Our companies - and societies – can resist corruption and focus on growth

by Michael Andrew, Giuseppe Recchi and Brook Horowitz | IBLF Global
Monday, 21 July 2014 11:38 GMT

Members of the B20 ACWG at their meeting at the OECD in Paris in April 2014 Credit: OECD

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How governments can incentivise companies to promote a widespread culture of anti-corruption throughout their markets

This year’s B20 recommendations published on 18th July to coincide with last week’s B20 Summit in Sydney, focus on structural reforms that will remove barriers and impediments to growth and create a more conducive environment for investment.

Amongst the main obstacles to growth that the business community has identified is corruption. Despite new legislation and better enforcement at a country level, and closer inter-governmental cooperation amongst the G20 countries, corruption is still alive and kicking. Hardly a day goes by without reports of another corruption scandal or social unrest stimulated by opposition to corruption.

In the recommendations put together by this year’s B20 Anti-Corruption Working Group (B20 ACWG) which we headed, the business community encourages the G20 governments to enforce the existing OECD and UN Conventions. That means implementing domestically in a consistent way the global principles which nearly all the G20 nations have signed up to.

However, in the opinion of the B20, the “stick” approach is not sufficient. Business and government should work together on promoting the “carrot”. Instead of focusing corporate behaviour on a defensive, box-ticking, risk-avoidance approach, we’d like to see the governments incentivising companies to promote a widespread culture of compliance throughout their markets.

For example, in the recommendations, the B20 proposes to incentivise self-reporting. The current regulatory framework discourages companies from self-reporting and forces them to fight the same legal battles in multiple jurisdictions. We believe that there should be a concerted effort to harmonise legislation. Furthermore, companies should be encouraged to pro-actively report violations to the authorities rather than wait to be detected, for example by reduced penalties.

Another area where progress can be made is in public procurement especially in global infrastructure deals. One of the main challenges for business is to make its way through a myriad of different standards and approaches. A single set of guiding principles adopted by all G20 governments would benefit the issuers as much as the bidders in terms of efficiency, transparency and promoting competitive practices.

At the same time, governments can apply a wide range of incentives to bidders: for example, “credits” for companies which have in place “adequate procedures” in the form of anti-corruption policies and compliance programmes, and debarment for companies that have a poor track record or which are unable to demonstrate a systemic commitment to compliance.

And when things do go wrong, and companies feel that their bids have been undermined by unfair play or that they have been subjected to extortion by government officials, we would like to see each G20 country establish a High Level Reporting Mechanism as a channel of last resort for reporting violations.

In the financial sector, another high-risk market, we are advocating the consistent application of new rules around beneficial ownership in G20 countries. Companies, with some justification, are asking for a reasonable balance between adhering to new rules, and not becoming overburdened by bureaucracy or putting companies that are doing more to promote transparency at some kind of competitive disadvantage.

Underlying our recommendations this year is a different approach to how business and governments work together on combating corruption. Rather than an adversarial relationship, which is inevitable once the crime has been committed, we are talking about Collective Action - business-government partnerships to address the issues before that happens.

After all, business is the counterpart to government in the equation of supply and demand of corruption, one of the world’s biggest “industries”. Inasmuch as it is part of the problem, it should also be part of the solution. We’re talking about a social, political and cultural change on a scale that has never been seen before. Our proposal is to focus on where business has the best chance of adding value, which is creating that culture change amongst its employees, supply chain, industry and markets – both individually, and in cooperation with competitors and regulators. Business – with its intellectual and financial capabilities can make this happen – globally and in the countries where it operates. Fully engaged, companies will be the strongest allies for governments in disseminating and executing anti-corruption policies in G20 countries.

Like any business, the companies are looking for a return on their investment into compliance. The return on investment in this case is real, tangible results in encouraging adherence to better business standards throughout the economies of the G20, with the goal of making our companies - and societies - more resistant to corruption, more competitive and ultimately more able to focus on growth.

Michael Andrew is former Global Chairman of KPMG and Giuseppe Recchi is Chairman of Telecom Italia. They are respectively coordinating chair and co-chair of the B20 Anti-Corruption Working Group (B20 ACWG). Brook Horowitz is CEO of IBLF Global, an NGO promoting responsible business standards in emerging markets, and is chair of the B20 ACWG’s Expert Group.