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A case study: transparency certification of the private sector
As has been indicated above there has been research and other related practical
projects undertaken by respected organisations over ethical business practices
for a considerable period. For instance, the initiatives undertaken by Transparency
International (TI), which has for some time been working toward more open-
ness, accountability and ethical behaviour “ as well as transparency “ can
be considered as regards the debate over the suggested idea of ˜transparency

TI business principles
Transparency International and Social Accountability International have facili-
tated the initiative for the Business Principles for Countering Bribery. These
were developed in a partnership project undertaken with a Steering Committee
drawn from companies, academia, trade unions and other non-governmental
It is important to note that the Business Principles have been designed for
use by large, medium and small enterprises. It is understood that they apply to
bribery of public officials and to private-to-private transactions.
The purpose of the document is to provide practical guidance for:
Countering bribery;
Creating a level playing field; and
Providing a long-term business advantage.
Chapter 7 “ Economic crime, bribery and corruption 153

According to TI this offers an innovative and practical tool to which companies
can look for a comprehensive reference to good practice to counter bribery. The
hope is that the Business Principles will become an essential tool for businesses
and encourage them to consider using them as a starting point for developing
their own anti-bribery systems or as a benchmark. It is further understood that
the Business Principles have been aimed at a good practice level to attract the
widest possible acceptance. Moreover, as a ˜living document™, the Business
Principles are expected to evolve over time to reflect changes in anti-bribery
practice as well as the lessons learned from their use and application by busi-
ness according to TI.

The objectives and impacts of the TI project: a summary
It is useful to highlight the key objectives of the TI approach, which are to:

Promote a more ethical approach to business as a management tool;
Build mechanisms to promote organisational excellence and to improve cor-
porate ethics;
Discourage corrupt practices at private SMEs;
Improve relations between private enterprises and the interest groups they
work with in order to raise productivity and enhance the overall business
Raise the awareness of business people about ethical practices in management;
Encourage business to make concrete commitments to social responsibility
and the development of better ethical practices;
Promote the consideration of ethical principles in corporate decision mak-
ing; and
Develop management models for implementing more ethical practices.

This approach is very useful when considering and comparing initiatives and
projects of other leading bodies in this field, such as the IBE.

Ethics and comparative governance issues: the UK and
the US
In the UK ethical issues and governance generally in the profit and not-for-
profit sectors have been under scrutiny for some time. As with the commercial
sector, the voluntary sector is under pressure from all sides to consider a code
or framework to bridge the gap between law and good practice. As is explained
in other chapters, the Enron and WorldCom scandals and the subsequent Higgs
Review of the role of NEDs in the UK private sector gave the debate an air of
urgency (see also Chapter 21). Although the review considered corporate
boardrooms the ICSA has stated that the issues raised are also relevant to char-
ities. Clearly as regards ethical issues, whatever the sector, this should not entail
Part B “ Overview of the Economic Aspects of Business Risks

a box ticking exercise: there should be practical solutions as a result of a code
of practice that provides guidance on:
Best practice;
Recruitment; and
Professional development.
There should be a set of expectations in both sectors which effectively says
comply or explain. As has been discussed previously the corporate governance
debate in the United States has also spread from the for-profit to the not-for-
profit world. Indeed observers such as Eliot Spitzer, the Attorney General of
New York State, have suggested that the Sarbanes-Oxley Act should be applied
to non-profit boards.
As regards ethical behaviour there has been a proposal relating to the relief
from personal liability for trustees. Just as is the case as regards non-executive
directors, the matter of personal liability has discouraged many from being
trustees. The intention is that if a trustee acts honestly and reasonably they will
not be personally liable. Nevertheless, as mentioned in Chapter 6, the voluntary
sector is generally under pressure to improve governance and, in particular, the
role of trustees. There has been some debate regarding the need for a trustee
code of practice. This type of analogy is relevant to the whole debate of risk

