@Risk

Control Risks, an international business risk consultancy, recently published “Corruption, Compliance and Change; Responding to greater scrutiny in challenging times,” a 24-page report designed to provide insight into the complex world of fraud, bribery, and inconsistent governance that plagues developing and transition economies these days. The author, John Bray, an anti-corruption specialist based in Tokyo, introduces the report with a grim assessment of current regulatory models. Thanks to the global economic crisis,  it’s likely that companies will be tempted to take greater risks, and so “we can expect further spectacular cases of large-scale fraud and corruption,”  he writes. Meanwhile, calls for tighter regulation mean little if laws are not effectively and consistently enforced.

Can “good” companies survive in these high-risk environments? According to Bray, the answer to that question is “yes,” provided that: 1) their compliance controls are effective and fully integrated throughout the company hierarchy, and 2) their engagement strategies are grounded in integrity and honesty.

The first half of the report details a handful of recent landmark cases in the international corruption arena (Haliburton/KBR’s crimes involving contracts to build a natural gas plant in Nigeria, Siemens AG and a long list of bribery offenses, e.g.).  Then, the second half of the report takes a look at recent anti-corruption trends in three contrasting international markets: China, Nigeria, and the countries of Central and Southeast Europe. All of these countries are transitioning to a more market-oriented economic model, but as Bray repeatedly stresses, progress is slow and uneven. To illustrate the point, he recounts a survey Control Risks conducted among senior executives from 244 international companies operating in Central and Southeast Europe. Among the survey respondents:

• 18% said corruption was “very relevant” or “highly relevant” to their business.

• 33%  said that someone had tried to obtain a bribe (money or favors) from their company during the previous year.

• 31% felt that their company had failed to win a contract or gain new business because a competitor had paid a bribe during the past year –40% believed they had lost a contract for this reason in the past five years.

Despite these rather negative results, Bray is quick to add that  the survey also revealed grounds for cautious optimism. 47% of respondents “definitely agreed” and 38% “rather agreed” with the statement that  “it is possible to conduct business successfully without corruption” in their countries.

I’ll side with Bray and Control Risks on this: we have to bolster these optimists. Rather than avoid these high risk markets, companies can capitalize on opportunities there by using special care and modeling high standards of business engagement, ethics, and compliance.