PwC: Corruption is a major Issue
Date: 25-02-2008
Source: Wireless News
Nearly two-thirds of senior executives around the world say they have experienced some form of actual or attempted corruption in their business dealings, according to a report by PricewaterhouseCoopers.
The report, 'Confronting Corruption: The business case for an effective anti-corruption programme,' finds that almost 80 percent of executives say they have anti-corruption programs in place at their company, but only 22 percent are confident the programs are effective. Executives say they feel vulnerable to corruption particularly when doing business in expanding markets such as China, India, Russia and South America.
PricewaterhouseCoopers commissioned the Economist Intelligence Unit to conduct a global survey and in-depth interviews with senior executives and anti-corruption specialists. Survey respondents, comprised of 390 senior executives from 70 countries, indicate significant operational impacts of corruption:
- Sixty-three percent said they had experienced some form of actual or attempted corruption;
- Forty-five percent said they had not entered a specific market or pursued a particular opportunity because of corruption risks;
- Thirty-nine percent said their companies had lost bids because of corrupt officials;
- Forty-two percent said their competitors paid bribes.
"Companies now have a compelling - and some might say, urgent - business case to support the development and implementation of a formal and strategic anti-corruption program," said David Jansen, partner, PricewaterhouseCoopers LLP. "In recent years, companies caught breaking anti-corruption laws have individually paid hundreds of millions of dollars in fines and several CEOs have stepped down in disgrace."
Jansen continued, "This situation is not limited to U.S. based companies. Globally, we are seeing a marked rise in enforcement actions that should cause C-Suite officers to ensure they have adequate programs in place to mitigate this risk."
"As serious as the monetary damages may be, the damage to a company's reputation can truly be crippling. When asked about the fallout from corruption allegations, 55 percent of respondents to our survey say the most severe impact would be to their corporate reputation," said Jansen. "This is a greater percentage than the combined total of those who say legal, financial and regulatory impacts would be the most severe. As management and staff become distracted and demoralized, customers and business partners distance themselves from the company and even internal safeguards against such things as theft and financial statement manipulation eventually become suspect."
"Without a strategic action plan in place, a company may not even be aware of its vulnerability until it is too late," Jansen concluded. PwC analyzed survey results and produced a report that points out the need for communications around an anti-corruption program, ensuring that employees know about the program and understand that there will be sanctions if they transgress.
More than 70 percent of the executives surveyed said that a better understanding of corruption will help them compete more effectively, make better decisions and improve corporate social responsibility as they enter new business environments. Despite the skepticism and perceived levels of heightened risk in these environments, a number of companies have shown that proactively addressing corruption risks can help balance risk and return. While the growth opportunities in new markets are compelling, the study suggests companies tailor their program controls and oversight to meet the requirements of each individual market.
While companies are generally responding to the risk of corruption, the survey indicates that many companies' underlying policies and controls do little to identify and mitigate risk due to poor design or implementation:
- Slightly less than half say their program is clearly communicated and enforced;
- Rigorous risk assessment, a crucial step in program design, is overlooked by more than half of those surveyed, and only 25 percent perform proactive risk assessments or monitoring;
- Only 40 percent of respondents believe their current controls are effective at identifying high-risk business partners or suspect disbursements.
It is not, however, all bad news; drawing from interviews with experts and real life case studies from global companies, the report provides practical guidance for operating in challenging environments. Leveraging efforts by leading non-governmental organizations focused on the issue, the report also includes a model for an effective anti-corruption program that can be tailored to any environment.
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