ISSUES
: Business and Trade
Chapter 2: Corporate responsibility
32
Corruption remains a major cost for
honest companies
30% businesses globally reported losing out on deals to corrupt competitors.
C
ontrol Risks, the global
business risk consultancy,
today publishes its annual
survey of business attitudes to
corruption, comprising interviews
with 824 companies worldwide.
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Corruption is still a major cost
to international business.
30% of respondents reported
losing out on deals to corrupt
competitors and 30% say they
have decided not to conduct
business in specific countries
because of the perceived risk of
corruption. 41% of respondents
reported that the risk of
corruption was the primary
reason they pulled out of a
deal on which they had already
spent time and money.
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Corruption risks continue to
deter investors.
30% say they
have decided not to conduct
business in specific countries
because of the perceived risk of
corruption.
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And corruption is killing deals.
41% of respondents reported
that the risk of corruption was
the primary reason they pulled
out of a deal on which they had
already spent time and money.
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But the picture is improving
.
Companies from countries with
tight enforcement report fewer
losses than before from corrupt
competitors. In 2006, 44% of
US companies said they had
lost out to corrupt competitors,
compared with only 24% in
2015. These figures are echoed
for Germany and the UK. 81%
of respondents agree that
international
anti-corruption
laws “improve the business
environment for everyone”.
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However, there is still more
to do.
The survey shows that
there are still wide variations in the
maturity of company programmes.
In the worst case, conventional
compliance approaches can
increase riskbecause they lead toa
misguided sense of complacency.
Control Risks’ survey reveals
companies are now more willing to
challenge when faced with suspected
corruption. 27% of companies said
they would complain to a contract
awarder if they felt they had lost out
due to corruption, compared to just
8% of respondents in 2006. In 2006,
only 6.5% of respondents said they
would appeal to law-enforcement
authorities, compared with 19%
in 2015, with 24% of respondents
now saying they would try to gather
evidence for legal action.
Companies feel that international
anti-corruption
legislation
is
improving the business environment.
Most respondents felt these laws
made it easier for good companies
to operate in high-risk markets
(55%) and serve as a deterrent for
corrupt competitors (63%). This
was particularly true of companies
in developing markets. 79% of
Mexicans agree or strongly agree, as
well as 68% of Indonesians, 64% of
Brazilians and 53% of Nigerians. In
the US, 54% say tough laws make it
easier to operate in high-risk markets,
while 42% disagree.
However, despite these positive
developments, Control Risks’ survey
suggests companies still need to
do more. Third-party risk is still
relatively unrecognised. Just 58%
of respondents have procedures in
place for due diligence assessments
of third parties and only 43% have
third-party audit rights.
The survey also suggests companies
are not setting the right incentives to
deter corruption. Respondents cited
the fear of negative consequences
as the penalty used most commonly
to deter corrupt behaviour. On the
list of eight deterrents to corruption,
in sixth place are company
performance criteria that emphasise
integrity (along with financial targets).
Establishing parity between financial
targets and anticorruption targets
is vital to ensuring compliance is
embedded into companies’ culture.
Commenting on the survey’s
findings, Richard Fenning said:
“Governments and companies
across the world are increasingly
aware of the importance of
countering corruption, with China
and Brazil in particular stepping
up enforcement in the past year.
But still too many good businesses
are losing out on opportunities to
corrupt competitors, or choosing
not to take a risk on an investment
or entering a new market in the
first place for fear of encountering
corrupt practices.
“Companies need to find a balance
and do more due diligence early on
in any negotiation or market entry
planning, to spot the points of light
in countries that may otherwise
appear as no-go areas.
“Another concern is an overreliance
on compliance. Often when
organisations have comprehensive
compliance processes in place,
business leaders treat them as
a safety net and don’t police
ruthlessly enough internally. More
than half of the businesses we
surveyed hadn’t conducted a
corruption-related
investigation
in two years. Given the size and
complexity of most organisations
this would suggest there is a
danger of a false sense of security
in compliance departments.”
12 October 2015
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The above information is
reprinted with kind permission
from Control Risks. Please
visit
for
further information.
© Control Risks 2016
