Headlines over the past year have highlighted the pervasiveness of corruption and bribery in global business, with some of the world’s most recognisable brands dealing with public scandals:
Despite the prevalence of such scandals, the global business community has shown limited action to combat this. Data from the 2017 Transparency International Index on Corruption Perception shows many countries across the world have made little or no progress in fighting corruptive behaviour, despite the fact it protects businesses’ bottom lines and brand reputations.
Furthermore, new anticorruption research from sustainable ratings agency EcoVadis shows the majority of companies taking steps to foster business ethics have adopted an unstructured approach – with less than 10% of firms reporting on business ethics key performance indicators (KPIs).
The same research also brought to light the wide disparity between methods used to fight corruption. Whistleblowing is the most common practice, with one in four companies taking this approach. Yet only 4% of organisations in North America and Europe were found to have implemented corruption risk assessments – a fundamental anticorruption measure. While most companies formalise some sort of policy through a code of conduct, few are taking the next step to implement internal control measures.
All companies in the EcoVadis study are part of global supply chains. The reality is no company – big or small – is immune to the risk of corruption scandals, but companies can take mitigation measures to reduce both the likelihood and the impact of such situations.
Successful enterprise anticorruption programmes rely on fostering ethical business practices – and the best place to start is within the supply chain. Companies today are held to high ethical standards by customers, stakeholders, investors and regulatory bodies. Not only are they liable for their own actions, they are responsible for their suppliers and third-party vendors. If something happens in the first or second tier of the supply chain, it can have a ripple effect – both legally and reputationally – on a brand.
As such, the business community should be intrinsically motivated to mitigate these ramifications by promoting responsible behaviour both internally and externally, as well as through internal and external audits and risk assessments. Procurement can use its critical and unique position to monitor, enforce and track ethical behaviour within the supply chain.
Regulations that prevent corruption are becoming increasingly common. Take, for example, France’s Sapin II law, which requires companies with more than 500 employees and €100m in annual turnover implement anticorruption programmes. But while such laws are important and valuable, they are not perfect. It is vital for companies to take a proactive approach to anticorruption management and institute their own practices to prevent issues from within. There are several best practices and components of a well-rounded strategy that can ensure issues like bribery, extortion, and fraud are less likely to infiltrate the workplace.
As a rule, a solid anti-corruption programme should include enforcement of formalised policies that foster ethical behaviour and allow companies to communicate their commitment, objectives and strategy for preventing issues to all stakeholders, partners and suppliers. It should also include concrete internal control measures that effectively address risks outlined in the policies and monitor the implementation of these measures through reporting on results.
A practice used by only 4% of US companies, a corruption risk assessment pinpoints the types of risks companies are exposed to based on their specific operations. According to EcoVadis research, 11% of large companies follow this practice, while only 1% of small and medium-sized enterprises (SMEs) have adopted the measure. Risk assessments are highly effective and should be one of the first steps taken in designing a programme. Such assessments allow companies to take a deeper dive in assessing risk and corruption within their own business as well as those in supplier and partner operations.
Ensure everyone touching the business is held accountable, including third-party vendors. It is important to consider third-party affiliates such as distributors, brokers, agents, consultants, advisers and freight forwarders involved in everyday business practices, as these companies have a direct effect on client relations and business activity. Third-party vendor accountability is not a heavily adopted practice due to the amount of time and resources needed to track each vendor. It is only used minimally in the US and Europe. Laws such as the US FCPA and Sapin II hold companies accountable for the actions of their third-party vendors and suppliers – meaning there is a large liability factor for companies. If businesses aren’t monitoring their vendors for ethical behaviours, they are doing their organisation, customers and stakeholders a disservice.
Companies that carry out due diligence processes, such as background checks and thorough assessment programmes, can address these issues from the outset. Leveraging sustainability intelligence and implementing assessments that provide a rating and benchmark of the anticorruption management system and other sustainability criteria, help tremendously from a mitigation standpoint.
Whistleblowing, the most common practice currently used by the world’s organisations to fight corruption, allows employees to voice concerns in a safe environment. Of all the companies that took part in the EcoVardis study, 70% of combined large and SMEs have such policies in place. Specifically, 41% of North American companies have adopted whistleblowing practices, followed by Latin America and the Caribbean at 24%. To be effective, companies should enact a loyal reporting channel to ensure confidentiality among team members. Whistleblowing is only advantageous when other core measures are implemented such as proper employee training to identify certain cases of corruption, as well as internal controls to deter these behaviours from the outset.
This step may be most important in effectively changing behaviour among employees in how they act and their willingness to report more frequently and without hesitation. Training sessions will assure companies their employees are fully equipped with an awareness of corruption risks at operational and supply chain levels, as well as provide the tools needed to combat the issues. While 41% of large companies have conducted such training, only 9% of SMEs have taken this approach. Training can take place in various formats, such as in-person workshops or online tutorial videos, depending on what best suits the organisation.
To successfully prevent corruption, start by understanding what is happening in your own organisation. The EcoVardis study found 24% of large companies are implementing internal auditing practices. This is being implemented equally among organisations in North America and Europe. It’s wise to hold regular check-ins to ensure all employees are on the same page and identify how the management system is working to reduce corruption.
The state of anticorruption is not all doom and gloom – the data highlights an opportunity for companies to make genuine progress. Now is the time to act and drive positive practices that will take the company into the future. Since corruption comes in many forms, businesses must collaborate with their teams to determine where to focus their time and ways to implement best practices. Through teamwork and innovation, organisations can help solve corruption issues within the global supply chain and put an end to such harmful practices.
Bettina Grabmayr is a senior sustainability analyst at EcoVadis. She holds a law degree from the Paris Sorbonne University and has been working in the sustainability field for four years.
This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.