John Sullivan

Until recently, corruption has largely been seen as a public sector issue. The addition of a 10th principle on anti-corruption by the UN Global Compact in 2004 was the culmination of a trend that started in the 1990s, when the private sector began to recognize its stake in the corruption problem. Today, fighting corruption is at the top of the agenda for many businesses, and the need for effective solutions is evident.

Corruption is rarely defined by bright lines. It is a grey area that requires more than a rigid set of rules to deal with its root causes and many manifestations. Conversations about corruption often raise just as many questions as they provide answers. There are several challenges to address:

First, defining corrupt behavior. We must look beyond the traditional definition of “abuse of entrusted power for personal gain” to recognize the many facets of corruption. For example, the Global Compact separates the notions of bribery and extortion. There are also different types of political corruption, private-to-private corruption, public-to-public corruption, state capture, and facilitation payments.

Second, identifying all relevant stakeholders. The list of players is enormous in combating corruption. In addition to business, one must deal with governments, civil society groups, citizens, international organizations, media and academia. Even within business, there are few clear lines or universally accepted best practices. Furthermore, companies vary in the amount of influence they wield against corruption, have different capacities to deal with it, and suffer from varying degrees of corruption.

Third, the overlap of moral and legal matters. While bribery is more clearly understood, some forms of corruption, like facilitation payments, are not fully addressed by the legal systems of many countries. Environments with weak rule of law face problems with lack of enforcement. Even if rules exist, companies are unsure about the fair application of those rules to all players. Cultural attitudes toward corruption are another complication. In some countries, corruption becomes so institutionalized – so embedded in the culture – that positive changes in the way business is done can occur only with time.

To summarize, corruption is not a monolith. Corruption involves a variety of stakeholders and takes on different forms in different places. It adjusts to a company or a country climate. What can be observed in one business environment will not necessarily be easily identified in another. This has certainly been our organization’s experience over the past 25 years when working with the private sector to combat corruption in countries around the world.

These are real challenges for the business community. As highlighted in the 2007 Global Compact Annual Review, anti-corruption is a highly challenging issue for signatory companies to address in policies and practices, with low levels of action in areas such as anonymous hotlines for reporting corruption, sanction systems for anti-corruption policy breaches, and recording instances of corruption, facilitation payments and gifts.

There are numerous tools that can help businesses in their efforts to reduce corruption. Integrity pacts are one important concept. Developed by Transparency International, an integrity pact helps companies ensure a transparent public procurement process, and have proven helpful in countries where procurement regulations are weak or where enforcement is lacking.

In addition to integrity pacts, collective action is essential. How do you get stakeholders on both the demand and supply sides of corruption to come together to set up a transparent environment where decisions are economic – not corrupt – in nature? A unique working group, led by the World Bank Institute, comprised of multilateral, private sector and civil society stakeholders has developed a tool, "Fighting Corruption through Collective Action - A Guide for Business", to provide guidance on working with competitors and diverse stakeholders to reduce corruption. (Read “Collective Action against Corruption” by Djordjija Petkoski of the World Bank Institute)

Corporate governance is another very effective, multi-level anti-corruption strategy. First, it helps set the tone at the top levels of corporate operations. By building effective boards and infusing transparency into all decision-making processes, good corporate governance puts corruption at the top of the agenda. Second, good corporate governance helps make sure that anti-corruption policies trickle down. This is a key issue – management is often unaware of what is occurring on the ground because of weak internal controls. (Read “Improving Corporate Reporting on Anti-Corruption” by Peter Wilkinson of Transparency International and “Evaluating Corruption Risks When Investing in Emerging and Developing Markets” by Jacques Marnewicke of Sanlam Limited) 

Combating corruption is in the best interest of business. Numerous cases highlight the personal, business development, and financial costs of corruption. (Read “A New Direction for Siemens” by Andreas Pohlmann of Siemens AG)

There is a rising business movement to fight back against corruption and unfair competition – and the number of tools to do so is growing.

Underlying many new initiatives is the idea that it is not enough to punish corrupt individuals. Anti-corruption efforts must address corruption’s root sources and enabling environment. This means dealing with public governance and rule of law issues in addition to private sector governance institutions. We must create ethically sound environments, where the private sector is given guidance on the rights and wrongs of operating in corruption-prone environments. (Read “The Cost of Corruption” by Huguette Labelle, Chair of Transparency International)

Working aggressively to combat corruption is good corporate citizenship. In doing so, companies help strengthen public governance, build better economies, and assist the poor – the biggest, and often unrecognized, victims of corruption.

John D. Sullivan is Executive Director of the Center for International Private Enterprise, an institute focused on strengthening democracy around the globe through private enterprise and market-oriented reform. CIPE is one of the four core institutes of the National Endowment for Democracy and a non-profit affiliate of the U.S. Chamber of Commerce. Sullivan served on the 1983 democracy program study that created the National Endowment for Democracy and has been with CIPE since 1984. He chairs USAID’s Advisory Committee on Voluntary Foreign Aid and is an adjunct professor at George Mason University. For more information: www.cipe.org.