Governance and CSR: an ethical business opportunity
for SMEs
As indicated above for most organisations the concern over economic crime
and fraudulent activities is becoming more and more relevant. However, prac-
tical arguments are still needed in order to engage the small business sector in
this debate in a truly meaningful manner that links the concepts of trans-
parency, openness and ethics with bottom-line issues that:
Go beyond the figures for business theft; and
Impact upon the behaviour of the organisation as a whole.
A clear example is in the area of corporate social responsibility (CSR) which
has attracted those businesses whose activities identify with CSR, such as the
recycling business, or where there are enlightened owners who have a particu-
lar interest. This can lead to more enlightened business practice throughout the
workforce and reduce the risk of economic crime.
For SMEs in fact, a procedure can be followed that not only can assist in
improving the ethical behaviour of the organisation but also adds value having
regard to its price/earnings (P/E) ratio. It is straightforward to establish the com-
pany earnings, and most executive teams will have a working estimate of the
value of their company. It is therefore relatively easy to estimate a P/E ratio,
which can be compared with similar companies that are publicly quoted as a
rough benchmark. Companies can similarly establish their relative CSR/CR
Chapter 7 “ Economic crime, bribery and corruption 155

position since the executive team will have a good understanding of what is
going on within the company. Benchmarking this against the competition may
not be easy, especially if little information is available publicly. However, a
quick comparison with one or two publicly listed companies within the sector,
who generally publish fuller accounts of their internal activities, will provide a
qualitative insight. For an SME this is all that is likely to be required in view of
the need to economise in resources.
As a matter of business practice and in order to see the benefits of
improved business behaviour it should also be mentioned that reporting, where
it is necessary for an SME, should follow the principle of ˜Minimum and
Adequate™, since deploying any more than the minimum level of resource on
this task may not be cost beneficial. This can change as confidence in the real
value of an ethical business policy grows.
For SMEs the supply chain pressures related to CSR/CR can also be very
relevant. Frequently SMEs are part of the supply chain to larger quoted com-
panies who themselves are seeking to align their suppliers with their CSR/CR
standards, policies and practices. For this reason SMEs are advised to use an
analysis of their cover of social, ethical and environmental matters and to
examine the CSR/CR position of their business-to-business customers, and
assess what the implications for the SME might be. It has been demonstrated
that those having a superior coverage of CSR/CR matters will generally have a
higher market value in comparison with others in their sector.

The opportunity for ethical business strategies
The opportunity for business ethics to demonstrate its practical “ even bottom-
line “ value and use is growing in this risk-laden economic climate. The
increased awareness of the public and stakeholders should again be mentioned
as major drivers for improved business openness and responsible corporate
citizenship. It has been argued by many commentators that:

Enhanced educational opportunities, coupled with the availability of world-
wide information at minimum cost, have provided the public with a greater
desire to be involved in decisions affecting their lives;
Governments and shareholder groups are demanding transparency and
accountability on the part of multinational corporations in particular (which
extends to the supply chain), given the potential high profile incidents that
poor corporate behaviour can lead to; and
Furthermore, campaigning groups are raising a variety of concerns with cor-
porations, which need to be addressed.

In the US, regulatory imperatives had also been driving change in business
practice in order to reduce corruption, well before the corporate scandals
referred to above (see also Chapter 22). By way of example, the promulgation of
the Federal Sentencing Guidelines (1991), together with the stringency of the
US Foreign Corrupt Practices Act (FCPA) (1977), provided a strong impetus to
Part B “ Overview of the Economic Aspects of Business Risks

corporate ethical programmes in the United States. The FCPA made it possible
to prosecute corrupt business people in their home country, as well as in the
jurisdiction where the offence took place (prior to the OECD convention).
Meanwhile calls for the accountability of issues “ other than financial “ have
been responded to through CSR programmes that have encouraged companies
and charities to become more proactive on such issues as human rights and the
environment. It is clear that opportunities for business ethics can be found in
the willingness of companies to adopt these CSR and ethical policies and
approaches that sustain respectable relations with their stakeholders.

