News

Corruption, Investors and Value

February 20, 2013
Categories: Anti-corruption

By now, most companies are aware that bribery and corruption investigations can result in significant financial penalties. Less discussed however, is the growing external demand by investors for companies to show robust compliance programs, and the detrimental effect on investor confidence from past corruption events. For many institutional investors, compliance and strong anti-corruption policies are of the utmost importance. In a 2010 survey published by Ernst & Young, regulation and compliance were ranked as the number one risk for business.

Investors have also been vocal about confidence in board members and top executives after a corruption or bribery investigation. Even the rumor of corruption can stain the career of successful individuals. In early February, the Chief Executive Officer of TeliaSonera resigned amid corruption allegations that have not been confirmed. Supervisory Board Chairman of ThyssenKrupp, Gerhard Cromme, also came under investor criticism and calls for his resignation after the company weathered several corruption scandals last year. Finally, the Central European Distribution Corp.’s (CEDC) second largest shareholder called for a complete overhaul of the board after FCPA violations were uncovered and a 70% decline in stock price.

Investment advisors are meeting the demand for more information about compliance.  Bloomberg has added the UN Global Compact’s required public disclosure report on implementation of its 10 principles (corruption is the 10th Principle) to its investor information tool. FTSE4Good, which measures company performance on the basis of whether they meet globally recognized corporate responsibility standards, includes a company’s efforts to counter bribery as one of its measures.  Notably, research from the University of Edinburgh in 2012 confirmed that engagement by FTSE4Good on criteria for member firms within the index resulted in increased compliance with higher standards. Other responsible investment organizations include the International Corporate Governance Network, a membership organization of institutional investors that offers specific guidance to investors looking for information on a company’s anti-corruption measures. As well as Calvert Investments who include governance, ethics, and transparency in its Sustainable and Responsible Investment Strategies.

The Center for Responsible Enterprise and Trade, CREATe.org, helps companies mitigate the risk of corruption in supply chains through CREATe Leading Practices for Anti-Corruption. CREATe’s Leading Practices offers assessments, training and other resources designed to benchmark and improve processes for helping to prevent corruption. The system is a practical, scalable and cost-effective framework to help your suppliers and other key third parties implementing management systems.

Learn more about CREATe Leading Practices here, or e-mail info@create.org for more information.