The UK Bribery Act comes into force on 1 July, making companies – and their senior officers – liable if their employees, distributors or third-party contractors pay or receive bribes.
This includes direction to British firms on how they can conduct their daily business not only in the UK, but elsewhere too. And it allows the UK’s Serious Fraud Office jurisdiction around foreign companies that do business in the UK.
Now the very countries the UK government is targeting are the ones experiencing the biggest difficulty in controlling corruption. Russia and the CIS Republics, the emerging Asian markets and the majority of the Latin American countries find themselves in the bottom half of Transparency International’s latest Corruption Perception Index. The most rapidly growing markets of Brazil, China and India fare only a little better.
For the biggest multinationals listed in the US, much of this is not new. Over the last few years, the US has prosecuted several companies under the Foreign Corrupt Practices Act (FCPA). Getting it wrong entails huge fines, inestimable losses in reputation, business and legal expenses, and even prison sentences for the senior executives involved.
The UK’s new legislation goes even further. For example, facilitation payments, a traditionally acceptable tool in the day-to-day operations of companies in difficult markets, are outlawed and corporate entertaining is circumscribed. Precisely how the law will be implemented remains to be decided following a consultation by the Serious Fraud Office with the business community, but by any standards, this legislation will take the global compliance industry to a new level.
The challenge for business is two-fold: how can companies continue to grow their investments and operations in countries where corruption is commonplace, while limiting their exposure to the new anti-corruption legislation? And how can these countries be encouraged to reduce corruption in the long-term? As it happens, the multinational companies are a critical part of the solution.
Leading companies already have internal codes of conduct, accompanied by a sophisticated array of procedures such as internal audit, whistle-blowing, and employee training. Assuring constant attention to compliance within the company is only the first step in creating “islands of integrity” in high-risk markets. By the same token, a company’s willingness to step away from a deal if the conditions for compliance are not right is an important part of getting the message across in corrupt environments.
Transferring such values beyond the company into the supply chain is a challenge of a completely different order. The best line of attack is a collective action approach by the leading suppliers to a specific industry. A code of conduct instigated by the major suppliers, supervised by a neutral third party such as an NGO or business association, and signed by all market players could be a game-changer. A similar approach could also form the basis for “integrity pacts” in public tenders, where bidders and issuer sign up to a set of principles and a rigorous monitoring process.
Business leaders can make a significant contribution to changing attitudes towards corruption in emerging markets. At IBLF’s regular forums in Russia and China, top executives already share with their local counterparts their experience on how to create a corporate culture based on the principles of good governance.
As non-executive directors on the boards of the “emerging multinationals”, many experienced executives can significantly influence corporate behaviour. Through a combination of informal exchanges, board-level appointments, mergers and acquisitions, and day-to-day operations, global leaders effectively can mentor the new generation of leaders in the emerging markets on new ways of doing business. By so doing, they reduce their own companies’ exposure to corruption and create a level-playing field in which they can compete, improve their local partners’ awareness of global ethical standards, and accelerate the integration of the emerging markets into the world economy with all the social and economic benefits that this is likely to bring.