Practical concerns
Despite the period over which this debate has been taking place there remains
the problem “ as with the environmental or health and safety policies in the
recent past and that can still exist “ that there can be a lack of integration of
ethics with corporate policy. Generally speaking, insufficient effort is being
made to familiarise employees and human resources as a whole with business
dilemmas and how to exert moral initiative. To be taken seriously, ethics within
the business place must be seen to be of significant value. In addition to bottom-
line arguments, therefore, this can only be achieved if employees recognise the
distinction between right and wrong and are given guidance in the matter. More
and more statistics demonstrate, for example, that economic crime commences
with dissatisfaction in the workforce. There again an appropriate company
code is important as a tool for sustainable business risk management
(see below).

Risk management
Senior people within a company should be responsible for enforcing company
policy; targets, integrity of processes and performance measurement should all
be in place. The following are examples of good risk management:

Have a company-wide code of conduct and adhere to it. Ensure it contains
elements forcing staff to disclose gifts above a nominal value and very clear
rules on the business rules of how to deal with suppliers, governments and
other stakeholders. There should then be enforcement of this plan and disci-
plinary action against non-adherents;
The end of the freebie: there needs to be an internal review of what is seen as
acceptable generosity and the darker world of bribery, inducement and cor-
ruption as the dividing barrier has become ever closer in the eyes of stake-
holders. An example is that the UK airport operator BAA even reviewed the
ending of its scheme to offer free airport parking for members of the European
parliament, House of Commons and Lords. This happened after shareholders
gained 17.3% of a vote to stop the practice, against the board™s recommenda-
tion for this practice to continue (Financial Times, 28 July 2004);
Chapter 7 “ Economic crime, bribery and corruption 157

Make provisions for internal fraud systems of investigation. Financial insti-
tutions have been bankrupted by internal systems failures; BCCI, Barings
Bank and others have experience severe losses:
The UK financial watchdog said companies must work harder to cut down
fraud as losses were close to £1bn in 2005, a trebling from the previous
year™s figures;
A UK banking employee was sentenced to two years in prison after
defrauding the bank of £280 000;
A UK postal worker was also jailed for six and a half years after gaining
£20m from a chequebook and credit card fraud; and
A large UK-based caterer admitted to spending over £5m on an internal
investigation into allegations that a subsidiary that feeds UN peacekeepers
had been involved in corrupt buying practices.
Working with anti-bribery agencies can pay dividends, as the Kenyan govern-
ment has found in their moves to clean up their country and make it a more
investment friendly zone;
Avoid paying bribes, apart from the obvious illegality in many nations and
damage to reputation when they surface, there is the practical side that once
started it is difficult to stop paying them; and
Strive for sound ethical standards in carrying out business activities and,
together with whistleblowing procedures, endeavour to create the climate in
which employees may voice genuinely held concerns about behaviour or
decisions which they perceive to be contrary to the terms or the spirit of the
policy. The intention is to install a philosophy whereby everyone seeks to
protect the business principles, reputation, values and therefore long-term
value in the organisation (see also Chapter 9).

Company codes
When considering risk management, regardless of the precise legal framework,
companies should put their own ethical position in order (see also Chapter 13).
Most company codes have expressly forbidden bribery since the OECD conven-
tion. For example, several years ago Rio Tinto published a statement of busi-
ness practice entitled ˜The Way We Work™, which stated that ˜the direct offer,
payment or soliciting of bribes is not permitted™. In terms of risk management
such codes can provide a form of protection: if it is generally known that
employees are forbidden to pay bribes they are less likely to receive demands.
However, SERM™s experience has shown that codes are not enough and atten-
tion is now focusing more on the issue of enforcement (see Chapters 21 and 22)
following so many corporate scandals.
As regards the vulnerability of management to corruption SERM has found
middle management can often be more exposed than senior management and


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