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Corruption isn't somebody else's problem

by Anna Nadgrodkiewicz | Thomson Reuters Foundation
Tuesday, 19 June 2012 11:26 GMT

* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

Survey finds gap between the perceived severity of corruption in a respondent's country and the sector in which they work

By Anna Nadgrodkiewicz

Economic crisis often spells out bad news for anti-corruption efforts. When companies struggle for survival, many executives are willing to engage in questionable business conduct – and even see it as justified under the circumstances. The latest 12th Global Fraud Survey by Ernst & Young, based on interviews with more than 1,700 senior executives in 43 countries, confirms this trend. The survey shows that bribery, corruption, and fraud remain widespread, with emerging markets particularly vulnerable.

While globally 39 percent of respondents reported that bribery or corrupt practices occur frequently in their countries, in Brazil that share of responses reached a whopping 84 percent. Similarly, while 15 percent of all respondents said they were willing to make cash payments and 5 percent would misstate financial performance to survive an economic downturn, 60 percent of respondents in Indonesia considered making cash payments to win new business acceptable and 36 percent in Vietnam considered it acceptable to misstate a company's financial performance.

At the same time, the findings suggest the existence of a significant corruption perception gap. For instance, even though 84 percent of the interviewees in Brazil saw corruption as a big problem in their country, only 18 percent perceived it as common practice in their own sector. Similar gaps were evident among interviewees in other countries: 80 percent vs. 12 percent in the Czech Republic, 72 percent vs. 36 percent in Indonesia, 60 percent vs. 38 percent in Mexico, or 52 percent vs. 6 percent in Turkey.  In other words, even though the majority of business people in those countries consider corruption to be widespread, they also tend to see it as somebody else’s problem. This phenomenon is not new and it testifies to the lasting power of an overly optimistic view many executives have of their own industries’ and firms’ corruption risk exposure.

That exposure is greatly magnified for international companies that operate in emerging markets, given their reliance on third-party transactions and more vigorous enforcement of laws such as Foreign Corrupt Practices Act. David L. Stulb, Global Leader of Ernst & Young’s Fraud Investigation & Dispute Services, observes, “Though many companies have intensified their efforts to combat bribery and corruption, especially given the aggressive enforcement environment, our research shows that much remains to be done. Executives, especially those in many mature markets, must overcome a certain degree of institutional fatigue about anti-corruption compliance initiatives. This is especially critical given that this year’s survey shows that tolerance for unethical conduct has increased in the last two years.”

The fact that such tolerance is considerably high among Chief Financial Officers (CFOs) is of particular concern. Among the nearly 400 CFOs interviewed by Ernst & Young, 47 percent felt that potentially questionable actions could be justified in an economic downturn, including 15 percent of those CFOs willing to make cash payments to win or retain business, and 4 percent viewing misstating a company’s financial performance as justifiable to help a business survive. Equally concerning is the fact that fewer than half of the interviewed CFOs attended anti-bribery/anti-corruption training and 16 percent did not know that their company can be held liable for the actions of third-party agents.

Considering these findings, thorough anti-corruption training requirements for executive staff and more robust internal controls are a must. But whose duty is it to take initiative against corruption? Certainly the responsibility for ethical business conduct does not begin or end with C-suite executives. Ultimately, the shareholders and stakeholders of each company need to stay alert, engaged, and informed to mitigate corruption risks. As Cobus de Swardt, Managing Director of Transparency International, noted, “The demand from people for the accountable use of power and an end to corruption is indeed one of the key social drivers of our time.” That demand must of course be met by appropriate actions of corporate boards in order to bring about meaningful improvements in anti-corruption measures. Boards – and their audit committees in particular – have to ask the right questions, effectively oversee the management, and lead by example by instilling the culture of integrity.

It is not an easy task, especially in fast-growing emerging markets where regulatory environment may be weaker, and corruption more widely considered “business as usual” and rarely punished. The solutions are out there, from more focused compliance reporting to the board and stronger whistleblower protections, through more comprehensive anti-corruption training programs, to better use of technology for due diligence of third parties. All it takes is the recognition that corruption is not just somebody else’s problem.