Last year, I was proud to participate as an adviser in a project commissioned by the U.K. government’s Business Integrity Initiative and overseen by Business Fights Poverty, which has been established to provide practical support for companies to help prevent bribery and corruption when doing business overseas.
The project, designed to support integrity in small and medium sized enterprises, has given us deep insights into how corporate anticorruption efforts need to evolve — and enables us to make a strong case for fresh thinking from large multinationals.
The schizophrenic state of play in anticorruption efforts is highlighted in the research results: While 90 percent of the small and medium-sized companies with which we spoke consider doing business with integrity important for commercial success, fully 30 percent found that having a strong approach to integrity presents a disadvantage in winning business. Regulatory scrutiny is not viewed as the strongest argument for integrity — rather, smaller companies are well aware that it helps build trust and reputation, retain customers and access finance. Smaller companies also see that integrity risks are shared by businesses in the same value chain, and they are calling loudly for a more collective, collaborative approach to address them.
The single, overwhelming message from this research? Multinational companies need to take a more active role in influencing supplier integrity via procurement processes enforced across their value chains. Smaller companies need concrete help from their biggest customers.
Large multinationals could start by applying the thinking they have used to drive sustainability into their supply chains. As we at BSR work with first-tier suppliers to big brand-name multinationals, we are finding that increasingly stringent environmental and social mandates from customers are driving transformative change along the value chain. These large companies have adopted an engaged perspective that gives their suppliers the necessary time and guidance to bring programs up to scratch, while also making it clear that adoption of sustainability standards is a condition for retaining their business over the long term.
While these supply chain sustainability programs can be very effective, companies generally do not extend them to cover bribery and corruption issues — because of course legal liability is involved. When environmental and social “red flags” are identified, a large company is usually prepared to collaborate with a small supplier to drive improvement. In contrast, a company compliance team conducting due diligence regarding suppliers and distributors under the UK Bribery Act will simply terminate relationships in which it identifies red flags concerning integrity.
This is a logical response to the legal and reputational pressures facing large companies. However, if the end game is to reduce corruption in modern society (as opposed to helping corporations deflect legal liability), it is less than satisfactory. Companies that don’t treat workers properly and violate environmental standards are also highly likely to be paying bribes; these practices characterise a risk-taking, short-term culture. Indeed, such companies may be paying bribes to evade social or environmental regulations.
Our research shows that UK suppliers to large multinationals hunger for more support from their customers, and that customer demand can best incentivise stronger integrity programs. If large companies were to begin advising their suppliers on how to address integrity challenges and navigate regulatory risk, this could help transform the anticorruption environment.
A version of this post first appeared on the BSR blog and is respublished here with permission.
Alison Taylor, pictured above, is managing director of advisory services at BSR, a non-profit consultancy and company network focused on sustainability and CSR and a professor at Fordham Law School and the Gabelli Business School. She’s the author of the working paper, The Five Levels of an Ethical Culture. In addition to the FCPA Blog, she writes for the Harvard Business Review and for Quartz, among others. Her article, “5 Signs Your Organization Might Be Headed for an Ethics Scandal,” appeared in the December 18, 2017 of the Harvard Business Review. She can be contacted here.