EVERYONE ELSE IS DOING IT
Opportunity, a poor culture of compliance, competitive business environments, aggressive sales targets and rationalising corrupt behaviour by claiming “everyone else is doing it, so we must too” go a long way to explain why some organisations struggle to make the right choice.
But are these reasons merely a way to justify questionable business and behaviour which is not only unethical but in some cases illegal?
Most employees generally don’t start out with the intention of acting unethically. Often there is a measure of rationalisation or self-delusion required to act corruptly, such as claiming a law is somehow “out of touch” with the real world.
But perhaps what is not fully understood is the decision to act corruptly is very rarely a one-off or quick-fix. According to Professor Peter J. Henning of Wayne State University “once begun, companies have to continue to pay, often more and more just to stay in place. Corruption is like quicksand – once trapped, the harder you fight, the deeper you sink”.
THE REAL COST
The legal and ethical case against corruption is obvious and widely reported. Cheating is wrong and illegal - yet bribery and corruption remain rampant.
“When corruption allows reckless companies to disregard the law, the consequences range from water shortages in Spain, exploitative work conditions in China or illegal logging in Indonesia to unsafe medicines in Nigeria and poorly constructed buildings in Turkey that collapse with deadly consequences,” according to Transparency International.
But if that is not enough to deter some organisations, crunching the numbers and looking at the financial effect makes for a compelling argument.
A Harvard Bribery study found “corruption does boost local sales, but those are cancelled out by the costs associated with bribery, as indicated by return on equity”.Of course, if an organisation gets caught committing bribery and corruption, the short-sighted gains could be potentially dwarfed by legal and compliance costs.
“Weaker corruption controls and enforcement allow…firms to generate higher sales growth in high-corruption markets…yet bribes are costly,” the report says.
“The low returns on incremental sales in high corruption markets for firms [which commit bribery] imply the costs are not fully recovered through higher prices on corrupt contracts or through scale economies from increased sales.”
Then there are the other hidden costs. Widespread bribery and corruption within an organisation sets a permissive tone which inevitably invites more and greater demands.
“Companies that pay bribes actually end up spending more time negotiating with bureaucrats since the hopes of a payoff gives officials an incentive to haggle over regulations,” Nin-Hai Tseng says in Fortune.
“Corruption ultimately breeds more corruption, as bribes give bureaucrats more incentive to raise red tape and regulatory hurdles, which in turn opens companies up to pay even more.”
If it were true that it’s almost impossible to conduct business successfully and efficiently in certain markets without paying bribes, a business paying them should be more efficient and generate higher financial returns. The data shows the opposite.
Two researchers from the World Bank studied the assumption bribes reduce “red tape” and ease regulatory burden and found “contrary to the ‘efficient grease’ theory, we find firms which pay more bribes are also likely to spend more, not less, management time with bureaucrats negotiating regulations, and face higher, not lower, cost of capital”.
Accountability and transparency are now consecrated in law, expected of leaders across all ranks and in all communities and demanded of within the world of business.
Tackling corruption is now firmly on the global agenda and will only continue to be the focus for enforcement agencies worldwide, meaning the business case for fighting corruption has never been stronger.
The message from studies delving into the costs and damaging consequences of corruption is clear – bribery is bad for business.
“Corruption raises costs and introduces uncertainties, reputational risks and vulnerability to extortion,” Transparency International says. “It makes access to capital more expensive, depresses company valuations and corrodes staff morale.”
“In the broader market environment, corruption undermines fair competition, leads to lost business opportunities and nurtures corrupt bureaucracies. Corruption in and by business hollows out the very basis on which its own existence and success depends: the functioning and sound governance of markets...”
For my organisation, ANZ, the evidence is incontrovertible: a strong stance against bribery and corruption and a firm commitment to combat it across the entire organisation is not only ethical, logical, safer and smarter - it also makes better business sense.
Guy Boyd is Head of Financial Crime at ANZ