Corruption is now centre stage in international politics. Even before the anti-corruption summit in London this month, countries as diverse as Guatemala, Malaysia and Brazil have seen huge demonstrations as citizens expressed their anger at perceived corruption. In Nigeria and Tanzania, electors chose “clean hands” candidates to be their Presidents and clamp down on bribery. And, of course, the Panama papers and Luxleaks have increased public awareness of how companies in high-secrecy jurisdictions can be abused to avoid tax, facilitate bribery and expedite money laundering.
That corruption is now getting the attention it deserves is a credit to organisations like Global Witness and Oxfam, which have campaigned to explain how bribery damages citizens and retards development. But recent research by Eversheds suggests that NGOs and citizens may have an unexpected ally in fighting bribery and corruption: business.
How do companies approach anti-bribery issues?
Eversheds spoke to 500 business leaders (including a large number of in-house counsel) across 12 jurisdictions to discuss their experiences of dealing with bribery risks within their companies. We then analysed the data across country, industry and position before summarising our findings in the Beneath the surface report.
Our research identified some positive developments by companies:
- 95% see bribery and corruption as an important issue.
- 90% would reject future business opportunities if the bribery risk associated with it was too high.
- 67% have successfully integrated anti-bribery measures into their M&A process.
- 50% have taken steps to improve their anti-bribery systems in the last five years.
All these trends should reassure in-house counsel who may have struggled to get anti-bribery and compliance on the corporate agenda in the past.
Nevertheless, our survey shows there is still plenty of work for in-house counsel to do. For example, only 45% of business leaders think their anti-bribery policy is actually suitable for their business. Worse still, only 32% actually understand their anti-bribery policy. This is particularly worrying as the respondents were generally in-house counsel and C-suite executives. If they do not understand their company’s policy, what hope is there for their colleagues at the coal face, such as sales managers in developing markets?
Perhaps that lack of understanding is a consequence of another factor identified in our research: a mere 12% of business executives think they get enough training on how to handle bribery issues in the course of doing their job.
The business case for anti-bribery
Perhaps the most dramatic finding in our research was about why executives think bribery is an important issue: because it’s bad for business. 81% of respondents said the main reason their organisations treat bribery seriously is because of its potential business implications, either through the impact on commercial success or potential reputational damage. A further 10% said that bribery was a priority due to the company’s overarching ethical values. Only 9% of respondents were committed to anti-bribery because of the fear of possible legal sanctions.
This finding has potentially dramatic implications for in-house lawyers. Governments have traditionally relied on “scared straight” tactics to force the private sector to pay attention to bribery issues: increasing draconian penalties and emphasising high-value prosecutions and the negative legal aspects of non-compliance generally. There has long been a belief that potential bribe payers are unusually likely to be deterred by strong sentences given to those convicted of white collar crime.
Yet our research suggests that, even if prosecutions raise some awareness of bribery, legal risk is not what drives business people to truly engage with anti-bribery. Governments and in-house lawyers alike should instead consider emphasising the business case for anti-bribery: protecting reputations, avoiding loss and being equipped for success in high-risk markets.
Research by George Serafim and Paul Healy of Harvard Business School indicates that doing business corruptly does not actually benefit companies in the long run. Although companies with weak anti-bribery controls initially experienced higher sales growth than those with strong anti-bribery controls, those companies also experienced far lower returns on equity and their profit margins were weaker. The net result was that corrupt companies did no better than those who had not paid bribes, and created a Sword of Damocles for themselves in the process.
In the past, many in-house counsel have struggled to convince “the business” of the importance of anti-bribery measures and compliance issues generally. Now, it seems, there is a greater appreciation of its importance and more of an appetite for anti-bribery training. This creates an opportunity for in-house counsel to proactively protect the business from risk but also raises the challenge of how that can be done when in-house are still being asked to do more with less.