The following interview is with John Bray, Director (Analysis), Control Risks.
RB: John, thank you for joining me for this interview. As the main author of the Control Risks “International Business Attitudes to Corruption Survey 2015/2016” (download here), could you share some of your background and experience?
JB: I’m currently based in Singapore, but I work internationally and across commercial sectors: this year my most satisfying assignments have been in Iraq, Myanmar and India. Most of my work is with international companies, but I’ve also worked on projects with NGOs and multilateral agencies such as the World Bank, and value those different perspectives.
At an earlier stage in my career, I led what is now Control Risks’ Global Risk Analysis (GRA) team in London. My background in political risk continues to inform my view of the anti-corruption agenda. Commercial bribery isn’t simply a legal or a compliance issue: we need to take a broader political and social view in order to understand and tackle it.
RB: Well, first, I wanted to share that the Survey, and I read many, the first one where I have seen a significant attempt to deep dive into what this all looks like from the front-lines of international business. Congratulations, as I think this perspective is one which is desperately needed in the compliance discourse. So, my first question, is what do you see as the significant changes in your 2015/2016 Survey from earlier editions?
JB: Our first substantive International Business Attitudes to Corruption surveys were in 2002 and 2006. At first sight, the scale of the problem has scarcely diminished. In our most recent survey, 30% of respondents said that they had failed to win contracts where there was strong circumstantial evidence that the successful competitor had paid bribes. In 2002, the response to a similar question was that 27% of companies had lost business to corrupt competitors in the previous year, and 39% had suffered a similar fate within the previous five years.
However, there are some positive changes. Companies from countries with a strong enforcement record appear to be more – not less – willing to invest in high risk environments. For example, in our 2006 survey 38% of US companies said that they had been deterred from an otherwise attractive investment opportunity because of the risk of corruption. This year the figure was only 29%.
We think that this is because US companies have learned how to factor the US Foreign Corrupt Practices Act (FCPA) into their business calculations, and to turn it to their advantage. For example, integrity due diligence shouldn’t be seen as just a tick-box compliance requirement: you can make better decisions if you understand who your business partners really are.
RB: Richard Fenning, CEO, Control Risks, in the introduction, states “there is a dangerous gap between the perceived effectiveness of a (compliance) program and the reality on the ground.” Danger is a strong word, so what do you see as those greatest dangers?
JB: The biggest dangers are complacency and disconnect between head offices and frontline managers. This relates to the need to take a broad view of corruption rather than understanding it simply as a compliance problem that can be fixed through a few simple rules and powerpoint presentations.
RB: I am often asked if ‘Western’ anti-bribery laws put US and EU-based multinationals at a competitive disadvantage. It seems from your findings that extra-territorial anti-corruption laws have now moved from an “unfair handicap” to “making it easier for good companies to operate in high-risk markets.” The report finds that 81% “agree with the general proposition that international anti-corruption laws improve the business environment for everyone.” That seems to be a seismic as opposed to a subtle change. How do you think companies are making that a reality?
JB: One of the most striking findings of the survey was that this positive view of extra-territorial anti-corruption laws was shared by respondents working for local companies in high-risk countries. For example, as many as 97% of respondents in Nigeria agreed that the laws “improved the business environment for everyone” as did 87% in Mexico and 89% in Brazil and 80% in India. The implication is that the international laws made up for some of the deficiencies in their own environments.
However, the institutional anti-corruption agenda is still “work in progress” and a range of different actors need to play their part in reinforcing it. The most important contribution of individual companies stems from way that they themselves conduct business, setting the right example in their commercial operations.
This doesn’t mean that companies should carry the entire burden. We need governments to fulfil their own role in achieving a “level playing field” for good companies. If this isn’t happening, companies should say so – most likely through business associations and chambers of commerce.
RB: The Report states that “reliance on a legalistic approach to compliance can be dangerous” adding that “a legalistic approach to business integrity is not sufficient- and could even be counterproductive.“ Given the proliferation of legal contributions to the anti-bribery compliance discourse, this might seem counter-intuitive, so can you drill down as to the why?
JB: Good laws and good lawyers are essential, but the anti-corruption agenda doesn’t stop with them. The most important question is how to put good legal principles into practice. Finding solutions requires the participation and specialist skills of people from a range of different disciplines.
For example, in the construction and engineering sectors many of the greatest corruption risks lie at the project execution stage and not simply when companies are bidding for contracts. The potential for delays in execution is a major commercial risk, and companies are more vulnerable to demands for bribes from dishonest officials when they are racing for a deadline. However, if they are known to pay bribes, the quality, and safety of their projects will come into question. Lawyers can’t fix these kinds of problems on their own: you need engineers working within a common company culture that refuses to compromise either on legal matters or technical quality. The two go together.
