Companies have no choice but to face corruption – no matter how sensitive commercially – head-on, claim risk consultants Control Risks Group in a report, Facing Up To Corruption.
Companies have no choice but to face corruption – no matter how sensitive commercially – head-on, claim risk consultants Control Risks Group in a report, Facing Up To Corruption. Companies can and should do three things, the report says: ‘First, they can put their own house in order. There is a growing body of best practice on policy, requirements and codes of practice, and on the most effective means of implementing them. In this area, companies have much to learn from the successes and failures of their peers. Secondly, companies need to develop the political and diplomatic skills to find ways of operating with integrity even in environments where corruption is commonplace. This means taking the initiative to find local allies, and identifying areas where they can work most effectively. Thirdly, companies will need to find ways of working with other social actors, both in civil society and government, to push forward the anti-corruption agenda. Corruption is a collective problem that demands a collective solution, and business must play its part.’
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Same – or worse
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Despite laws, calls for crack-downs, and publicised cases hitting bribers’ reputations, some 67 per cent of those replying to an international Control Risks survey into attitudes believed that corruption would remain the same, or increase, in the next five years. ‘With significant regional variations, 27 per cent of the companies surveyed believed that they had lost business to a competitor who had paid a bribe in the last 12 months.’ The figure however for the UK was 16 per cent. The CRG report describes international initiatives against corruption and money-laundering, and how a company can set policies to draw a line against corruption. How to put in place an anti-corruption policy – from recruitment, to annual appraisals to auditing and responding to inevitable problems – is also covered. The report closes with how to compete honestly in ‘difficult environments’, and the outlook for reform. ‘The test of a good company is not whether it has problems, but how it responds to them. Statistically, it is unlikely that a major company, however strong its ethics culture, will escape corruption-related problems indefinitely. Companies will be better able to respond if they plan in advance.’ While western nations have agreed an OECD convention against firms giving bribes to public officials, it leaves loopholes such as donations to political parties, or payments through middle-men. Bribes each year are impossible to estimate, but certainly run into billions of dollars, the report says. CRG suggests staff should be encouraged to report ethical problems, though the survey found only a third of UK and US companies have such telephone helplines. Larger firms are more likely to bring in management practices to help staff avoid corruption – but those large firms are more likely to have lost business to bribe-paying competitors, maybe because they are more likely to bid for major projects. By sector, petroleum and construction are most likely to have lost business because of bribery.
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Risks to businesses have increased significantly in the last 12 months, according to a survey of FTSE 500 companies jointly by the Institute of Chartered Accountants of England and Wales and consultants The Risk Advisory Group. Despite various events during late 2001 and 2002, terrorist and criminal risks are rated lowest (40). Bill Waite, chief executive of The Risk Advisory Group, said: ‘With the difficult trading conditions faced by business, coupled with events in the US, it is hardly surprising that the FTSE 500 feels the world is a riskier place.What is surprising, perhaps, is that more companies do not review their risk exposure, formally, more often.Non-executive directors, who play such an important oversight role in these companies, can and should play a far greater role in involvement in identifying and managing risk.’ In every one of 12 categories of risk identified by the ICAEW and TRAG, companies saw a net increase in risk compared to a year ago, ranging from a 19 per cent net increase (management information) to a high of 58 per cent (economic and political environment). The survey of financial directors and other senior managers at 82 FTSE 500 companies, revealed that the most important risk to business is seen as reputation (66 on scale of 100), followed by operations and market risks (63), strategic risk (62) and economic and political environment risks (61).
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Risk review
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Despite the perceived increase in risks, one in four boards (26 per cent) only reviews such risks formally once every six months or less. A half (47 per cent) review risk at every board meeting and the remainder (27 per cent) once a quarter.Even amongst the largest companies in the sample (those with a turnover of £1 billion or more), one in six (17 per cent) only conducts formal reviews once every six months or less. In terms of board involvement in risk management financial directors and CFOs (98 per cent high involvement), internal audit directors (90 per cent) and CEOs (78 per cent) play the most significant roles. Non executive directors (44 per cent), chairmen (43 per cent) and communications directors (21 per cent) are less highly actively involved. Three in four respondents (75 per cent) think that annual reports should provide information about the most important risks a company faces. However, only half (51 per cent) actually produce such information in their own annual reports. Peter Wyman, President of the Institute of Chartered Accountants of England and Wales, added: ‘Companies should identify, evaluate and manage their significant risk. In line with the recommendations of the Turnbull report directors should set appropriate policies to manage these risks and regularly review policies to ensure that they are adequate and effective.’
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About The RAG
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The RAG was founded in late 1997 and employs 80 staff, in central London and Moscow.The company is chaired by Nigel Turnbull, former finance director of the Rank Group and author of the eponymous report on corporate governance. The chief executive is Bill Waite, a barrister and former Serious Fraud Office prosecutor.
