Graft damages reputation, liability of businesses

The Jakarta Post

Along with graft by public officials, corruption involving the private sector has been included in the UN Convention Against Corruption (UNCAC). At the five-day conference of State Parties to the UNCAC in Nusa Dua, Bali, which ended Friday, business players were engaged in finding better international mechanisms to battle graft. The Jakarta Post's Abdul Khalik and Muhammad Nafik discussed the issue with Michael Pedersen, a global leadership fellow with the World Economic Forum's Partnering Against Corruption Initiative (PACI) -- a watchdog overseeing some 130 companies valued at trillions of dollars, including Shell, Newmont, Coca-Cola and TNT -- on the sidelines of the conference. Below are excerpts of the interview.

Question: How do you see the commitment of global private companies to fight corruption?

Answer: I think more and more companies realize there is a strong business case for them to engage in fighting corruption, mainly by means of setting up a very strict and comprehensive compliance system outlining the nature of corruption and what kind of behavior is expected from their employees.

I think it has been very helpful that we now have a very comprehensive international anti-corruption convention. So, there is a change in the regulatory framework, and on top of that we've seen some very severe corruption scandals hitting even very well-known and respected companies. At the end of the day, companies realize that they are increasingly facing reputational and liability risks. And because of that, there is a strong business case for engaging in fighting corruption.

Are there any other reasons that make them aware of the necessity to join the anti-graft drive within their sectors?

If you look from a different point of view, we could also say that the companies are realizing that the issue of corruption is really a substantial cost of doing business. They have a clear interest in leveling the playing field in making sure that no one within their industry and region is willing to pay a bribe.

Although we increasingly see companies agree on the fact, we also see that the companies still often pay bribes on the competitive disadvantage. They are forced to do so because some of their competitors are still willing to pay bribes.

That's where the PACI and other similar initiatives add value to private companies, because what we provide is a neutral platform that allows them to engage in addressing the issue together with their peers, and by doing so they engage in leveling the playing field.

They do so by signing up to zero tolerance to bribery and corruption, and at the same time they also commit themselves to implementing the partnering against corruption principles, which basically outline the international consensus on the nature of corruption and what kind of compliance systems the companies need to have in place in order to ensure an effective anti-corruption system.

So the more companies signing up to the principles, the more effective we actually get in leveling the playing field because the signatory firms agree to the minimum set of standards for how they are going to conduct their business. We are trying to reach out to more companies across industries and regions.

The PACI conducted a survey to assess the compliance of the signatory companies to the anti-graft convention. What were the results?

The survey is really encouraging. Our signatory companies are demonstrating progress in developing, implementing and monitoring their anti-corruption programs. By the end of 2007, there were 90 of the (130) signatory companies stating that they have anti-corruption programs in place.

If you look at other key findings of the survey, we learn that anti-corruption programs are definitely on the top of the agenda of the top management, and we also see that in general they provide e-training and anti-corruption training, as well as whistle-blower hotlines. All of these are seen as an integral part of the anti-corruption drive.

In most cases, the anti-corruption policies of our signatory companies also apply to their business partners, including their suppliers and customers. We also found that three quarters of our signatory companies are willing to publish their anti-corruption policy statements in public.

In many developing countries, like Indonesia, which is ranked among the world's most corrupt nations, companies are forced to bribe officials to conduct business. How do they deal with such a situation?

There are obviously a lot of challenges facing the companies that are willing to demonstrate anti-corruption leadership. And at the end of the day, what has been proven very useful to our signatory companies when doing business in countries perceived as particularly corrupt is that first of all they make sure their commitment is publicly communicated.

That actually empowers them a lot as they can simply just refer to their corporate policies. They can say, "I would be happy to help but this is the policy I have to comply with, otherwise I will get fired." That has been proven to be very powerful. At the same time, it's also proven very powerful that the companies actually monitor and report the demands for bribes, and take these demands to the very high government levels, and outline how other companies deal with such a situation.

Working together among companies and with the government, I think, is the best way to deal with the problems.

How are the existing codes of ethics within the companies aligned with the UNCAC and how do they apply them?

The companies welcome the UNCAC because not only does it deal with public bribes but also it deals with private sector corruption. And in that sense, the convention provides a reference that hopefully will level the playing field across the world. The companies can and should make sure the convention gets effectively implemented.

They can do so by means of developing and implementing comprehensive anti-corruption policies and programs within their own operations. This is a very important contribution from the private sector. But it is also important to acknowledge that it takes two to tango. And it is true that the private sector is both part of the problem and the solution, but at the end of the day, companies can't solve the issues themselves. They need support from the government.