Corruption remains a major cost for honest companies
Corruption is still a major cost to international business and 34% of African businesses reported losing out on deals to corrupt competitors according to Control Risks, the global business risk consultancy.
Earlier this week the firm, published its annual survey of business attitudes to corruption, comprising interviews with 824 companies worldwide.
Corruption risks continue to deter investors. 30% said they have decided not to conduct business in specific countries because of the perceived risk of corruption.
And corruption is killing deals. 41% of global respondents reported that the risk of corruption was the primary reason they pulled out of a deal on which they had already spent time and money – even 55% of African respondents.
But the picture is improving. Companies from countries with tight enforcement report fewer losses than before from corrupt competitors. In 2006, 44% of US companies said they had lost out to corrupt competitors, compared with only 24% in 2015. These figures are echoed for Germany and the UK. 81% of respondents agree that international anti-corruption laws “improve the business environment for everyone”.
However, there is still more to do. The survey shows that there are still wide variations in the maturity of company programmes. In the worst case, conventional compliance approaches can increase risk because they lead to a misguided sense of complacency.
Control Risks’ survey reveals companies are now more willing to challenge when faced with suspected corruption. 39% of companies said they would complain to a contract awarder if they felt they had lost out due to corruption (70% in South Africa), compared to just 8% of respondents in 2006. In 2006, only 6.5% of respondents said they would appeal to law-enforcement authorities, compared with 19% of global respondents in 2015, with 24% of respondents (60% in South Africa) now saying they would try to gather evidence for legal action.
Companies feel that international anti-corruption legislation is improving the business environment. Most respondents felt these laws made it easier for good companies to operate in high-risk markets (55%) and serve as a deterrent for corrupt competitors (63%). This was particularly true of companies in developing markets. 79% of Mexicans agree or strongly agree, as well as 68% of Indonesians, 64% of Brazilians and 53% of Nigerians. In the US 54% say tough laws make it easier to operate in high risk markets, while 42% disagree.
However, despite these positive developments, Control Risks’ survey suggests companies still need to do more. Third party risk is still relatively unrecognised. Just 58% of global respondents have procedures in place for due diligence assessments of third parties and only 43% have third-party audit rights.
The survey also suggests companies are not setting the right incentives to deter corruption. Respondents cited the fear of negative consequences as the penalty used most commonly to deter corrupt behaviour. On the list of eight deterrents to corruption, in sixth place are company performance criteria that emphasise integrity (along with financial targets).