Business in Partnership Against Corruption

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Business in Partnership Against Corruption

Miami, Tuesday, May 20, 2008
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Questions

• In your personal experience, have you known of
  instances of bribery affecting your organization
  or an organization you do business with?
• Yes No
• Imagine yourself working at an agency/organization
  operating in a high risk environment that
  decides to stand up against corruption. Do you
  think that your agency/organization can be
  successful in reducing corruption on its own?

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Our world is

• out of balance

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Our world is

• Global Gross Domestic Product (GDP)
• Year 2000
• 30 trillion 5 billion people 20 global GDP
• Year 2050
• 140 trillion 8 billion people 40 global GDP
  (assuming 3.5 growth)
• Population Growth

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Gender Distribution
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Data - Inequality

• The 2007 Human Development Report (HDR) from the
  United Nations Development Program shows that
• around 1 billion people living at the margins of
  survival on less than US1 a day
• 2.6 billion (40 percent of the worlds
  population) is living on less than US2 a day
• 20 of the population in the developed nations,
  consume 86 of the worlds goods
• In 1960, the 20 of the worlds people in the
  richest countries had 30 times the income of the
  poorest 20 in 1997, 74 times as much.

Source pictures United Nations World Water
Development Report
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Data - Malnutrition

• In a review of 80 countries, the United Nations
  Children's Fund (UNICEF) and the Micronutrient
  Initiative found that
• Mental development of 40 to 60 of infants
  between 6 and 24 months was impaired due to iron
  deficiency
• Compromised immune systems due to vitamin A
  deficiency was affecting 40 of the worlds
  under-fives and was leading to the deaths of
  approximately 1 million children each year
• Approximately 18 million babies are born with
  mental disabilities annually owing to iodine
  deficiency
• 60,000 young women die each year during
  pregnancy and childbirth as a result of severe
  iron deficiency anemia.

• Source pictures GAIN Website

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Diagram - Inequality
Source Inequality in Latin America and the
Caribbean Breaking with History? World Bank,
2003
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Data Water and Sanitation

• The 2006 United Nations Human Development Report
  shows that water problems affect half of
  humanity
• Some 1.1 billion people in developing countries
  have inadequate access to water, and 2.6 billion
  lack basic sanitation
• Access to piped water into the household averages
  about 85 for the wealthiest 20 of the
  population, compared with 25 for the poorest
  20
• 1.8 billion people who have access to a water
  source within 1 kilometer, but not in their house
  or yard, consume around 20 liters per day. In the
  United Kingdom the average person uses more than
  50 litres of water a day flushing toilets (where
  average daily water usage is about 150 liters a
  day. The highest average water use in the world
  is in the US, at 600 liters day.)
• Some 1.8 million child deaths each year as a
  result of diarrhea.

Source pictures United Nations World Water
Development Report
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Financial Flows to Developing Countries
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Data - Inequality

• Of the 100 largest economies in the world, 51
  are corporations only 49 are countries (based on
  a comparison of corporate sales and country
  GDPs)
• The top 200 corporations combined sales are 18
  times the size of the combined income of 24 of
  the total world population
• MNCs account for a quarter of global economic
  activity, they employ less than 1 of the worlds
  labor force, while one third of the worlds
  willing-to-work population is unemployed.

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Overview
Corruption Dilemma
Anti Corruption Solutions
Corruption Pressures
Companies

• In high risk environment
• How to ensure that partners and competitors are
  ethical?
• How to change culture of doing business?
• How to get competitors and stakeholders on board?

• Collective action can help to unlock corruption
  dilemma and create level playing field.
• Collective action creates incentives to avoid
  corruption.

• Corruption has negative impacts on governments,
  companies, civil societies, economies.
• Despite costs, some individuals/groups benefit
  from corruption.

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Map of corruption
PART I
According to World Bank Institute estimates, the
total volume of bribes paid annually is US 1
trillion

• which is nearly twice the gross domestic
  product (GDP) of Africa.

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Private sector side of corruption
Lack of transparency and accountability
Lower investment
Complex changing laws regulations
Weak enforcement of laws and regulations
Lower employment
Reduced competition, efficiency Innovation
Weak enforcement of laws and regulations
Cost of Corruption
Mistrust b/w within sectors
Loss of reputation
Resource misallocations
Higher costs of doing business
Low public sector wages
Lack of competition
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Corruption as a constraint to the private sector
Corruption adds as much as 25 to the cost of
public procurement" (UNGC)
Firms reporting constraints among top three
(percent)
31 of firms in Latin America have to pay bribes
to get things done - (WBG)
Source Current Survey. The question posed to
the firm was Select Among 14 constraints the
five most problematic factor for doing business
in your country
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Private sector NOT just a victim, but also source
of corruption
Elite Capture, Political Corruption and
Inequality of Influence View of the Firm,
Percentile Ranks, Higher is better
best
worse
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Cycle of corruption companies are both victims
and participants
PART II
Once corruption becomes widespread, it becomes
difficult for individual businesses to stand up
to the problem.
High risk environment
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Corruption dilemma How can an individual company
break the corruption cycle in a high risk
environment?

• In high risk environment
• How to ensure that partners and competitors are
  ethical?
• How to change culture of doing business?
• How to get competitors and stakeholders on
  board?

