Surveys - International Business Attitudes to Corruption Survey 2015-2016

International Business Attitudes to Corruption Survey 2015-2016

The report is based on a survey of legal and compliance specialists in more than 800 companies worldwide.
The findings reinforce many long-standing conclusions about the global anti-corruption and compliance landscape. However, they also shine a new and, perhaps, unexpected light on other issues. Notable findings include:
• There is no question that corruption remains a major cost for honest companies: in our survey, 30% of
respondents said they believe they have lost deals to corrupt competitors.
• Tough extra-territorial, anti-corruption laws are seen to be a force for good. Where once they were held to be an unfair handicap to Western (particularly US) firms, hobbling their ability to compete on the international stage, now they are seen more positively. Most respondents believe such laws improve the business environment (81%), deter corrupt competitors (64%) and make it easier for good companies to operate in high-risk markets (55%). Strikingly, this view is held by companies based in tougher, emerging markets: good companies in more corrupt countries also welcome tough extra-territorial laws. Of the survey’s Nigeria-based respondents, 97% believe the laws improve the business environment, as do 87% of Mexicans, 80% of Brazilians, 80% of Indians and 79% of Indonesians. Why? From the conversations with Nigerian, Indonesian, Indian and Brazilian organisations, it is clear that any law levelling the competitive playing field is welcomed by good companies unhappy with the haphazard  enforcement of domestic legislation.
• For many international companies, compliance with anti-corruption laws has become a competitive advantage. One arresting finding is that companies from the countries with the toughest laws and the highest levels of international enforcement – the US, Germany and the UK – show a greater willingness to take risks than in previous Control Risks corruption surveys. Based on our conversations with clients, we believe that companies from these countries feel emboldened by the robust compliance programmes they have been forced to implement because of tougher laws. If that is the case, it comes with a major caveat: companies need to ensure that this willingness to take risks is not based on a false sense of security. The gap between the perceived protection a compliance programme brings and its actual mitigating effect is the biggest point of weakness for companies operating in high-risk markets.
• When it comes to compliance programmes themselves, third-party risk continues to be relatively unrecognised. This remains a critical vulnerability for many companies; just 58% have a procedure for integrity due diligence assessments of third parties and only 43% have third-party audit rights.
• In terms of M&As, external due diligence is the single most common source of information (27% of the time) that causes companies to pull out of deals because of corruption risk. Given how effective due diligence assessments are in identifying corruption risk, companies should consider starting them earlier in the M&A process, before letters of intent are signed and “deal momentum” becomes unstoppable.
• Although compliance programmes are crucial and the general trend is positive, reliance on a legalistic approach to compliance can be dangerous. Most respondents (51%) have conducted no internal corruption investigations in the past two years. This calls into question the effectiveness of internal audits, highlights the danger of waiting passively for a whistle to be blown, and perhaps suggests a culture of complacency in some organisations. There is certainly no “adequate procedures” defence for companies that fall foul of Chinese anti-corruption laws.
• Finally, and perhaps most importantly, companies need to set the right incentives for individuals. Respondents cited the fear of negative consequences as the penalty used most commonly to deter corrupt behaviour. On the list of eight deterrents to corruption, in lowly sixth place are company performance criteria that emphasise ethical behaviour (along with financial targets). So long as financial targets trump anti-corruption targets, shortcuts will be found. Moreover, a fancy compliance programme without leadership – or, crucially, clear support from senior managers – will fail.

Control Risks 2015-2016