hershman, member of CIPE’s board of directors, as the top 100 most influential individuals in business ethics in 2014. Mr. Hershman is an internationally recognized expert on matters relating to transparency, accountability, governance, litigation, and security. Dr. Sullivan is the author of numerous publications on the transition to democracy, corporate governance, anti-corruption, and market-oriented democratic development. Under his leadership, CIPE developed a number of innovative approaches that link democratic development to market reforms in the areas of combating corruption, promoting corporate governance, building the capacity of business associations, supporting the informal sector, and assisting women and youth entrepreneurs.  Read More...

Q & A: OECD Working Group on Bribery Chair Drago Kos Discusses the Recent Study of Global Corporate Corruption

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OECD DK QA

Earlier this month, the Organisation for Economic Co-operation and Development (OECD) released the most comprehensive report ever compiled on the bribery of foreign officials. The report looked at 427 such cases since 1999 in 17 countries. Some of the results were surprising. Fifty-three percent of the cases of bribery took place with the knowledge or consent of corporate managers and executives. Other findings were predictable. The energy, mining, and construction industries are most likely to be corrupt. To put the report’s findings in perspective, CIPE’s Frank Brown spoke with Drago Kos, a Slovenian national who is the Chairman of the OECD’s Working Group on Bribery in International Business Transactions. He is an authority on worldwide corruption issues and trends, not only in the 41 countries that are a party to the OECD Anti-Bribery Convention, but also in Eastern Europe and Afghanistan.

What does this report tell us that previous such surveys, studies, and analyses have not?  Read More...

What Does the WTO Trade Facilitation Agreement Really Mean for Business?

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By Evelyn M. Suarez

On November 27, 2014, the World Trade Organization (WTO) was finally able to overcome an impasse created by India in July which prevented implementation of the Trade Facilitation Agreement reached in Bali in December 7, 2013. As described by WTO Director General (DG) Azevedo, “the impasse related to the political link between two of the Bali decisions – the decision on Public Stockholding for Food Security Purposes, and the Trade Facilitation Agreement.” The WTO General Council was able to address India’s objections after a breakthrough made by the U.S. and India on November 13, 2014 to simultaneously adopt the protocol necessary to implement the TFA and a decision clarifying the terms of an existing food security “peace clause.”

The WTO clarified that the peace clause agreed to in Bali will remain in force until a permanent solution is found hopefully by December 31, 2015 which is in advance of the original target date. It also adopted the protocol of amendment which formally inserts the TFA into the WTO rulebook according to DG Acevedo. Importantly, this clears the way for the TFA to come into force. However, it also removes the July 31, 2015 deadline for WTO members to ratify the TFA leaving open the ratification process open indefinitely. The Agreement enters into force once two-thirds of WTO members have completed their domestic ratification process.

So what does finalization of the first WTO multilateral agreement mean to international business?  According to DG Azevedo it means that the work of the WTO is back on track. The WTO General Council decisions were lauded by IMF Managing Director Christine Lagarde, who commented that this would provide an opportunity for advancing multilateral trade negotiations in other areas which is essential for global growth.  According to U.S. Trade Representative Ambassador Michael Froman “[t]he Trade Facilitation Agreement has the potential to fundamentally reform global customs practices and substantially reduce the costs and time associated with goods crossing borders.  It’s a perfect example of how breaking down barriers to trade can unlock new opportunities for developed and developing countries alike, and it’s a particularly important win for small- and medium-sized businesses in all countries.”  That’s why TFA implementation is strongly supported by groups like the International Chamber of Commerce. Read more…

Power, Corruption, and Human Nature

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If absolute power always corrupts, why is Mugabe's Zimbabwe more corrupt than Harald V's Norway?

If absolute power always corrupts, why is Mugabe’s Zimbabwe more corrupt than Harald V’s Norway?

CIPE prioritizes combatting corruption because it is often at the heart of a nation’s systemic challenges. The top ten countries on the global corruption index run the gamut of the world’s most troubled zones: Somalia, Sudan and South Sudan, Yemen, Afghanistan, Libya and Iraq.

Perhaps this list surprises no one. Characterized by decades-long dictatorships and/or civil wars, it is expected that these countries would be unstable and corrupt. But should we take that causality for granted? After all, which came first: the dictator, the civil war, or the failed state?

A recent study at the University of Lausanne, Switzerland, may point to the answer — one that sheds light on the very core of what CIPE’s anti-corruption efforts face in these and other regions that lack the rule of law. The clinical experiment, organized and conducted by the Faculty of Business and Economics and published in the peer-reviewed journal The Leadership Quarterly, studied the effects of power in a causal way using variants of the dictator game. Read more…

Is Japan Finally Moving Forward on Anti-Bribery Enforcement?

