THE COMMITMENT and personal convictions of senior leaders are the most important drivers in company decisions to strengthen anti-corruption programs, according to a US report.
Companies rarely cited a business case, like the cost of doing business or brand equity, as the key reason for establishing or enhancing the scope of their anti-corruption systems.
Instead, they believe it is part of a larger effort to build a culture of compliance within the company, “one that is rooted as much in the company’s system of values and beliefs as in the need to respond to the developing global legal and regulatory regime that is transferring much of the anti-corruption prevention, detection and enforcement burden to the companies”, said Ronald Berenbeim, principal researcher at The Conference Board, which released the report.
The report, based on a survey of 165 multinational companies, found that one-third said senior management leadership and conviction is the single most important factor in their company’s decision to develop an anti-corruption program.
The most common rationale for anti-corruption programs is legal. For example, general home country prohibitions were the single most important factor by 27 per cent, while 7 per cent said Sarbanes-Oxley was a priority and 13 per cent cited ethical considerations as justifications for investing in anti-corruption initiatives.
“Company anti-corruption practices and procedures have become significantly more widespread, detailed and sophisticated since the 2000 report,” said Berenbeim.
“In some companies, reported incidents of corrupt activity have actually increased, but this is attributed to better reporting systems rather than an increase in corruption. And there is a growing recognition among US companies of the need to adopt an ethics-based approach that emphasises adherence to broad principles rather than narrow compliance to specific rules.”
Anti-corruption programs are subject to high levels of review. More than three-quarters of the survey participants report, or in some cases have dual reporting relationships, to a C-Suite executive, board member or board committee.
In addition, companies are now more likely to seek outside assistance in some aspect of their anti-corruption program. Nearly one-third (32 per cent) use outside counsel and 18 per cent use a consultant.
More than 40 per cent of survey participants do business in China, Brazil, Mexico and India — countries that are at high risk for corrupt practices in business. According to 36 per cent of the companies active in China, that country poses “the greatest overall challenge to the company’s operations because of the level of corruption”.
A recent study by KPMG Forensic found that the payment of kickbacks and bribes is flourishing in Asia and is increasingly impacting Australian organisations with operations in Asia.
The research also found that while bribery is relatively rare in Australia, comprising five per cent of total frauds, it is a major issue in Asia, where it comprises 34 per cent of total frauds in Asia — with the average value of fraud reaching $714,000 per organisation.
“Kickbacks and bribery in Australia are not that common but they are more common in Asian operations,” David Van Homrigh, partner at KPMG Forensic said late last year.
“What that really means is that [Australian] companies really have to review their fraud risk management approach in Asia as they are dealing with a different type of fraud. Anecdotally, we are seeing quite a lot of it from US companies. They are impacted by the Foreign Corrupt Practices Act [passed by the US in 1979 and designed to stamp out questionable or illegal payments to foreign officials] and they are much more conscious of these risks than some Australian companies.”
Stuart Fagg is the Editor of Risk Management Magazine, Lawyers Weekly’s sister publication.