How businesses can take the lead on fighting corruption

Corruption is a global problem. Despite codes of conduct, compliance programmes and policies, many of the world’s largest companies continue to struggle in the face of corruption. Its complexities are such that companies and their leaders must continuously balance business objectives with a host of risks. They range from whether to do business in a region to decisions around which companies they do business with.

Written policies and reviews of high-risk areas provide a necessary foundation for an organisation’s anticorruption efforts. But they can only do so much. Strong leadership and vigilance are critical to combating corruption. Conversely, when leaders fail to embrace compliance, it may send a contradictory message within the organization about whether the commitment to ethical business practices is truly important. A leader who exhibits a “win at all cost” mentality may intentionally or unintentionally communicate to employees that compliance takes a back seat to profits and weaken the company’s culture.

The dilemma

Companies and their leaders are confronted with dilemmas on a daily basis. Take for example, the company that is asked by a government official in a foreign country for a payment or another “favour” in order to obtain a license that will enable it to sell its products to consumers there. Without it, the company may be unable to timely tap into a potentially high-growth market. Without these new revenue streams the company’s growth objectives may be jeopardized.

Often, the dilemma becomes even more acute to those responsible for driving a company’s growth in a particular region. Do they do whatever is necessary to deliver expected results, or do they risk falling short of targets by refusing to engage in practices that are inconsistent with laws and/or company policies? How can they possibly compete when competitors are perceived to be willing to engage in such practices to gain business?

Looking beyond compliance

At a time when companies feel pressure to hit revenue targets and satisfy shareholders, anticorruption efforts require a constant balancing act. Effective leadership may mean missing out on a sizable business opportunity. In today’s environment, where the threat of corruption is prevalent, leaders must serve as role models. By participating in training activities or citing the organization’s code of ethics, a leader can set an example for employees. Such an example can serve as a reference point for staff as to how to act ethically when a challenging situation arises.

Battling corruption requires more than complying with laws and staying out of the headlines. It requires leaders to demonstrate a visible and active commitment to dealing with this threat. To do so means leaders need to be engaged in their organisation’s anticorruption processes. And when those processes become outdated, it requires them to identify ways to improve them. Leaders must be the principal figures who set the tone in the organisation for what may be considered ethical conduct. They must be able to answer the difficult questions that come from employees and business partners.

Corruption remains alive and well

To be sure, policy-makers are adopting tougher laws and regulations and stepping up their efforts to combat the problem. Beyond the increase in FCPA cases, China, Brazil, and other countries have increased their enforcement efforts. Despite these advances, corruption remains rampant. In a recent study we conducted, 85% of companies said their industry is exposed to corruption risk. More than one in five (22%) said they have lost business as a result of a situation involving illicit payments to a government official. Russia and Africa remain corruption hot spots. Sanctions and anti-money laundering risks persist as the situations in Russia, Iran, and Cuba remain either tenuous or works in progress.

The ethical leader

Steering a company through these risks and dilemma means leaders must take an active and visible role in setting the proper tone. Ethical behavior underpins good corporate governance, and encompasses business practices at all levels, from the board to staff levels. Today, tone at the top remains critical in preventing and mitigating the risks associated with corruption. Ultimately, the responsibility for establishing a strategic vision rests with the leadership – the board of directors and senior management. Boards, for example, play an important role by developing incentive structures that help to support an ethical leadership mandate among senior management.

Global leaders are on the front lines in the battle against corruption; they can take responsibility by publicly supporting antibribery laws and speaking out against corrupt practices. In setting the tone, they must ensure that each employee understands the types of conduct that are acceptable and those that are not. Leaders can demonstrate their commitment to compliance by ensuring that the company addresses even the most minor of details. Such steps include conducting thorough background checks on suppliers and reference checks during the hiring process.

Leadership and good corporate governance may not be the be-all-end-all solution to the corruption problem for companies today. But together with core values and a commitment to high ethical standards they can help to create an environment in which corruption becomes the exception rather than the rule.

Being a leader means acting ethically. Rather than focus on compliance for the sake of avoiding risk, instead, leaders must recognize that ethics is about doing business right. This means standing by core values and edicts even if it may mean losing out on opportunities. By having a comprehensive ethics program that is aligned to its business strategy, a company can create a system of robust checks and balances on inappropriate business behavior.

Navigating the evolving landscape

While there has been progress, more hard work lies ahead. Policy and enforcement efforts will continue to shift the landscape of compliance for business leaders. In today’s world where we are more connected than ever before, business leaders carry great power and influence. Their actions can influence the way others conduct business. They can instill ethics and compliance into organizational culture by promoting core values, setting expectations, and providing incentives. Such measures can go a long way in achieving solutions to a problem that hinders the ability of businesses to show what they do best: innovate, create jobs, and promote fair and dynamic markets.

Author: Harvey Kelly, Managing Director and Global Financial Advisory Services Leader, AlixPartners

Image: An Indonesian money changer holds rupiah notes to attract customers on a street in Jakarta November 21, 2008. REUTERS/Beawiharta