RB: In the Report you highlight an incident in India where a facilitation payment was demanded. However, when the third-party supplier “stopped paying the bribes,” while there was short-term disruption, ultimately, the public official performed the service according to his responsibility. Do you think that Western organizations are too often “scared” to stand up to such small bribes, and embrace your “tough approach,” figuring they would rather “roll the dice” and make the payment?
JB: We favor a considered approach, not just a tough one. Sometimes demands for small bribes are truly part of the informal ‘system’. If that is the case, you need to understand how the system works – and who benefits – before tackling it. At a minimum, this typically includes being prepared to accept short-term delays, as in our case study, until the message gets across: “This company really isn’t going to pay, so there is no point in asking.”
All this requires hard work on the companies’ part. In our experience, more and more companies are prepared to make the effort. However, there are several factors that may make them slow to do so.
The first is the ‘disconnect’ that we discussed earlier. Senior management may not know – or may not wish to know – about the small payments. There may also be a perception that small bribes ‘don’t matter’, and we still hear that one just has to accept them because they are ‘part of the culture’. We don’t agree. If large Western companies pay small bribes they reinforce malpractice rather than acting as a positive agent for change.
RB: In your “Strategic Approach to Anti-Corruption: Five Recommendations” the first is to “Integrate Corruption Risk Into Strategic Planning.” When I speak to this issue, my own reflection is that if risk isn’t baked into strategic planning, then compliance is left with the unsavory task of “catching falling knives.” What’s your view?
JB: I like the expression, and of course I completely agree. To take a more positive view, though, companies do learn from painful experience. It’s easier to make the case for a strategic view to a company that has already had to go through the pain of cleaning up a major compliance lapse. Of course, it’s best to learn from other people’s experience rather than suffering it yourself.
RB: The second recommendation is “seek out low-risk opportunities in high-risk markets.” John, that’s brilliant, as we all too often hear of “all or none” when it comes to country risk. I was wondering if you think a ripple benefit might be longer-term engagement? In other words, if an organization establishes an ethical foothold in a country, even if relatively small, does that become a potential ‘ethical beacon’ as demonstrating to the various ministries (as well as to employees and consultants) that the organization is committed to ethics, sustainable business, and that “it can be done.”
JB: Yes, the ‘ethical foothold’ approach has several benefits. It demonstrates commitment to the country concerned; it makes it easier to build up the right contacts; and, if all goes well, it can lead to a gradual expansion that is all the more secure because it is based on a considered approach to risk, and not a snap business decision.
All this is easier to say than to put into practice. Over the years, Myanmar is one of the countries that I’ve followed particularly closely, and I’ve been working there again this year. I’m fully convinced of the positive role that responsible business has to play in building up the country, but it takes time to generate the supporting government institutions that companies need. There are no short-cuts.
Finally, let’s talk incentives. You state, “senior managers may need to accept a short-term reduction in sales targets following a tightening of anti-corruption policies.” A colleague of mine once shared that he said to his manager, that due to the reasons that you just addressed, that he wanted to talk about a revenue adjustment as calibrated to the regional risk model. The manager responded, “we are a public company, we don’t do sales reductions.” John, from my perspective, that’s where this whole enterprise “hits the crossroads” as Scott Killingsworth shares. Do you REALLY think that organizations are willing to make those adjustments in the face of corruption reality, and recalibrate their forecasts and revenues to bake in that risk?
JB: Yes, I do. Obviously, not all organizations are prepared to recalibrate as you suggest, but many are. This is the kind of test that decides whether a company is first- or second-rate, and whether it is far-sighted enough to be successful over the long term.
It may be easier to make my case by thinking of other words such as ‘quality’. I’ve recently been working for a company that shut down production in a key factory for ten days while it fixed a problem with quality. It probably didn’t ‘need’ to do this – there had been no external complaints – and of course, it has taken a hit in short-term sales. I’m impressed. I see the same commitment to quality as extending to other areas, including compliance. If you take a long-term view, you shouldn’t compromise on any of them. I am confident that this approach pays off, commercially as well as ethically.
RB: Well, thank you for your time. Is there anything you would like to add, and how can people get in touch with you?
JB: I’d like to end on a hopeful note. International business corruption is a highly complex political, social and legal problem. This is what makes it so fascinating to work in this area. However, it can be tackled. Sometimes there will be major advances, perhaps from a new piece of legislation or a government reform. However, in our own experience, positive changes are more likely to be incremental, the result of hard work by specific individuals and companies tackling particular problems with ingenuity and integrity. I am convinced that both the smaller and the larger battles can be won.
I can be contacted on my company e-mail: John.Bray@controlrisks.com