Few incentives to fight corruption
Lack of cooperation between stakeholders
Limited resources to counter corruption
No credible enforcement
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There are three main steps for companies to fight
corruption
PART III
Collective
External

• Assess risks
• Implement anti-corruption policies and compliance
  programs
• Provide guidance to managers

• Share internal policies, experiences, best
  practices and success stories

• Reach out to industry peers, suppliers and other
  stakeholders via neutral facilitators and
  initiate joint activities to fight and advocate
  against corruption

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In high risk environments internal and external
responses alone may not unlock the corruption
dilemma
Collective
External
Companies worry about corrupt competitors and
fear being at competitive disadvantage

• How to ensure that partners and competitors are
  ethical?
• How to change culture of doing business?
• How to get competitors and stakeholders on
  board?

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Unlocking the corruption dilemma
Central principles of collective action are to
Collective action...

• Strengthen corruption commitments between and
  among different stakeholders.
• Create incentives for stakeholders to avoid
  bribery and corruption in transactions and
  eliminate cheating on commitments by individual
  members.
• Create incentives to avoid corruption by
  individuals within companies and governments.

is a potential solution to the corruption
dilemma. It helps to make compliance the norm and
to isolate the guilty.
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Key characteristic of Collective Action is to
involve various stakeholders different types of
Collective Action exist

• Different types of Collective Action

Primary stakeholders of Collective Action
Integrity pact
Anti-corruption declaration

• Formal, written contract between customer and
  bidding companies
• Bidding and implementation processes monitored by
  external monitor
• Sanctions may apply in case of infringements

• All stakeholders are asked to sign declaration
  onanti-corruption principles
• Public commitment leads to enforcement 'by honor'

Project/ trans-action based agree-ment
Companies
Principle-basedinitiative
Certifying businesscoalition

• Ethical principles bind signatories to not engage
  in corruption in the daily business
• Public commitment leads to enforcement 'by honor'

• Compliance-relatedprerequisites for membership
• Adoption of membership requirements checked by
  external audits
• Members get certified or will be excluded

Long-term-initiative
XXXX ProjectName MM/YY FileName.ppt
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All stakeholders can benefit from anti-corruption
Collective Action

• Benefits of anti-corruption Collective Action
  from different stakeholders' perspective

Bidding companies
Customer

• Enhanced competition in bidding process most
  efficient, not best connected bidder wins bid1)
• Enhanced reputation
• Avoid time consuming lawsuits / blocking points
  after decision on supplier company
• Focus of business relationships on quality and
  reliability of goods and services

• Increased chance of fair selection as a supplier
  and enhanced access to markets
• Protection from legal penalties
• Saving of finances formerly paid as bribes
• Enhanced reputation
• Ensure employees and competitors behave ethically
  and responsibly

Government
Civil society and NGOs

• Incentives to be transparent
• Strengthened rule of law, increase credibility
  and political stability
• Higher investment levels from domestic and
  foreign investors
• Improve image of country
• Effective governance mechanisms and more
  effective procurement

• Improved access to essential resources, such as
  health care and education
• Increased trust and confidence in business
• Consistent and fair enforcement of regulations
• Social development if money / taxes are used for
  social projects instead of bribery
• Civil society part of government-business
  anti-corruption efforts

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Collective Action can be successful!
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• Examples of existing collective action initiatives

Project / transaction based agreement
Integrity pact
Anti-corruption declaration
Code of pharmaceutical marketing practices
Mexico suburban train
Berlin airport
Frankfurtwaste incinerator
Business pact for Integrity and against
corruption Brazil
EMB Bavarian construction industry
Long-term initiative
Business coalition
China business leaders forum
Business Ethics Pact Paraguay
Certifying business coalition
Principle-based initiative
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Results of selected collective action initiatives
IFPMA
PACI

BERLIN AIRPORT
EMB

• Creation of incentives to abstain from
  corruption
• Introduction of certification

• Development of sectoral code of conduct
• Introduction of compliant mechanism

• Introduction of transparent bidding procedures
• Suppliers have to adhere to anti corruption
  principles

• Raising awareness about corruption
• Company commitment to be solution to corruption
  problem

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Collective actions are not a panacea for
corruption challenges

• Common challenges of collective action initiative

Collective Action is difficult, it can fail.
Common challenges include
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Demand for guidance and tools

• Collective Action Initiatives
• Joint effort of Companies, NGOs and
  Multi-laterals
• 25 case studies, 50 country profiles, 15 industry
  profiles
• Implementation guidelines.

• Joint effort of
• World Bank Institute United Nations Global
  Compact Center for International Private
  Enterprise (US) Global Advice Networks
  (Denmark) Grant Thornton Siemens Transparency
  International USA and as a supporting partner
  InWEnt Capacity Building International (Germany)

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GUIDE FIGHTING CORRUPTION THROUGH COLLECTIVE
ACTION - A practical guide for business -
Find the right approachfor your situation
Benefit from various real life examples and
templates
Follow detailedprocess steps
Examples

• Classification and definition of Collective
  Action
• Decision trees

• Process steps
• Highlighted topics and issues to consider(e.g.
  anti-trust)

• Contract templates
• Profiles of initiatives
• Contact list

• Definition of corruption, dangers of corruption
• Overview on various ways to fight corruption

Basis
XXXX ProjectName MM/YY FileName.ppt
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Web Portal www.fightingcorruption.org
Tools for practitioners
Lessons learnt
Case studies
Country and Industry Profiles
Country and industry profiles
Events and workshops
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Three key questions for panel

• How can the private sector participate in
  collective actions and governance reforms to
  create a business environment with reduced risk
  of corruption?
• What are the biggest challenges in achieving and
  sustaining results through collective actions?
• How can key stakeholder, such as government
  officials, business, NGOs and international
  organizations, partner to more successfully
  promote transparency and accountability?

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Djordjija PetkoskiWorld Bank Institute

THANK YOU