25 August 2016 | By Neill Blundell Community

Bribery is not (just) a legal problem

Bribery is now understood to be bad for business. But why are so few companies walking the walk when it comes to practical action? 

For many years, it was conventional wisdom among certain British companies that paying bribes was an essential business tool in some markets. Using nods, winks and a variety of other facial tics, sales managers would assure colleagues that a local partner was “taking care of things”. By ignoring the risk and setting punishing sales targets for high risk markets, chief executives implicitly endorsed corrupt conduct.

That era is over for two main reasons. Firstly, the legal landscape has changed: it is a criminal offence for British businesses to pay bribes to anyone anywhere in the world. The UK Serious Fraud Office has numerous ongoing investigations – and many companies have already paid a high price for breaking the law at home and abroad. The individuals responsible have been sacked, barred from acting as directors, fined and even imprisoned.

Second, and perhaps more importantly, companies have realised that bribery is simply not good for business.

Eversheds interviewed 500 business leaders worldwide about their approach to business, bribery and corruption, and we summarised and analysed the findings in the “Beneath the Surface” report. One response was particularly striking: while almost everyone was agreed that bribery was a serious concern for international business, only 9 per cent of respondents thought of it as primarily a legal problem. More than 80 per cent were concerned about the negative impact that getting caught up in corruption might have on their reputation in the market and their commercial success, while 72 per cent of respondents had already rejected business opportunities (tenders, bids) because of bribery concerns.

Building on the consensus

The new consensus among international companies – that bribery is bad for business – is borne out by further research. Far from being a short-cut to success, the World Bank has discovered that companies that pay bribes often end up getting tangled up in unprofitable, slow-moving relationships with unreliable corrupt public officials. Research from the School of Oriental and African Studies shows that bribery has the effect of making business processes more convoluted, not more simple. And Harvard Business School found companies that are well prepared for anti-corruption experience higher profit margins and higher return on equity in risky developing markets.

These academic findings are consistent with the observations of Eversheds: in our experience of advising clients on identifying and resolving corruption concerns, it’s often the worst performing business units within a company that have been most prolific in distributing kickbacks.

It’s not all good news. Even if most companies have accepted the business case for anti-corruption, there is still much to be done in translating that into practical action. Most companies have anti-bribery policies in place, but many of them are defective: only 45 per cent of respondents to our survey thought their anti-bribery policy was appropriate for their business, and only half thought their policy had improved in the last five years. More worryingly, only 32 per cent actually understood their own policies – which is probably explained by the fact that a mere 12 per cent of business leaders thought they got enough useful anti-bribery training.

In my experience, effective anti-bribery systems don’t need to make your lives more difficult. The Bribery Act 2010 was never meant to prevent British companies from doing legitimate business. Eversheds advises dozens of UK and international clients on how to build their business in riskier markets like Turkey, Russia and even Iraq. The benefits of a strong commitment from top management and a nimble approach to anti-bribery are clear: a reduction in exposure to corrupt conduct, a reduced impact when problems do occur, and protection of hard-won reputations and positions on the market.

Read the full Eversheds report