Matt Crossman of our ethical research team was a speaker at the latest meeting of the UN Global Compact (UNGC) anti-corruption working group, forming part of the first UN Global Compact in Copenhagen between 16-20 May.
 
How global businesses address the issue of bribery and corruption in their supply chains is a very serious issue. Many companies have chosen to sign up to the ten principles of the UN Global Compact, a general set of responsible business aspirations which include the statement that signatories should "work against corruption in all its forms, including extortion and bribery".
Incidences of bribery and corruption can undermine competitiveness and divert scarce resources from those who need them the most. This is especially true when companies operate in developing countries. According to the UK’s serious fraud office (which heads up the UK government’s response to corruption):

"Bribery and corruption impacts upon the poor and vulnerable people in developing countries, it undermines public services and has an economic impact, increasing the costs of doing business whether the corruption is overseas or domestic."

Responsible investors would not wish to be implicated in this kind of harmful activity, but must recognise that identifying the problem is just the first step. Efforts to combat corruption globally must be undertaken by national governments and be effected through international law. However, the UNGC has recognised the key role companies and investors can have in providing incentives for positive change in this regard.

Matt addressed this international gathering in order to give an update on investors’ expectations of responsible companies in this field. As part of Rathbones’ membership of the UN PRI, we have been participating in a project aiming to target laggards in this area, writing to a list of major companies which were identified in the UNGC’s annual report on progress as having weak policies on bribery and corruption. This project has resulted in several important developments within companies, as they are encouraged by the investment community to take steps to address corruption. The key message is that change can be achieved when the goals of governments, companies and investors are communicated and aligned.

Matt also provided an update on implementation of the Bribery Act in the UK – a significant new piece of legislation which will create specific offences in UK law applying to UK based companies. Proposed by the outgoing Labour administration, the Act has had a bumpy ride through Parliament. Though implementation guidance issued by the Coalition government appears to have slightly weakened its provisions, it remains a robust tool for addressing corrupt transactions in the supply chain. How much resource will be invested in enforcement of the new rules remains to be seen.
Finally, his presentation discussed the murky world of ‘facilitation payments’ – technically corrupt yet financially insignificant payments to ease administration of goods or services. There is a strong message form the companies that they are often forced by circumstance into paying these charges. For example, a global company may have £100,000 worth of goods impounded on import into a country, where a port official may ask for a £50 fee to process the goods. Unless all companies refuse to pay such charges, the company would be left at a disadvantage. The companies also distinguish between this situation – having to make a payment to get at what is rightfully theirs – versus corrupt practices and behaviours embarked on in order to gain an un-earned advantage – for example, bribing a politician to gain a lucrative contract, despite not being the best fit for the job. The best companies recognise these realities, but are committed to working through trade associations and other peer networks in order to drive their occurrences down. Interestingly, the UN reluctantly makes facilitation payments in certain countries where it could not get access any other way.

As the debate continued throughout the day, several important points emerged. Firstly, poverty is not just a result of bribery and corruption, but a cause of it. Underpaid officials with financial and domestic pressures are more likely to seek rents for provision of public services. It was suggested that more could be done to ensure that public officials are well remunerated in order to combat this, in conjunction with improved transparency on payments by companies. Secondly, transparency in itself is not enough; there must also be some element of sanction or enforcement. Hence moves to promote the publishing of revenue streams from high risk sectors such as mining through the Extractives Industries Transparency Initiative (EITI) are important in cajoling the industry into better performance; but there must be sticks as well as carrots, and hence legislation such as the UK Bribery Act is to be welcomed.
Assessing the management of the risk of bribery and corruption in a company forms part of our human rights and governance analysis of companies. The risk is concentrated on certain industries and geographies – hence we expect more of a global company with operations in weak governance zones than those focused on areas with higher standards. We are looking for those companies which have clearly assessed their risks and have implemented systems to deal with them.