Companies that operate globally quickly become familiar with the culture of corruption that pervades many economies, especially in emerging markets with weak laws or complex regulatory systems. Bribes and favors are sometimes described as a “cost of doing business,” making it hard for ethical businesses to compete.
Bribery and other forms of corruption take a heavy toll by acting as a drag on economic development and distorting the market. And the cost of graft to the private sector is staggering—an estimated $515 billion in 105 developing nations in 2012, according to a new study.
“The Costs of Corruption: Strategies for Ending a Tax on Private-sector-led Growth,” published by the Center for Strategic International Studies, pulls together research on efforts to combat graft from businesses, think tanks, multilateral organizations, and nonprofits, including findings from The Center for Responsible Enterprise and Trade (CREATe.org).
The 38-page report explores what the business community is doing to combat corruption and what more can be done in conjunction with governments and multilateral organizations, and lays out actionable steps for doing so.
The report also identifies costs that may accrue to businesses beyond the face value of a bribe, including:
• Exclusion from bidding on government and International Financial Institutions contracts
• “Casino risk,” where the counterpart does not deliver and there is no legal recourse
• Criminal prosecution
• The costs (legal and otherwise) associated with corrective action
• Shareholder derivative suits
• Safety risks to consumers and defective products
Conversely, “Costs of Corruption,” points to research indicating that businesses with strong corporate governance tend to perform better than those with lower corporate governance standards.
To reduce corruption risk, the report recommends that companies develop internal anticorruption programs, and use a management systems approach to reduce legal, financial, and reputational risks, and work to engage their supply chains through communication, education, and formal training.
“Costs of Corruption” also lays out the many ways that the legal and regulatory landscape is changing around the world, with many countries publishing much tougher anti-corruption laws to meet multilateral treaty obligations, advocacy by nonprofits, and localized campaigns to empower whistle-blowing and increase transparency.
Companies recognize that they have a long way to go, according to the report. The report cites a survey of 300 companies that suggests “overwhelming gaps or complacency” in addressing corruption risks.
Nearly half of the companies surveyed about corruption did not have policies or procedures to ban bribes. Only 50 percent had due diligence procedures for vetting local business associates.
In addition to much more robust corporate governance systems, the report urges the private sector to build anti-corruption coalitions and common codes of conduct, alongside efforts by the public sector and nonprofits, to press for good conduct among all private-sector actors.
CREATe President and CEO Pamela Passman joined a group of leaders in business and civil society for a discussion of “Costs of Corruption” on Tuesday, Jan. 21 at CSIS in Washington, D.C.