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Conducting Business in Countries with Systemic Corruption

Feb. 16, 2016
Companies have the upper hand in saying they will not conduct business in an unethical manner explains Professor Marie-Therese Claes, of the Louvain School of Management in Belgium. "They have the power and they don’t seem to understand that.”

When setting up a manufacturing plant outside of the home market, most managers understand that adjustments will be necessary to account for cultural differences.

What many companies don’t have a handle on, however, is how to deal with countries where corruption dictates how business is done.

“American companies will say that there is corruption at a location, but truly corruption is systemic,” explains Marie-Therese Claes, professor at the Louvain School of Management in Belgium.  She leads the CEMS’ (The Global Alliance in Management Education) faculty group on culture. “What these companies are missing is that while local people need to comply with the corrupt practices, foreign companies do not. They do not have to play that game.”

"Foreign investors come into a country and forget that they have the power,” adds Claes. “These countries, which score high on the Corruption Index, are generally poor countries that need the investment. Therefore a company has the upper hand in saying they will not conduct business in this manner. They have the power and they don’t seem to understand that.”

Claes believes that the responsibility to end corrupt practices lies with the companies. If one company stands up to these corruption practices, others will.

She cites the example of ABB. "ABB fights corruption by only allowing business that is conducted with the highest standards of integrity and tolerates no less from our business partners," explains Hanna van der Put, Chief Integrity Officer, on the company’s website.

The company has a specific anti-bribery policy.

ABB prohibits bribery in all forms, whether direct or indirect, no matter what the amount, and employees are expected to act with the highest standards of integrity in all business dealings. Our integrity policies reflect the importance of individual accountability, oversight, integrity leadership, and transparency. Among these policies are the prohibition on paying facilitation payments, a rigorous zero-tolerance policy against any involvement in bribery or corruption, robust policies on gifts, entertainment, and expenses , charitable contributions and  representatives, and measures to ensure ethical supply chains. 

There are tools available for other companies to replicate ABB’s policy. Transparency International publishes guides on how to counter bribery and business integrity toolkit.

In addition to having specific policies, Claes says a company must conduct a great deal of research and truly understand all of the factors at play in a specific country. For example she cites the move many companies are making from China to the ASEAN market including countries like Thailand, Cambodia and Myanmar. She advises companies to look very closely at the conditions the workers are under and take into consideration all factors, not just the cost of labor. “If companies want to invest in this region, they have to know what’s going on,” says Claes. “They bear responsibility to understand how business is conducted in the ASEAN countries.”

Her views are supported by Transparency International, which produces a Corruption Perceptions Index. In April of 2015 the group called on ASEAN leaders to join together to urgently create a regional body, or ASEAN Integrity Community, to tackle corruption at the national and regional level.

“Southeast Asia is home to some of the richest, fastest-growing economies, as well as some of the planet’s poorest people,” said Natalia Soebagjo, chair of Transparency International Indonesia, when the group released a report in April on the ASEAN Integrity Community.

“Battling corruption is an integral part to sustainable growth and reducing income inequality. Regional cooperation coupled with civil society and business community involvement in the development of an ASEAN Integrity Community are essential elements to ensure an economic community has a positive impact on the daily lives of Southeast Asians.”

Claes is optimistic that the ASEAN community will address these issues. However she feels strongly that the opportunity for change lies with the companies. “Be aware of what you are doing. Have values in position, be strong and be courageous. It works.”

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