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Corporate corruption: The spirit is willing but the flesh is weak

Source: Thomson Reuters Foundation - Thu, 9 Jun 2011 03:20 PM
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Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.

Two recently published surveys on corporate corruption indicate that while progress is being made toward a universal understanding of the value of operating cleanly, there is still a long way to go before companies completely embrace mechanisms to control bribery and corruption.  

In its annual report, KPMG, the global audit firm, noted that “managing bribery and corruption risk continues to take center stage in corporate boardrooms.”  However, the data in its Global Anti-Bribery and Corruption Survey 2011 shows that just 47% of the companies surveyed (216 firms in the US and UK) have a board “committee responsible for overseeing compliance with anti-bribery and corruption regulations.”  This indicates that while policies and procedures may exist on paper there are too few eyes at the top paying attention to whether these systems are actually implemented. 

Additionally, the KPMG study showed that a third of the firms believe that anti-bribery programs are “an example of the governments imposing costly and excessive requirements” on companies.  This exposes 1) a complete disregard of the cost to companies and consumers that results from having to pay bribes to secure business and 2) a seeming willingness to participate in the practice. 

In a much larger survey conducted by the UN Global Compact, anti-corruption policies are lagging in many companies across the globe.  In its Annual Review 2010, which was released in May, 1,251 companies from 103 nations responded to a range of questions on a variety of corporate governance issues including anti-corruption efforts.  The survey showed that while 70% of firms have a code of conduct in place to address corruption, efforts to police themselves rarely go much further.  Indeed, the report notes that few firms “are enacting important policies with respect to limiting the value of gifts (38%), donations to charitable organizations (32%) and publicizing political donations (10%).”   

But while these surveys are welcome additions to the literature on the issue, one needs only to read the daily newspaper to garner an understanding of the challenges still ahead.  Indeed, last year the US Justice Department handed down eight of the largest fines ever given for violations of the Foreign Corrupt Practices Act.  The firms found to be in violation of the act last year are a veritable “who’s who” of the business community including BAE ($400 million), Daimler ($185 million) and Alcatel-Lucent ($137 million).  Add to that the $160 million fine Wachovia paid for laundering Mexican drug profits and the $780 million fine paid by UBS in 2009 to settle a tax evasion case, and it becomes abundantly clear that many firms don’t practice what they preach. 

An even closer read of the stories behind these fines shows that seldom do they make a significant dent in the profits of the firms involved and rarely does anyone go to jail.  And if there ever is any investor angst in reaction to charges of wrongdoing—as could be seen in a drop of a company’s stock price—it is fleeting.  Perhaps the quickest way to drive home the point that corruption will be given no quarter is to have cold steel clicked around the wrists of an increasing number of corporate executives.

Tom Cardamone is Managing Director of Global Financial Integrity a Washington, DC-based research and advocacy organization.

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