Corporate Social Responsibility (IVOR nr. 77) 2010/5.6:5.6 Concluding remarks

Corporate Social Responsibility (IVOR nr. 77) 2010/5.6

5.6 Concluding remarks

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

The key question posed in the Introduction to this chapter was "whether the act of not putting an anti-corruption programme in place, almost by definition results in misleading financial statements, an incomplete annual report, an untrue 'in-control statement' and, consequently, in poor corporate governance." The position of companies with regard to anti-corruption and certain corporate governance tools have been the focal point of this chapter.

In this chapter, the phenomenon of corruption has been described, thereby distinguishing between the demand and the supply side. Companies are usually part of the supply side, which means that they are among the actors that pay bribes to public officials. This costly practice sometimes seems to work to their advantage in the short run, but does not do so in the long run.

Corruption is now widely recognised as negatively impacting economies and the international market system. It also damages democratic political systems and obstructs the achievement of sustainable globalisation. A comprehensive anti-corruption strategy is being developed by the international community. Corporate compliance programmes play a key role in achieving this, as they enhance and support the effectiveness of government actions. Looked at from the perspective of companies, the use of bribes disturbs the competitive dynamic of competing on the basis of offering the best services and goods;

competition then depends on who pays the highest bribe. Moreover, as has been presented in this chapter, recent corruption scandals involving highly respected MNCs have seriously damaged their reputation. Moreover, the corruption scandals have led to questions about the validity of the short-term focussed business models that are currently still predominant.

Worldwide, public initiatives have emerged to counter corruption. The US marched ahead by enacting public regulation on this subject, the FCPA. International conventions by the Council of Europe, the OECD and the UN followed. Many jurisdictions now prohibit the corruption of both domestic as well as foreign public officials. Consequently, one act of corruption can be the subject of simultaneous legal investigations in various jurisdictions. That makes prosecution potentially extra burdensome and costly for the company concerned. The US legal system in particular imposes high fines on companies that violate the FCPA. In addition, directors and company officers can be prosecuted in person, or face damages claims from stakeholders.

Besides public regulation, other anti-corruption initiatives have emerged resulting in private regulation, i.e. guidelines or standards drafted by international organisations or business organisations, sometimes in cooperation with NGOs (MSIs). With CSR developing, more and more codes of conduct prescribing socially responsible conduct pay attention to corruption prevention. Changing corporate conduct includes becoming transparent about one's business activities, on a worldwide scale. The global standard for sustainability reporting represented by the GRI Guidelines also contains indicators on corporate corruption prevention. Preparing a sustainability report including information on corruption prevention and internal corporate ambitions helps an organisation to make this goal transparent and achievable.

However, only promoting anti-corruption goals through a 'top-down' approach within a company will not provide certainty that no corrupt activities occur. Certainty, and then still only relative certainty, can only be established by having complete control over one's assets. Therefore, the books and records must be correctly maintained and the management information systems, in particular concerning financial issues, must function properly.

As regards the efforts around the world to strengthen corporate governance, in particular in the US and the Netherlands, it has been noted that SOX and the Frijns Code require companies to be ' in control' of the accounting systems of their organisation in order to pursue good governance. The directors are required to express explicitly and in the annual report, that they are 'in control.' The ' in-control' statement can be seen as a ' signpost', where two paths converge:

(a)

the corporate governance route set out by the capital market actors and governments, which was primarily intended to enhance confidence in the capital markets and aimed at increasing (long-term) shareholder value, and

(b)

the anti-corruption movement commenced by NGOs such as Transparency International and others, predominantly based on ethical values and seeking to contribute to sustainable development, and since some years also joined by governments and international institutions such as the World Bank. Increasingly, the attention has been focussed on the role of private actors and how they can contribute to countering corruption.

In this chapter it has been argued that any one company or director cannot be 'in control' of the organisation if somewhere in that organisation one or more employees use company funds to pay bribes, thereby squandering company assets. By definition, such expenditures are not accounted for in the company books in a proper form. Consequently, the books and records do not reflect reality. Moreover, as recent history has demonstrated, corruption does not only occur in developing countries, Western companies such as Siemens, BAE and ABB have been among the accused. Furthermore, companies can no longer claim that they had no knowledge about unlawful business and government practices in foreign countries. For years Transparency International has prepared indices that reveal where corruption risks can be expected. There are also specialist accounting and consultant firms that can assist in carrying out due diligence investigations regarding the company's operations abroad or third parties with which the company is planning on doing business. Moreover, as stated above, many guidelines have been drafted for businesses on how to prevent corruption, and many in-house anti-corruption training programmes have been developed to assist companies in implementing corruption prevention programmes.

To conclude, without an anti-corruption programme having been implemented in the company's worldwide operations, a director of an internationally operating company can by no means attest to be in control of the financial systems of the company or of its assets and dealings, in the manner reflected in the COSO framework. This is the framework to which SOX, the SEC Rule on Internal Control, the FCPA, and the Frijns Code (the explanatory comments) refer either directly or indirectly. When a director has no knowledge of possible corrupt practices committed somewhere in the organisation, he cannot ascertain whether the financial statements reflect the true position and dealings of the company. However, even with an anti-corruption programme incorporated, there will be no certainty about avoiding corruption. However the directors will then have taken all reasonable steps in order to prevent corruption. Such a defence will then help them in any legal proceedings that may ensue. Being serious about corruption prevention will also contribute to the company's CSR profile and will save money otherwise spent on bribes. A next step for a company would be to join collective action initiatives in order to scale up good practices and to promote a value-based level playing field among businesses.

Deze functie is alleen te gebruiken als je bent ingelogd.