How can transparency help a business grow?

In a series of blog posts curated by the World Economic Forum’s Partnering Against Corruption Initiative (PACI), a number of leading voices will present their perspectives on anti-corruption in the run-up to World Anti-Corruption Day on 9 December. In the following post, Mark Schlageter, Managing Director, GRC, Thomson Reuters, highlights the competitive advantage of ethical business

Many Organizations Are Looking beyond Their Traditional Markets for Sustainable Growth

The rewards for pursuing growth in emerging markets can be substantial and quick. Many organizations searching for sustainable growth have altered their strategies to include previously unexplored or under-exploited markets. It is telling that, in 2010, global M&A was around US$ 2.4 trillion, and nearly one-third of this value was from rapid-growth markets.

This growth will continue: the IMF’s 2013 growth forecast is 5.9% for emerging markets, against 1.9% for developed economies.

Caution Is Advised

While the rewards of entering these markets are obvious, the risks are not always apparent.

Where emerging markets differ significantly from established markets is in the limited availability of reliable information in areas such as potential supply chain partners and joint ventures. Organizations are also hamstrung through a lack of experience and knowledge of the prevailing culture and business environment; and emerging markets can be characterized by a weak rule of law and lack of institutional strength.

Many governments of emerging markets have recognized the need to clean up corruption if they are to successfully integrate with the global economy. Countries like Russia, Brazil and South Africa are actively legislating against corruption. But legislation itself is not enough; business leaders need to be aware of what’s happening on the ground. In South Africa, for example, the government has progressively enacted anti-corruption legislation over several years, as well as ratified regional and international treaties including the UN’s Convention Against Corruption and the OECD’s Anti-Bribery Convention. On paper, it looks like a strong response to corruption, but a closer look reveals an apparent failure of enforcement as well as a lack of awareness of anti-corruption laws within local organizations.

Country-Check, our geopolitical risk service, recently downgraded South Africa from a Low Risk category to a Medium Risk. South Africa represents many attractive opportunities, but this change in score indicates that a closer look is warranted and a more detailed level of due diligence is required.

Heightened Awareness

2011 was seen by many commentators as a turning point in the fight against financial crime. Apart from the increasing legislation around the world, the US Securities and Exchange Commission (SEC) launched a whistle-blower programme to encourage reporting of suspected violations of the US Foreign Corrupt Practices Act (FCPA). Not to be outdone, the UK implemented the UK Bribery Act, the most comprehensive piece of anti-corruption legislation since the FCPA was enacted in 1977.

Transparency vs Secrecy

Increasingly, successful CEOs are the ones that realize their commitment to transparency and ethical business practices can provide their organization with a competitive advantage. Corruption is the antithesis of growth, and flourishes where secrecy is allowed.

Now more than ever, executives need to know with whom they are doing business and how business is being conducted on their behalf. Ignorance is no longer seen as an acceptable excuse and it’s clear that efforts to increase transparency cannot be reduced to a simple tick-box exercise.

Author: Mark Schlageter is Managing Director of GRC, Thomson Reuters

Image: People are silhouetted during a meeting REUTERS/Yuriko Nakao