The private sector can also fail on all these counts, however. It can enrich a few at the cost of the many. It can recklessly overexploit the environment and obstruct innovation. It can disenfranchise, destabilise society and foster corruption, whether in communities, markets, governments or international relations, ultimately undermining the prerequisites for its own existence.
Corruption risks in the business sector and success in controlling them are crucial determinants of whether businesses and markets can live up to their productive, contributory role, or succumb to their destructive potential.
The scale and pervasiveness of corruption risks for business
Corruption is not a marginal issue but a central concern for business – in developing, emerging and industrialised countries alike. It affects multinationals in the United States and Europe.
It touches manufacturing powerhouses in China, information technology service providers in India, farmers in Latin America and extractive industries in Africa, central Asia and the Middle East. It is an issue for large-scale conglomerates, family-owned businesses and individual entrepreneurs. In developing and transition countries alone, corrupt politicians and government officials receive bribes believed to total some US$20 to 40 billion annually – the equivalent of around 20 to 40 per cent of official development assistance. Moreover, the problem appears to be growing.
Corruption and the private sector
Many actors in the business sector are entrusted with powers that are vulnerable to abuse for private gain, to the detriment of other stakeholders and society more broadly. Executives and board directors are empowered to steer companies and manage risks in the interest of sustainable profitability for shareholders and stakeholders alike. Purchase managers oversee large budgets to source inputs for the enterprise. Human resource managers are entrusted with hiring staff.
Labour representatives are entrusted by workers to represent their interests to management.
Investment firms handle the savings and pensions of citizens and are expected to manage these investments responsibly. Accountants, auditors and rating agencies are entrusted by regulators and investors to verify and assess critical information and risks reported by companies.
Bribing public officials to win public contracts, circumvent regulations or speed up services is a central and persistent concern. Evidence of the prevalence of bribery provides a worrying example.
In a survey of more than 2,700 business executives in twenty-six countries conducted by Transparency International in 2008, almost two in five respondents claimed that they had been requested to pay a bribe in the previous year when seeking attention from a series of institutions that provide vital services for business, such as customs and tax revenue authorities, the judiciary, the police, registry and permit offices or providers of basic services.!
In a different survey, of more than 1,000 executives, almost one in five claimed to have lost business due to a competitor paying bribes, and more than a third felt that corruption was getting worse.
In many places the problem is even more pronounced. In countries such as Egypt, India, Indonesia, Morocco, Nigeria and Pakistan, more than 60 per cent of the business executives polled in the TI survey reported having been solicited for bribe payments from the key institutions listed above.
In Colombia, more than a half of the companies interviewed in that country’s first comprehensive survey on business and corruption described bribery as a viable strategy to trump the competition. In Brazil more than 40 per cent, and in Hong Kong as many as two-thirds, of businesses believed that they lost opportunities on account of corruption by competitors within a one-year time frames.
Introducing corruption and the private sector
No sector or industry is unaffected by corruption, although some are hit harder than others.
More than a half of all companies interviewed in the construction sector and the oil, gas and mining sector complained that bribery by competitors had deprived them of business opportunities in a five-year time frame. In a different survey, more than a half of all the polled executives operating in the energy, mineral resources and telecommunications sectors reported having been asked for bribes in a one-year time frame.
The overall impact of corrupt business practices, which allow companies to operate beyond the reach of the law, may be visible and imminent – such as water scarcity in Spain,8 exploitative work conditions in China,9 illegal logging in Indonesia,lo unsafe medicines in Nigeria 11 and poorly constructed buildings that collapse with deadly consequences in Turkey.12 Many other adverse effects are more hidden, but no less harmful, such as inflated costs for a public contract, a biased judicial ruling or the nurturing of a kleptocratic political class that plunders the public wealth of a country. Even small payments made to ‘get things done’ are harmful, as they are funnelled up through the system and help sustain corrupt bureaucracies, parties and governments.13
What business has to gain from the fight against corruption
The business case for countering corruption is clear. A half of international business managers estimate that corruption increases project costs by at least 10 per cent – in some cases more than 2S per cent.14 In addition’ to direct financial costs and lost business opportunities, there are substantial damages to brand, staff morale and external business and government relations. Stronger enforcement of anti-bribery rules in some jurisdictions has significantly upped the ante, making stiff prison sentences and penalties in the tens of millions of US dollars increasingly likely. 15
Corporate compliance and responsible citizenship also pays direct rewards. Higher-quality internal governance opens access to lower-cost capital and can raise company valuations and result in better performance. Responsible corporate citizenship also offers opportunities for brand differentiation and marketing that can increase sales in industries sensitive to consumer perceptions.16 Contrary to common belief, a commitment to clean business also seems to boost rather than harm immediate business prospects.
