“Among a people generally corrupt, liberty cannot long exist.” – Edmund Burke
Until recently, corruption has been accepted and treated as a cultural norm in countries across the world. Increasingly, thanks to the efforts of organizations like Transparency International (TI) and a range of business groups, nonprofits, and government initiatives, the private sector is now openly talking about corruption. But to make significant progress, not just multinationals but also domestic companies in emerging and frontier markets need to believe in the business case for anti-corruption compliance.
As a community we are at a crossroads, as a wide range of actors have not only come to realize the destructive nature of corruption but are putting their heads together to create the conditions necessary to combat it.
TI-USA’s new report on Verification of Corporate Anti-Corruption Programs, the project of extensive research and consultation, marks an important step towards a unified vision of what successful anti-corruption compliance programs should look like. At a July 24 event presenting TI’s key findings and recommendations on corporate compliance, Andrew Wilson, CIPE’s Deputy Director for Strategic Planning and Programs, shared his views as part of a panel that included speakers from TI, Siemens AG, and Tyco.
CIPE is an affiliate of the U.S. Chamber of Commerce and a core institute of the National Endowment for Democracy and works directly with local communities in countries across the globe to address the supply side of corruption. With the mission of ensuring that democracy delivers for citizens, CIPE brings the international development component to the compliance effort.
Given the newness of the open dialogue on anti-corruption compliance, the cacophony of voices in many ways makes it harder to access consistent information on standards on which to base a solid compliance strategy. Wilson pointed to recommendation number seven of the TI report, which identifies harmonization of standards for certification as a crucial step in promoting compliance standards.
“Though the OECD principles, FCPA and other anti-bribery statues lay out principles and penalties, there is little case law on what acceptable compliance programs look like,” he said. While the compliance industry is rapidly developing for large companies, there are still limited sources of information for smaller operators.
To compound the problem, many corruption issues are the result of operating in jurisdictions with weak governance. Not only is there limited information in these settings, there are also embedded behaviors that enable corruption. This behavior is ultimately rational: companies want to ease bureaucratic burdens, gain some form of competitive advantage, or access public procurement opportunities. These are strong motivators, and so a compelling a business case for compliance must be identified in order to shape behavior – especially for small and mid-sized local companies who do the bulk of their business in a domestic context.
In many ways, what we are talking about is a behavioral adjustment on a global scale. Building the business case for SMEs is therefore based on identifying incentives for firms in which the longer-term benefits of compliance outweigh the short-term pain of not resorting to corruption. CIPE recognizes the source of corruption and understands the incentives that can be used to shift behavior toward a culture of compliance by making it cheaper, safer, and more reliable to do so. Such a shift can also enhance efficiency and competitiveness while lessening risk. A reputation for clean business adds value for owners and stakeholders.
Cost efficiency is one of those incentives. The true cost of corruption goes far beyond the bribe itself. Considerable money and effort can be wasted not just in paying bribes but in managing corrupt relationships and covering up illicit payments. Another strong incentive is the ability to participate in global value chains. This has become increasingly important as multinationals come under greater scrutiny for corrupt practices carried out by their agents, suppliers, and other third parties.
Despite these strong incentives, the challenges to building compliance programs can be vast, including finding the will, the funds, and the expertise to function at a level of transparency required by international governance and compliance standards. Developing and educating the staff to manage such a program and effectively monitoring the implementation of these programs are also major challenges.
Of course this is compounded when a firm has to function in an environment where government institutions may not be supportive of such actions, and where being an outlier in such matters may make you uncompetitive, or even worse, a target for reprisal. This is where designing and implementing compliance programs can become increasingly complicated.
Michael Heiman, Vice President, Chief Ethics and Compliance Office at Tyco, emphasized the need to design and implement programs based on direct experience in the field, “If you think you can figure all this out from your headquarters, you are fooling yourselves,” he said. And in reality, local companies are often reluctant to take a courageous independent stance on corruption, preferring instead to engage in collective action through associations or other groups.
This is where CIPE’s specialty lies – in working to identify legitimate local champions who are willing to take on the risk of translating global standards into local reality, to build broad networks of stakeholders, and to build local alliances for compliance. CIPE has already begun this work in Thailand, Russia, Ukraine, Pakistan, Kenya, and Uganda, developing affordable programs and services that can assists SMEs to develop a culture of compliance and to increase their value in the global market.
CIPE salutes TI for galvanizing the compliance promotion community with this report and looks forward to an ongoing fruitful relationship in our efforts to reduce corruption through compliance.
Rachel Grossman is an Assistant Program Officer for Eurasia at CIPE.
Originally posted at CIPE Development Blog