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Officials at a Japanese company were convicted of paying bribes for a railway contract in Vietnam in one of Japan’s first successful foreign bribery prosecutions.

Japan is one of the oldest signatories to the OECD Convention on Combating Bribery of Foreign Public Officials — and also one of the worst performing. Since signing the Convention in 1999, the Japanese government has only prosecuted three bribery cases. In addition, the Japanese Diet has yet to ratify the 2003 UN Convention against Corruption, making it one of the two remaining industrialized economies that has not committed to taking basic steps to fighting corruption. As the world’s third largest economy, the Japan’s abysmal track record at  tackling bribery and corruption has been a serious drag on global efforts to boost business integrity and transparency.

But, against a background of international pressure, this attitude may be changing. This past summer, the OECD Working Group on Bribery scolded Japan for not taking proper measures to proactively detect, investigate, and prosecute cases of foreign bribery by Japanese companies. Pointing out that Japan’s low level of enforcement is a serious concern, the OECD set specific deadlines for the government to take action towards changing the status quo. Read more…

Building a Culture of Compliance in Emerging Markets

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By Stephanie Bandyk

Corruption is a destructive tax on business that hampers entrepreneurship and economic development. In the last two decades significant progress has been made in making the fight against corruption a top priority for governments and businesses worldwide.

Yet many challenges remain, including spreading best practices in anti-corruption compliance beyond large companies to smaller firms in global value chains. The launch of CIPE’s new guide on anti-corruption compliance for mid-sized companies in emerging markets, held yesterday in Washington, DC, at the OpenGov Hub, focused on ways to boost third party compliance in difficult environments. Read more…

Could Rana Plaza Help Make Labor Standards a Corruption Issue?

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rana-plaza

In recent years, the private sector has been increasingly responsive to supply chain issues. This is a result of two distinct forces – one related to corruption, and the other related to issues such as human trafficking and child and other labor issues. While the focus on corruption has largely resulted from legislation such as the FCPA and UKBA, interest in labor-related supply chain issues has often been spurred by NGOs, public pressure, and the media.

However, investigations resulting from the Rana Plaza garment factory collapse may change that. On April 24, 2013, over 1,130 people were killed in the building collapse while many employees were making clothing for western companies. While the accident and the resulting public outcry drove some companies to sign accords promising to establish fire and building safety programs, other companies did nothing.

In July of this year, the Bangladesh Anti-Corruption Agency filed charges against 18 people in connection with the disaster, finding that they “grossly breached the building code.” Although bribery may have played a role in the accident — municipal workers were held liable for giving Rana permission to build more floors on top of the existing structure, although they had no authority to do so — the commission’s decision makes no mention of bribery or corruption. Instead, they hold private sector actors accountable directly on the basis of violating local building codes. Read more…

EVENT: Anti-Corruption Compliance for Mid-Sized Companies in Emerging Markets

mapJoin the Center for International Private Enterprise (CIPE) on Monday, November 10 for a discussion on Anti-corruption Compliance for Mid-Sized Companies in Emerging Markets.

In today’s globalized world, where international value chains stretch across borders and continents, anti-corruption compliance provides a vital competitive advantage. Ethical companies tend to have higher valuations, are more attractive to potential investors and employees, and are more likely to be engaged in long-term arrangements with their business partners. Increasingly, companies are expected to ensure not just the integrity of their own operations but also the conduct of their suppliers, distributors, and agents wherever they may be.

At the same time, in many countries, fighting corruption seems to be an impossible battle, especially for mid-sized companies with limited resources operating in corruption-tainted environments. CIPE’s newest publication, Anti-Corruption Compliance: A Guide for Mid-Sized Companies in Emerging Markets, is meant to help local companies around the world think about anti-corruption compliance as a strategic investment and take concrete steps to introduce or strengthen their internal compliance programs.  Read More...

Reflections on the Anticorruption Movement

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By Rick Messick

The World Bank’s Integrity Vice-Presidency is celebrating its 15th anniversary.  It recently asked a number of individuals for their thoughts on the anticorruption movement over the past 15 years.  INT’s questions and my replies below.

1) How has the anti-corruption movement changed in the past 15 years?

Fifteen years ago consensus about corruption was lacking.  Didn’t it foster development by providing a way around bureaucratic roadblocks to economic growth?  Wasn’t bribery a reflection of the gift-giving culture of many countries?  How could rich Western countries, many of which permitted their companies to take tax deductions for bribe payments, complain about corruption in poor countries? 

 The greatest change in the past 15 years is that those and other tired questions about corruption are no longer heard.  Instead an extraordinary consensus on the need to combat corruption now exists, the most visible sign being the overwhelming support the United Nations Convention Against Corruption enjoys.  Read More...