Corruption remains a major cost for honest companies

• Corruption risks continue to deter investors. 30% of respondents say they have decided not to conduct business in specific countries because of the perceived risk of corruption.

• 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.

• But the picture is improving. Companies from countries with tight enforcement report fewer losses than before from corrupt competitors. 81% of respondents agree that international anticorruption laws “improve the business environment for everyone”, deter corrupt competitors (64%) and make it easier for good companies to operate in high-risk markets (55%).

• 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 risk because they lead to a misguided sense of complacency.

The survey shows that corruption continues to remain a major hazard in India, despite the existence of a number of anti-corruption initiatives. Among Indian headquartered companies, 39% of respondents said that they had failed to win a contract where there was strong circumstantial evidence of corruption by a successful competitor.

Demands for ‘facilitation payments’ to speed up routine government transactions also remain a significant problem: 48% of the Indian respondents said that they would face no more than minor delays if they refuse to make such payments; 17% said that refusal would lead to major delays and significant costs to their businesses; and 9% of respondents told us that their business ‘will grind to a halt’ if they do not pay.

Tough international anti-corruption laws are seen as a force for good. 80% of Indian respondents thought that extra-territorial laws will improve the business environment in India, helping to level the competitive playing field for those unhappy with haphazard enforcement of domestic legislation. A similar perspective was shared by 87% of Mexicans, 80% of Brazilians and 79% of Indonesians.

The survey also highlights the fact that companies globally are now more willing to fight back 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 an earlier Control Risks survey in 2006.

However, despite these positive developments, Control Risks’ survey suggests companies still need to do a lot more. Third party risk is still relatively unrecognised. Only 42% of respondents from India have procedures in place for due diligence assessments of third parties and at most 58% have an anticorruption training programme for employees.

The survey also suggests that 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. They should do more to promote performance criteria that emphasise integrity as well as financial objectives. Establishing parity between financial targets and anti-corruption targets is vital to ensuring that compliance is embedded into companies’ culture.

Commenting on the survey’s findings, Richard Fenning, CEO Control Risks, 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, and 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.”
Corporate Comm India(CCI Newswire)