Eyes wide open

By Manny A. Alas, David Jansen, and Laura Laybourn

Bribery used to be thought of as necessary to doing business in certain markets. Now, at home and overseas, governments are undertaking corruption crackdowns—with serious consequences for both companies and executives. Yet there’s more at stake than just liability under the Foreign Corrupt Practices Act and other global laws. Partner Manny A. Alas, Principal David Jansen, and Director Laura Laybourn, anticorruption specialists in PwC’s Forensic Services practice, believe that how companies develop and implement their anticorruption strategies will be the key to seizing global opportunities.

Image: Example of innovatoin
What company leaders don’t know can hurt them. They are being held accountable even when they have no specific knowledge of the wrongdoing.

It’s a question that’s often asked: What are CEOs most concerned about? The company’s managers, shareholders, and suppliers probably run through this guessing game regularly. Not a day goes by when company leaders don’t assess their own short lists of unique opportunities and challenges. But there’s one serious risk that many may be overlooking: being unprepared for a new era of international anticorruption enforcement.

Doing business in emerging markets is the norm in today’s global economy, but the rules of engagement have changed significantly over the past few years. Governments around the world are taking tougher stances on corrupt business practices like bribery and money laundering. For example, in the United States, longstanding regulations that saw little play are now beginning to be applied. In Germany, renewed focus on anticorruption enforcement has sent shock waves throughout Europe.

While many companies have anticorruption compliance programs in place, the programs are often outdated or merely “paper” programs that are not effectively implemented throughout the company. Many organizations take reactive approaches to situations; that is, only when a problem or, say, an enforcement inquiry arises do they mobilize resources and begin to address potential corruption issues. Such an approach most often results in a necessarily increased investment of time and cost and also results in business disruption.

In a PwC survey of executives of multinational companies, more than 70 percent of respondents say a better understanding of corruption would help them compete more effectively, make better decisions, improve corporate social responsibility, and enter new markets.1 And almost 45 percent of respondents say they have not entered a specific market or pursued a particular opportunity because of corruption risks.

Triggers

Deploying corporate intelligence

Companies use corporate intelligence—the focused collection and analysis of information for delivering key insights to decision makers—to help them make more-informed business decisions regarding corruption and other risks in emerging markets. In the global economy, business leaders are finding corporate intelligence to be an essential tool in regard to many of their new and ongoing business opportunities, including:

  • Overseas operations
  • Sales to foreign governments
  • Business dealings with governments or state-owned enterprises
  • Mergers and acquisitions
  • Joint ventures and other investment opportunities
  • Suppliers or licensees
  • Import, export, and transport activities
  • Third-party agents, distributors, or consultants

On the surface, the global emphasis on anticorruption seems positive, creating a more level playing field for those doing business in emerging markets. But here’s the rub: What company leaders don’t know can hurt them. Company leaders are being held accountable—potentially sentenced to jail time, debarred from future business opportunities, fined, and subject to personal lawsuits—even when they have no specific knowledge of the wrongdoing by other company employees or third-party agents and distributors.

27% of those experiencing economic crime in the past 12 months encountered bribery and corruption, which was ranked third behind asset misappropriation and financial statement fraud, according to PwC’s 2009 Global Economic Crime Survey.

In one significant settlement in mid-2009 involving a consumer products company, one of the company’s subsidiaries was charged with paying bribes to customs officials. In the prosecution by the US Securities and Exchange Commission (SEC), not only was the parent company fined, but so were two of its corporate officers. The SEC alleged that the then chief operating officer and chief financial officer, as control persons, failed to adequately supervise management and other personnel who were directly responsible for the company’s books, records, and internal controls. Additionally, the company was named in a securities class-action lawsuit and is in negotiations to settle a multimillion-dollar lawsuit by its shareholders.


1 PwC, Confronting corruption: The business case for an effective anti-corruption programme, 2008.


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