Bribery and corruption present significant risks to business and tackling them increases an organisation's resilience to shocks

Ethical business practices are a critical aspect of sustainability, yet progress towards eliminating bribery and corruption appears to be elusive in the face of persistent headlines such as the recent forced resignation of Avon CEO Andrea Jung, the IKEA incident in Russia and the conviction of former French president Jacques Chirac.

Corruption continues to have a dire effect on the global economy. In fact, The World Bank and the World Economic Forum estimate that corruption costs more than 5% of global GDP ($2.6tn) annually, and estimate that more than $1tn is paid in bribes annually. These organisations suggest that corruption adds 10% to the total cost of doing business globally, and a staggering 25% to the cost of procurement contracts in developing countries.

Why should companies care? Firstly, corruption is illegal. Secondly, it distorts competition and free markets. And third: it incentivises and rewards unethical behaviour. The bottom line is that corruption hinders social and economic growth, delays the emergence of developing economies and stunts thriving democracies based on good governance and the rule of law.

Unlike other white-collar crimes such as fraud, serious international efforts to combat corruption are almost nascent by comparison. Today, there is a UN Convention Against Corruption, the OECD Bribery Convention, and businesses may also participate in voluntary initiatives, such as the UN Global Compact and the Extractive Industries Transparency Initiative.

National legislation such as the 1998 US Foreign Corrupt Practices Act (FCPA) and the 2010 UK Bribery Act, seek to punish corruption regardless of where it occurs in the world. FCPA enforcement is a high priority for the Securities and Exchange Commission (SEC), with 12 cases prosecuted in 2011 and 16 cases in 2010. Companies including Alcoa, Daimler AG and Siemens AG have been charged under FCPA with Siemens, for one, obliged to pay a record $1.6bn in fines. The new UK law is expected to provoke similar prosecutions, high-profile convictions, costly fines and lawsuits.

It is not enough, however, to view bribery and corruption as a simple regulatory or compliance issue. A corporate culture that appears to tolerate or even reward maverick behaviour or rule-breaking is vulnerable to corruption. Accusations of bribery or corruption can destroy a company's good reputation and take years to repair, while fines and lawsuits can severely damage a company's social licence to operate.

On the other hand, an effective "no bribes" policy and a culture where strong business values and ethical behaviour are central facets, potentially offers the competitive advantages of transparency: a cleaner corporate image, more trustworthy business relationships, lower costs and less litigious shareholders.

Unfortunately, having a corporate code of conduct or ethics is not a panacea – especially in the absence of globally accepted ethical norms. Corporate policies must be values-based but driven by strong leadership, clear governance structures, best practice benchmarking, specialised due diligence, training, monitoring and review mechanisms and effective channels for whistleblowers.

Corruption, in all its forms, is always a business risk. Some operating environments clearly pose higher risks than others, such as jurisdictions with weak governance or lack of rule of law, resource-rich or in rapid growth economies, or where transactions involve middlemen or state monopolies.

Addressing the challenges of combating bribery and corruption need not be overwhelming. In fact, it offers a major opportunity for companies to boost their own sustainability and resilience to shocks.

Doug Bannerman is vice-president, Two Tomorrows (North America) and David Roberts is associate, Two Tomorrows (Europe).

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