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Closing remarks
In any event it is clear that the independence of the voluntary sector should not
be jeopardised. If involved in company boards any representatives should
ensure that they keep their independence. This should not affect the ability to
scrutinise companies, nor the corporate sector generally, on social and ethical

Chapter summary
Sole traders remain personally liable for the debts of their business. Turnover,
profit and loss are not a matter of public record;
Partners in a partnership (firm) are each personally liable for the debts of the
partnership. Turnover, profit and loss are not a matter of public record. The
partners may or may not be treated as employees, according to their status
within the partnership;
Partnerships are an easy way to get started and may eventually lead to a
transfer of the business to a limited company;
Limited liability companies including public limited companies provide
limited liability for their shareholders, directors and officers. Ownership,
turnover, profit and loss are all a matter of public record as is the identity of
the board of directors;
Big business (requiring the employment of outside capital) tends to be con-
ducted through public limited companies. Private limited companies are
ideal for small businesses (including the ˜one man band™) as well as major
family owned businesses; and
At the end of the day, a well-tailored liability insurance policy will take care
of liabilities that arise when good and honest business practices and trusted
colleagues are not enough to prevent losses arising. It should be noted, never-
theless, that many of the trends in the business environment are creating
major ramifications for today™s insurance industry.

Useful web links
˜Internal Control: Guidance for Directors on the Combined Code™ and pro-
duced in September 1999 (available from www.icaew.co.uk).
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Overview of the Economic Aspects
of Business Risks
We cover the key emerging economic aspects of the risk; these currently
represent an average of 2% risk to market value of organisations. This risk level
will increase as research is completed. At present the main issues include:
Economic crime, bribery and corruption (Chapter 7);
Business interruption and disaster planning risk with crisis management
(Chapter 8);
Stakeholder and reputation risk management (Chapter 9);
Business, marketing and fraud (Chapter 10); and
New technology-related risks (Chapter 11).
Part B “ Overview of the Economic Aspects of Business Risks


Pressures and

A Sustainable Enterprise Risk Management System (SERM)
and Improved Competitive Performance

Economic Environmental
Performance Performance

Economic Social
Risk Management
Risk Management Risk Management

People and
Organisational Vision and Objectives

The net risk to market value from these issues is outlined in the pie chart below.
Economic Use of
Crime, Bribery Corporate
& Corruption, Power, 0.4%


Economic crime, bribery and
7 Economic crime, bribery and

Having considered the main forms of vehicle that are available in the UK,
particularly in terms of sustainable risk management, it is intended to
examine one of the key risks facing any organisation in this era of globali-
sation. This chapter therefore places the risk of economic crime as a prime
concern that requires careful management from the perspective of both
inside and outside the organisation. It is truly a global issue that crosses
borders as a result of the breakdown of technological barriers and it can
affect any type of organisation operating in any sector in any location.
Moreover it can impact an organisation in the context of:
* Specific transactions; or
* Ongoing operations.
Much of the international regulation governing economic crime is referred to
in the publication Due Diligence and Corporate Governance (Spedding,
2004/2005). Therefore it is intended here to set the scene having regard to the
risks involved in global trade and operations. In this chapter the main discus-
sion is based upon the consideration of case studies, with some emphasis on
activities involved in the development of trade between the UK and India, as
well as key trade concerns that should be borne in mind in this context. This
is an excellent case study when considering the SWOT analysis involved in
deciding to do business with and/or in a vital emerging jurisdiction.
We also consider the practical initiatives undertaken in London. At
the end of the chapter we provide a risk management section to illustrate
and make practical recommendations for steps that can be taken to reduce
your risk levels from these issues, having regard also to company codes.

Research on economic crime, bribery and corruption risks indicates that:
Bribery and corruption risks are an average of 0.3% of all organisations™
market value, and the estimates for economic crime are rising as new
research comes to light; and
This risk exposure has been reduced from 0.5% of market value by good risk
management techniques (the risk reduction/management factor).
Chapter 7 “ Economic crime, bribery and corruption 129

The chart below shows the economic risk categories by (net) risk to market
value for the top 500 companies in the EU and US.
Economic Use of
Crime, Bribery Corporate
& Corruption, Power, 0.4%



Chapter Economic and socio-economic risk Net (residual) Economic
number risk to value risk ranking

Chapter 7 Economic crime, bribery and corruption 0.3% 5th
Chapter 10 Use of corporate power 0.4% 1st
Chapter 10 Business practices 0.5% 2nd
Chapter 10 Marketing practices 0.4% 3rd
Chapter 11 New technology 0.4% 4th
Total 2.0%

The following graph shows the bribery and corruption risks, by sector.
Bribery & Corruption

Net (Residual) Risk


0.0% 0.5% 1.0% 1.5% 2.0%
Gross (Inherent) Risk
Part B “ Overview of the Economic Aspects of Business Risks

There may be some surprises in the findings of the high risk sectors. It is to
be remembered that this is ˜net™ risk and there may be sectors with very high
˜gross™ risk profiles but they are seen to be doing a lot more to improve their
record with regards to these issues than other sectors who may start with a
much lower ˜gross™ risk figures like the metal and pharmaceutical sectors. It is
clear to see that this is a key issue for the resource extraction industries where
their operations are usually in locations and of such a scale as to warrant par-
ticular attention.
While the oil and gas sector for some time has seemed to be directly and
indirectly addressing these types of risks ¦
Oil and mining sectors: George Soros has launched a more specific campaign
to clean up oil and mining companies™ impacts upon emerging markets
governments; and
Oil sector: BP is sacking over 200 people a year to root out economic crime,
bribery and corrupt practices or work conduct. Shell also suspends staff for
unacceptable work practices, following on from a crackdown last year when
they suspended seven staff globally for either soliciting or accepting bribes
(The Guardian, 19 June 2001);
¦ the defence industry seems to be in disarray after a range of global scandals.
There have been:
Growing concerns about the credibility of the defence acquisitions processes,
as the US Department of Defense reviews over $33bn worth of contracts in
the light of the Boeing scandal. The Pentagon talked about reopening the bid-
ding for the aircraft refuelling contract, which could mean the loss of a
US$21 billion deal;
The UK Ministry of Defence has had a strained relationship with their main
contractor after a range of stories came to light, including allegations of: giving
Pinochet money; BAE™s alleged secret vault in Geneva; a Serious Fraud Office
investigation into ˜suspected false accounting™ over gifts; and accusations of
staff blocking attempts to investigate allegations of fraud in contracts. This last
issue coincided with a 1.7% fall in share price on one day in 2004; and
The awarding of contracts in the reconstruction of Iraq and the prison abuse
scandal in Abu Ghraib has also raised a lot of issues concerning integrity.

Relevant definitions
Economic crime is a term used to describe:
Asset misappropriation;


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