1.8.3 Internal control and management information processes - avoiding corruption

Avoiding corruption is another CSR theme. Corruption is currently one of the world's greatest challenges. According to the World Bank, corruption is "The single greatest obstacle to economic and social development in realising public goals".1 It creates economic and social disproportion, and damages the very essence of society. Corruption also has a severe impact on the private sector, because it distorts competition and creates obstacles to market expansion. It can seriously harm the reputation of a company and expose it to substantial legal risks. Corrupt practices are expensive for business, i.e. estimates show that corruption adds at least ten per cent to the day-to-day costs of doing business in many parts of the world. The World Bank has stated that "bribery has become a USD 1 trillion industry".2

Corruption has two sides: a supply side and a demand side. The supply side involves those parties that provide monetary payments, gifts or any other forms of expressing gratitude for services, and is usually represented by the private sector. Particularly in weak governance zones - countries where law enforcement is poor - there are increased possibilities that company employees are susceptible to paying bribes. The demand side of corruption, in turn, is represented by those who accept different forms of payment and consequently provide some form of service or favour in return, i.e. typically, government officials who have a great deal of discretionary power and operate in those environments where the system of checks and balances is weak or non-existent.3

In two well published cases concerning Siemens and ABB, illicit payments (bribes) were improperly accounted for in the books and records, and were not timely detected by the directors. This failure demonstrates that these companies lacked effective internal management information and control systems to prevent corruption. Both companies subsequently admitted in their annual and sustainability reports that many mistakes had been made and that they are now implementing anti-corruption programmes to prevent future problems.

Companies can no longer defend their mistakes by stating that they were not aware of these risks. They should have been alerted to the fact that a number of countries or industries in which they are operating are perceived as being high risk corruption' regions or sectors as this type of information is publicly available. NGO Transparency International (TI) publishes a ' Country Corruption Perception Index' on an annual basis.4 Consequently, when doing business in risky zones or sectors, it becomes imperative that a company performs due diligence to avoid corruption.5 Moreover, a company is increasingly expected to address this issue in a structural way by implementing an in-house compliance programme to reduce the risk of corruption. Indeed, an interesting feature of our digitalised world is that any illegal act will most certainly be divulged one day due to the massive volume of emails that every employee generates. Agreements, services and meetings are usually initiated or confirmed by email, and will thus be traceable for a long time thereafter. It has become difficult to keep things out of the company data systems, which explains the increased attention of prosecutors around the globe for corruption.

The question arises whether not putting an anti-corruption programme in place - almost by definition - results in not being ' in control' and, consequently, in poor corporate governance and a bad CSR profile. This key question will be addressed in chapter 5. In addition, best practices on the topic of corporate corruption avoidance will be presented and discussed both as a means to fulfil legal obligations and to enhance CSR.