Rust never sleeps, so the saying goes. In the same way that the unchecked creep of oxidation can destroy the mightiest of structures, a failure to address the risk of corruption can erode trust in the most admired of organisations. Even highly respected firms have been caught up in bribery scandals in recent years. It’s almost as though, without constant vigilance both inside and outside an organisation, corruption will inevitably strike.
One of the most confounding aspects of this issue is that so much criminality has occurred despite the presence of anti-corruption legislation. For instance, the Bribery Act 2010 affects all firms with ties to the UK; the Foreign Corrupt Practices Act of 1977 covers any transaction processed in US dollars; and the EU’s fourth directive on money laundering, which came into force in 2015, also has far-reaching powers.
Companies need to realise that their policies and processes may still be helping to create “a whole crate of bad apples”, rather than enabling one bad apple to operate undetected long enough to cause serious harm. So says Peter Van Veen, director of Transparency International UK’s business integrity programme, who argues that attributing criminal acts to a lone rogue trader or a handful of conspirators “fails in many cases to take into account how a complicit management may be turning a blind eye. There may be obvious signs, such as the tolerance of unethical behaviour – for instance, the use of slush funds to get things done – as long as it’s profitable.”
Van Veen also highlights industry-wide systemic problems, citing the widespread falsification of inter-bank interest rates in the UK – a scandal that has been unfolding since 2008 – as evidence of a pervasive culture of tolerance for wrongdoing that needs to be corrected. “The incentives, which were usually short-term ones in this case, still encouraged widespread and long-term corruption,” he notes.
Van Veen, who has worked for Accenture, SABMiller, and Royal Dutch Shell, believes that most organisations would benefit from taking a deep, considered approach to corporate ethics.
“More and more companies are becoming keen to emulate role models such as Unilever,” he says. “Its chief executive [Paul Polman, HonFCMA] has said that doing the right thing is the best way to ensure that the company will be around for another 150 years.”
A firm’s ability to operate profitably and honestly, he says, boils down to the following questions that its management team needs to ask: “Is this a sustainable enterprise? Is our growth strategy viable in the long term? And is our business model adaptable to changing circumstances?”
Despite the progress achieved by businesses and other high-profile organisations in combating bribery, the rise of anonymous shell companies has not helped the cause, says Shauna Leven, director of anti-corruption campaigns at Global Witness, an NGO that highlights cases of natural resource exploitation, corruption, and human rights abuses around the world.
“In our 25 years of undertaking investigations, the one thing we see consistently is the use of anonymous corporate structures,” says Leven, an experienced lawyer who has worked as an adviser to the government of Liberia. “Even with increasing regulation to combat corruption and money-laundering, it’s so easy to skirt around it when you can still set up a company in a jurisdiction that allows for complete anonymity.”
The tax havens that have been willing to host these entities have come under some political pressure of late. Increasingly collaborative tax authorities, along with multinationals sensitive to the concerns of their wider stakeholders, are demanding that many such jurisdictions become more open about their dealings.
Another problem lies in the lack of resources devoted to law enforcement. For instance, the total budget of the UK’s Serious Fraud Office (£53.6 million in 2016-17) is dwarfed by the amount of illicit funds being pushed through financial hubs such as London’s Square Mile. The “global laundromat operation” money-laundering scandal is thought to have handled criminal proceeds worth up to £60 billion between 2010 and 2014.
Leven believes that the broad societal context of tackling corruption needs to be addressed by legislators.
“Deregulation and the growing use of deals such as deferred prosecution agreements are not incentivising companies to take compliance seriously,” she argues, referring to the lack of convictions secured against those responsible for the global financial crisis of 2007-08. “A cultural change is needed. An increase in regulation would help companies here. We need increased personal liability for senior managers for compliance failures, rather than just financial settlements funded by shareholders.”
Leven is also highly critical of co-ordinated corporate lobbying campaigns to oppose efforts to improve transparency. But she sees signs of overall progress.
“From our perspective at Global Witness, the pace of the trend towards greater transparency, supported by technologies such as blockchain, has increased,” she says. The UK has created a fully public registry of beneficial ownership information for companies listed or registered within its borders, Leven says, noting that about 20 countries are following its example. Singapore, for instance, recently announced the creation of a beneficial ownership database that will be accessible to law enforcement agencies.
Leven’s message is that it’s generally getting harder for corruption to go undetected and unpunished. Jurisdictions that refuse to act to improve corporate transparency are starting to look out of step with the rest of the world.
Living the business principles code at Unilever
Unilever launched its Code of Business Principles in 1995 and has 24 “Code Policies” spelling out appropriate behaviour. On its website the company explains its approach and how responsibility is distributed:
To succeed requires the highest standards of behaviour from all of us. We want our Code of Business Principles, related Code Policies and third party compliance programme to have a positive impact in day-to-day business: each one of us must uphold these at all times.
Compliance with these principles is an essential element in our business success. The Unilever Board is responsible for ensuring these principles are applied throughout Unilever.
The Chief Executive Officer is responsible for implementing these principles and is supported in this by the Global Code and Policy Committee, which is chaired by the Chief Legal Officer.
Day-to-day responsibility is delegated to all senior management of the geographies, categories, functions and operating companies. They are responsible for implementing these principles, supported by local Code Committees. Assurance of compliance is given and monitored each year. Compliance is subject to review by the Board supported by the Corporate Responsibility Committee and for financial and accounting issues the Audit Committee.
Any breaches of the Code must be reported. The Board of Unilever will not criticise management for any loss of business resulting from adherence to these principles and other mandatory policies. Provision has been made for employees to be able to report in confidence and no employee will suffer as a consequence of doing so.
The pharma industry’s preventive medicine
The global pharma industry is highly regulated by organisations ranging from trade bodies to government agencies, writes David Bloomfield, ACMA, CGMA, managing director of Apertum Solutions and former head of finance at AstraZeneca:
In the UK, for instance, the code of practice devised by a trade body representing more than 120 firms, the Association of the British Pharmaceutical Industry, sets standards governing how its members promote their medicines to health professionals. With the critical aim of maintaining public confidence in the sector, the code is designed to ensure that all firms covered by it operate in a responsible, ethical, and professional manner.
Key among several recent developments to improve transparency in the industry, a Europe-wide initiative has since 2015 required pharmaceutical companies to disclose details of fees and sponsorships that they have paid to healthcare organisations and professionals.
When it comes to setting and applying effective internal controls, a strong governance model and a cultural demand for high ethical standards are important norms expected of any business in this industry. You must never take your eye off the ball. Regular training and events and discussions are crucial in maintaining awareness throughout the organisation. It’s not only about presenting the rules; it’s also about sharing the context and principles behind these to help employees make the right judgements. As a manager at AstraZeneca, I had to create the right environment for this to happen. I needed to ensure that every member of my team was aware of all the ethical considerations – and that we could talk openly about these to identify any interpretations that might be needed.