Corruption, the abuse of entrusted power for private gain, is the single greatest obstacle to economic and social development around the world. It distorts markets, stifles economic growth, debases democracy and undermines the rule of law. It is estimated that the cost of corruption equals more than 5 percent of the global GDP (US$2.6 trillion), with over US $1 trillion paid in bribes each year. But isn’t corruption a problem for governments to solve?
Governments have been traditionally charged with the responsibility of addressing corruption, and have indeed made great strides in the area over the last few decades. However, while governmental initiatives are vital to continued progress, the private sector is becoming an increasingly important actor. Businesses can and must play a decisive role to address the supply side of the issue, putting to use their considerable resources, practical experience and front-line position.
Why should companies act against corruption, especially when they may operate in countries where, for example, paying bribes appears to be the norm? Increasing costs of corruption on doing business as well as legal risks and the damaging effects on corporate reputation, drive corporations around the world to join forces to tackle the issue.
Taking a stance against corruption helps companies eventually reduce the cost of doing business. Corruption currently adds up to 10 percent to the total cost of doing business globally, and up to 25 percent to the cost of procurement contracts in developing countries. Research shows that moving business from a country with a low level of corruption to a country with medium or high levels of corruption is found to be equivalent to a 20 percent tax on foreign business.
Furthermore, companies actively fighting corruption are likely to attract investments from ethically-oriented investors, and are also likely to attract and retain highly principled employees. In addition, these companies qualify for reduced legal sanctions in jurisdictions in certain countries, such as the U.S. and Italy. All in all, companies are increasingly recognizing that fighting corruption makes good business sense.
Recent corruption cases show that companies involved in corruption have had to pay hundreds of millions of USD in fines and penalties, have been barred from public bidding, and have faced huge reputational damage and criminal prosecution both at company and senior management levels. Such cases demonstrate that corruption is increasingly becoming a liability risk to companies and top executives.
However, even companies demonstrating anti-corruption leadership are facing challenges they cannot effectively solve on their own. Businesses taking collective action create a level playing field in their sector, can help improve public trust in business, and even have an influence over future laws and regulations. In contrast, businesses which operate in silos, often find themselves in distorted markets with increased levels of corruption and in danger of missing business opportunities. Also, they may have to deal with policy makers who respond by adopting tougher and more rigid laws and regulations – internationally, regionally and nationally.
The World Economic Forum launched the Partnering Against Corruption Initiative (PACI) in the 2004 Annual Meeting in Davos. It is a global anti-corruption initiative driven by the private sector. PACI offers a platform for companies to commit themselves to develop, implement and monitor their anti-corruption programs. It helps consolidate industry efforts in fighting corruption and shape the evolving regulatory framework. It currently counts over 140 signatory companies, representing a global annual turnover of over 800 billion USD, including industry leaders from multiple sectors and regions.
On an operational level, PACI offers signatory companies a number of benefits – for individual organizations, and for their industries as a whole. PACI presents a platform for mitigating corruption risks. It offers an unparalleled suite of tools and support mechanisms to help companies develop, implement, and continuously improve their compliance and anti-corruption systems. On an industry level, PACI gives companies the unique opportunity to informally and confidentially liaise with industry peers to jointly assess issues and identify possible industry-wide solutions. PACI also functions as an interface for businesses to interact with the public sector on the issue of corruption, and thereby influence the evolving regulatory framework.
Representing “the business voice against corruption,” PACI ensures that companies actively fighting corruption are recognized for their engagement. To become engaged in PACI, CEOs sign the PACI support statement, thereby committing to a zero-tolerance policy toward bribery and corruption, and agree to put in place an internal anti-corruption program that reflects the PACI Principles for Countering Bribery, without surpassing internationally accepted standards, nor resulting in additional liabilities for corporations.
Companies increasingly acknowledge the need for handling corruption risks in business, and the opportunities lost, when operating in an environment conducive to bribery. Some still hesitate to actively engage in the area, due to the sensitivity of the issue, and the risk of ending up in a competitive disadvantage in the short term. It is now time for businesses to demonstrate leadership in fighting corruption, and to work even closer with the public sector, to affect change and make a difference.
For more information, go to www.weforum.org/PACI.
