IN MANY COUNTRIES, the private sector is both victim and willing accomplice of government corruption.
According to a 2008 study by the Center for International Private Enterprise (CIPE), acts of corruption—such as bribery, illegal deals, and conflicts of interest—drag down national economies, warp development policies, and reduce public confidence in government institutions.
Harming business and nation
In its study, CIPE said corruption harms business, and ultimately, the larger society, by diverting resources that could have been put to productive uses. Officials make decisions that benefit themselves and not the people. It’s taxpayers who foot the bill.
Corruption makes it riskier for foreign and local investors to put money into the country. The message they get is that the rule of law, and thus property rights, are not always respected, making investments a risky proposition. Corruption in government reduces competition and efficiency. The losers? Consumers who must pay more for lower quality and limited product offerings.
Fewer jobs are created because of corruption. By making it more expensive to operate, business companies are less likely to grow, and less likely to generate more employment. Inevitably, this means adding to what could very well be already high poverty levels because corruption lowers the income potential of the poor. They are deprived of more opportunities in the private sector. It also constricts their access to good healthcare and education services
The private sector that is either based or operating in developing countries is particularly vulnerable because these countries tend to have weaker regulations and inconsistent enforcement of anti-corruption laws. Moreover, because it can be very profitable, a culture of corruption remains entrenched within the private sector and government institutions in these countries.
The risk of detection apparently continues to be small. Many companies continue to find it more advantageous to use corrupt business practices to capture or keep hold of their market share.
Many companies have so-called codes of business ethics, which seemingly restrict company practice of paying bribes. In actual practice, these probably do little to reduce bribery. A code of ethics is unlikely to have a significant and lasting effect on personnel behavior in an organization where bribery of government officials is considered normal practice (CMI, 2007).
What about the lofty ideal of “social responsibility”? One study says pursuing social responsibilities (such as those contained in corporate social responsibility or CSR programs) are in fact costly for companies and have little impact on profits. Says this study: “The implication is that many of the responsibilities assigned to corporations will not be pursued voluntarily” (CMI, 2007).
There is weak company support to build integrity at the personal level. If there is a clear company commitment to containing corruption through ethical formation and education, and through concrete support mechanisms (including legal protection), staff will be able better to identify with the company's goals and resist engaging in corruption.
Pressure on the private sector
Practices that were once seen as an unavoidable part of doing business in many parts of the world are becoming increasingly unacceptable. Governments, international organizations and nongovernment organizations continue to press the private sector to take more action in reducing corruption. For example, Transparency International, a respected international anti-corruption NGO, lobbies private companies to adopt its “Business Principles for Countering Bribery”. The United Nations, through its Global Compact, has enlisted more than 2,500 companies worldwide to promote responsible corporate citizenship in the area of anti-corruption.
Other examples include the International Chamber of Commerce’s (ICC) Anti-Corruption Commission, which encourages the private sector to practice self-regulation in combating bribery and extortion. The Organisation for Economic Co-operation and Development (OECD) Anti-Bribery Convention of 1999 and the United Nations Convention against Corruption (UNCAC) compels companies to develop new anti-bribery policies or to review existing ones.
Companies are now increasingly aware that corruption can harm their reputation and sustainability, and can increase their cost of doing business. They are also sensitive to the growing public expectation of accountability and ethical behavior in the corporate sector.
Best practices
MacMurray (2006) has listed some best practices that companies take to reduce the risk of corruption in their business transactions:
- Tone at the top. Seen as the most critical to the success of a private sector anti-corruption initiative, this means the visible commitment by the CEO and senior management for the company’s anti-corruption policy—the so called “tone at the top.” This is more than merely making corporate announcements or strong denunciations about corruption; it is visible leadership.
- Anti-corruption training and accountability. All employees are trained and knowledgeable about the company’s anti-corruption policy. The training is done annually and employees certify in writing that they have received the training and understand the policy.
- Due diligence of foreign agents, consultants, and subsidiaries. Companies with international operations conduct enhanced due diligence of their agents, local partners, and consultants to ensure that they do not pose any risk of getting the company involved in corrupt acts.
- Internal control system. Companies put in place a system of strong, periodic internal auditing controls. For instance, many international accounting firms have adopted best auditing standards and practices, and apply them uniformly in all countries where they operate.
Concrete steps
In a 2009 policy paper, Transparency International outlined the steps various stakeholders need to take to make anti-corruption regulation effective for the private sector. These steps are excerpted below:
- Business:
Promote transparency, anti-corruption practices and active compliance with laws. Companies should adopt comprehensive anti-corruption policies and systems that are implemented, monitored and checked independently. Companies should make all anti-corruption commitments binding and verifiable, and report on key aspects of compliance and adherence to laws and regulations in a transparent and publicly available manner.
Respond proactively to regulators’ enforcement efforts. Where companies discover breaches in regulations within their own operations they should take advantage of voluntary disclosure policies and work with the regulators to improve compliance.
- Governments and public regulators:
Refine innovative tools for smart regulation and increase the use of such tools. Regulators increasingly complement punishment with a focus on sustainable prevention. These tools, such as deferred and non-prosecution agreements, monitors and ethical blacklisting, should be refined and promoted.
Promote transparency and accountability in the management and enforcement activities of regulators. It is difficult to assess and compare the resources devoted to public regulation, the way these resources are allocated to different activities and the outputs these resources generate. Governments must make enforcement more transparent and accountable by publicly reporting this information.
Close loopholes, address new challenges and promote international coherence. Governments should work to continuously refine laws so that loopholes cannot be exploited. Particular attention should be given to ensuring that new markets are adequately regulated. Governments, including those in emerging economies, should strengthen international coordination and consistency of laws, including fully ratifying and implementing international conventions such as the OECD Anti-Bribery Convention and the UN Convention against Corruption. Addressing corruption in an increasingly global environment requires anticorruption agencies, tax authorities and financial market regulators to cooperate more closely across borders.
- Civil society:
Promote awareness of the importance of regulation and effective enforcement. Civil society is well placed to promote effective regulation and support regulators by identifying potential loopholes and providing novel solutions.
Demand transparent and comprehensive reporting by companies and regulators. Civil society can help monitor compliance and regulatory efforts, if related information is publicly available. Civil society should demand transparent and understandable reporting from companies and regulators.
Concrete remedies
Private sector participation in anti-corruption initiatives is growing worldwide but the response has not been universal or uniform (MacMurray, 2006). Many companies around the world continue to do nothing to change their business practices of providing commissions or bribes to government officials in exchange for a business advantage. But, as outlined above, private companies do have recourse to certain best practices and remedies. What is needed is the will to apply these remedies.
Public domain illustration from http://www.wpclipart.com
References
1. Combating Corruption-A Private Sector Approach (REFORM Toolkit). March 2008. Center for International Private Enterprise (CIPE).
2. "Corporate Responsibility of Multinational Organizations." In CMI Brief, Vol. 6, No. 2. Chr. Michelsen Institute (CMI), January 2007. Retrieved from http://www.cmi.no/pdf/?file=/publications/2007/2_07_web.pdf
3. MacMurray, W.D. September 2006. "Private Sector Response to the Emerging Anti-Corruption Movement." Retrieved from http://www.devoutreach.com/september06/SpecialReportPrivateSectorResponsetotheEme/tabid/1634/Default.aspx
4. "Making Anti-Corruption Regulation Effective for the Private Sector." 2009. In Policy Position No. 9. Transparency International (TI).
The writer is a Communication Specialist with the Ateneo School of Government, a unit of the Ateneo de Manila University, Quezon City, the Philippines.
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