Companies failing to tackle bribery

2010

As Siemens, knows all too well, bribery scandals are bad for business. For the German manufacturing giant, institutionalized corruption - systematically paying millions in kickbacks and bribes to win contracts - ultimately cost it some EUR 2 billion ($2.6 bn), including $1.6 bn in fines paid to the US and German authorities, the largest fines for bribery in modern corporate history.

Given the potential for such huge financial and reputational damage, you might expect that large corporations - particularly those operating in sectors and territories at highest risk from bribery - would have put in place robust measures to tackle bribery.

But according to a report from London-based sustainability consultancy, EIRIS, the vast majority of companies have done nothing of the sort. In fact of the 625 global businesses EIRIS analysed, 85 per cent lack adequate anti-bribery policies and 94 per cent lack adequate management systems on bribery. Levels of transparency and openness on bribery are also extremely poor with less than one per cent of companies adequately reporting on the issue.

Of course, specific regulations and stock exchange listing requirements mean that these figures hide wide national variations. In the US, where companies are required by the Sarbanes Oxley Act to implement a code of ethics for relevant staff and whistle blowing procedures, EIRIS says that half (52 per cent) of companies can be assessed by as having an intermediate assessment for countering bribery risks and none show no evidence of tackling bribery.

This is in stark contrast to companies based in countries which lack relevant legislation on bribery, such as Hong Kong and Singapore, where half (49 per cent) of companies fail to display any evidence that they take significant steps to counter bribery.

In the UK, where tough new anti-bribery legislation is in the pipeline, the report found that more than half (56 per cent) of companies lack adequate anti-bribery policies, three-quarters (78 per cent) lack the adequate management systems to tackle bribery, and none of them adequately report on the issue.

Overall, the report suggests, around a third of the 2,000 companies listed on the FTSE All World Developed Index have a high exposure to risks linked to bribery and corruption but just one (Terna, an Italian electricity distribution company) has been assessed by EIRIS as having an advanced assessment for its sophisticated anti-bribery approach.

EIRIS also found that companies in the oil and gas sector tend to have the most advanced response to bribery, possibly a result of the close scrutiny this sector has faced from civil society groups, investors, regulators and other stakeholders.

At the other end of the scale, however, the real estate sector displays the poorest performance on bribery.

Companies which are more highly exposed to bribery are also more aware of the risks they face and are doing more to address these risks than those companies that are less exposed.

However as Sachi Suzuki, author of the EIRIS report, points out, corruption isn't just bad for a company, it is bad for investors, too. And so Investors can play a crucial role in shaping the anti-bribery agenda through their engagement with companies, rewarding good practice and highlighting areas of concern.

"Corporate failings on bribery of this scale pose significant risks to investors and leave companies exposed to risks of unlimited fines, reputational damage, restricted access to markets and difficulties in raising capital," Suzuki said.

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Older Comments

I started working in the Middle East in March 1950 and quickly learned that 'dash -- baksheesh' were a way of life and an essential business component. It was condoned by governments. And who can blame the junior recipients who were grossly underpaid and their pay was often late or did not even arrive. The way round it was to use third parties - 'agents'. There was also a philosophy inherent in the community that your rewarded with a present or presents the person responsible for the contract you won. It was part of life and head been so since Adam was a boy. This was all a great surprise for a 22 year old engineer who had to ascend a steep learning curve. At 82 I am still in business and fortunately as a consultant I am never asked for 'dash' but for friends who currently work, particularly in Africa south of the Sahara, it is an inherent daily problem. You can have all the correct papers and permissions but if the 'official' demands his cut before he will stamp the papers what do you do? There is no redress as reference to the 'government' will get you nowhere. I agree bribery needs to be addressed but it must start at the top and, as so many 'ruling class' become very rich by creaming off large amounts from everything they are responsible for, it will be very difficult to change. It is useless for the 'do-gooders' to pontificate and seek to punish businesses and businessmen caught between a rock and a hard place -- they are tackling the wrong people. They appear not to understand that much of thier personal comfort is there because the wealth generators in their own society find ways to live with this problem. I am not defending bribery but until it is tackled at the top all over the world long will it continue.

Peter Clark Australia