Following a slew of corporate scandals, Huguette Labelle, Chair of Transparency International and Annual Meeting co-chair, makes the moral and financial case for cleaning up business.
A lack of integrity caused grievous harm across the private sector last year. The reputation of several big banks was left in tatters after they paid more than US$ 2 billion in fines and sacked CEOs for a slew of failures that included rate rigging, money laundering and evading sanctions.
These scandals crippled reputations and came hot on the heels of the revelations of dishonesty, lack of ethics and recklessness that emerged in the course of the 2008 financial crisis and its aftermath. Besides banks, some of the world’s largest retailers also discovered that doing business in emerging markets requires developed world levels of attention to anti-corruption principles and programmes.
Beyond the ethical case for fighting corruption, increasing evidence shows that bribery comes at a financial and commercial cost for companies. In addition to the obvious risk of legal sanctions, corruption increases the cost of doing business by 10% globally and adds about 25% to the cost of procurement in emerging markets, according to the World Bank. Moreover, businesses run the risk of losing markets as more and more countries and organizations adopt debarment mechanisms.
Engaging in corruption can mean jeopardizing the company brand, which may result in the loss of investors, partners and customers. Goldman Sachs estimates that Foreign Corrupt Practices Act violations typically cast a three-year cloud over a company under investigation, and that the overall cost can reach 9% of profits before interest, taxes, depreciation and amortization over that period.
Bribery is a vicious circle. A recent TRACE study shows that bribe takers focus their demands on businesses that have paid bribes before.
Yes, almost 80% of business people polled in TI’s putting corruption out of business survey feel that their company has an ethical duty to fight corruption. Many already have strong anti-corruption programmes in places and their leadership has publically stated the importance of employees abiding by these rules. Ethical behaviour also has its reward in the form of attracting and retaining talent. Research shows that new recruits prefer to work for a company whose values they share. Good corporate citizenship is important for staff morale and employee loyalty.
Strong and successful CEOs have learned that their leadership is a vital first step in stopping secret dealings and bribery from taking root. And many have established strong anti-corruption programmes and compliance capacity to ensure that these rules are enforced.
Corporate reporting is another vital area for promoting transparency and stopping corruption. Transparency International believes that reporting demonstrates a company’s commitment to countering corruption and makes companies more easily accountable for its shortcomings.
In our report, Transparency in Corporate Reporting: Assessing the World’s Largest Companies, we measured corporate transparency across three dimensions that bear directly on a company’s anti-corruption commitment and performance. They include whether their disclosure of anti-corruption programmes meet voluntary “best practice“ standards; whether their disclosure of underlying company holdings is complete and comprehensive; and whether or not they report key financial details, such as taxes paid and profits earned in each country in which they operate.
These dimensions are fundamental to transparency. Reporting on anti-corruption programmes is a basic preventative measure and enables companies to show their stakeholders that they are committed to countering corruption; transparent organizational structures are necessary to ensure that contracts and financial flows are easily traceable. Country-by-country disclosure allows local citizens and civil society organizations to monitor companies’ business relations, transfers and value sharing practices, as well as the money transfers to governments in the form of taxation and licensing.
The World Economic Forum’s Partnering Against Corruption Initiative and the United Nations Global Compact are innovative approaches to get industry leaders to share best practices and demonstrate a strong commitment to a clean business. I hope all leaders will leave Davos with a strong commitment to ensure transparency and integrity in their own organizations, whether public, private or in government.
Image: A shadow is cast through a ray of light in New York REUTERS/Shannon Stapleton