Global industry faces ongoing uphill battle against corruption
AlixPartners’ annual anti-corruption survey finds that Russia and Africa pose biggest corruption risk for companies operating overseas.
(May 4, 2015) – AlixPartners, the global advisory firm, today released its 3rd Annual Anti-corruption Survey, in which 85% of respondents said that their industries are exposed to corruption risk, with 22% saying that they have lost business to competitors as a result of illicit payments to government officials. The survey included in-house legal counsel and compliance officers, representing more than 20 key sectors from eight major countries across North America, Europe, and Asia.
Significant Risk: Russia and Africa
When asked to identify territories that pose the greatest corruption risk, 75% of respondents cited Russia and 59% Africa, ahead of China (53%), Brazil (41%), and India (32%). Furthermore, when asked about anti-corruption laws in the countries in which they operate, 77% said they were ineffective in Russia, 75% said the same for Africa, and 69% for China. These scores contrasted strongly with the view of the anticorruption laws of Western Europe, the UK, and the US, for which the figures were 16%, 11%, and 10%, respectively.
Notwithstanding the high levels of concern and awareness indicated by the survey findings, it is notable that only 34% of respondents said their companies had avoided doing business in a region because of corruption issues. Where regions have been avoided, 27% of respondents cited Russia and 23% Africa. A further 62% of respondents said they believe it impossible to do business without corruption in Russia, with 53% holding the same view for Africa, and 40% for China.
Corruption: a Business Killer
As global companies increasingly look for cross-border expansion opportunities; 26% of respondents noted that their companies had either aborted an acquisition (14%) or delayed an acquisition (12%) in the face of corruption risk issues. Compounding this impact on both corporate and economic growth, a further 22% of respondents noted that they believed their company has actually lost business or customers as a result of a situation involving potential illicit payments by a competitor to a government official.
Harvey Kelly, Managing Director and Global Leader of AlixPartners’ Financial Advisory Services practice, said: “Just as global businesses must identify and adapt to the specific characteristics of every market, they also need to address the varied and evolving challenges posed by corruption at both country-specific and regional levels.”
In a sign that companies continue to embrace increasingly tight enforcement laws, 28% of respondents confirmed that they had ceased doing business with a partner or other counterparty due to concerns around corruption.
Anti-corruption Programs Matter…
Kelly commented, “Around the world, from the US to UK to China, regulatory bodies are aggressively enforcing their anti-corruption policies on domestic and multi-national corporations alike, visibly demonstrating the need for senior executive and Board-level involvement in this highly sensitive area for corporate reputation – and financial performance.”
Enforcement of the United States’ Foreign Corrupt Practices Act (“FCPA”) is starting to bite. 2014 witnessed a sharp rise in enforcement actions by the US Department of Justice (DoJ) and Securities Exchange Commission against corporate defendants and generated the second highest historical fines total (cUS$1.57 billion), with average corporate penalties reaching their highest-ever levels, including a DoJ’s prosecution which resulted in the largest FCPA-related criminal fine in history.
Fighting Corruption From Within
Faced with the challenges of managing global business across diverse markets, 81% of respondents stated that their firms have dedicated anti-corruption programs, or written anti-bribery and anti-corruption policies.
All companies with programs and policies confirmed that these are distributed to all employees, but notably, only 88% distribute them to their business partners and two percent admitted that their Boards of Directors were not included.
Nearly half of those surveyed (45%) stated that their programs had been in place for more than ten years, but nearly a quarter (22%) admitted that they had not been reviewed for more than a year. A further 48% of respondents admitted that their policies had not been subjected to the scrutiny of a third-party risk assessment during the prior year.
In assessing the most successful of their anti-corruption programs, respondents cited the top three factors in likely reducing corruption risk as being training (44%), compliance policies (42%) and internal audits (39%). Notably, the increased use of incentives (11%) was ranked lowest in potentially having any positive effect.
While these findings show that internal programs and measures seem to have been effective, respondents highlight the biggest challenges to addressing corruption risk as being variations of policies and procedures on a country-by-country basis, inadequate staff resources and a feeling that compliance is less than important than operating results.
Whistleblower programs remain a key tool in identifying and dealing with corruption risk. However, though 93% of respondents said their companies had processes in place for handling whistleblower reports, only 68% have established whistleblower hotlines, and of those, only 55% could confirm that the hotline was available to external third parties. Of those with hotlines, only 20% said that they had received bribery and corruption-related tip via the hotline over the prior year.
Fighting Corruption Outside
Anticorruption due diligence is an important and necessary aspect of compliance programs, particularly in relation to third parties, M&A transactions, and employees. Though a majority of companies surveyed reported being confident about their due diligence procedures (extremely confident 11%, very confident 44%, somewhat confident 39%), respondents cite the biggest limitations on due diligence as being access to information (54%), the large number of third parties that need to be reviewed (41%) as well as cost (37%).
Kelly concluded: “As with many business issues, corruption is a dynamic phenomenon – one that requires a watchful eye, a strong preventative strategy, and a rapid response. While no anticorruption program is bulletproof, that should not be an excuse for complacency. Companies that engage senior leadership and their Boards; that regularly review their anti-corruption programs with fresh eyes; that provide ongoing training; and that support and promote whistleblower programs have the greatest potential for mitigating the significant financial, operational, and reputational risks that corruption poses.”
About the 2015 AlixPartners Global Anticorruption Survey
The AlixPartners Global Anticorruption Survey was conducted in November 2014. It polled general counsel, compliance officers, and other related company executives about their companies’ anti-corruption efforts, compliance policies and at identifying and mitigating corruption risk. The survey group consisted of executives at international companies with annual revenues of $150 million or more in a broad range of industries based in North America, Europe and Asia.
AlixPartners is a leading global business advisory firm of results-oriented professionals who specialize in creating value and restoring performance. We thrive on our ability to make a difference in high-impact situations and to deliver sustainable, bottom-line results. The firm’s expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team, action-oriented approach to help corporate boards and management, law firms, investment banks, and investors to respond to crucial business issues. For more information, visit www.alixpartners.com.