CORPORATE INTEGRITY: BEST PRACTICE FOR MULTINATIONALS OPERATING IN SIERRA LEONE
BY JOSEPH FITZGERALD KAMARA
Corporate Integrity is the degree to which a corporation adheres to a code of ethics and to established laws. Corporate integrity could also be viewed from a civic perspective, which means that corporations are seen as members of civil society, corporate members are seen as citizens and corporate decisions are guided by civic norms.
In the broader sense, corporate integrity encompasses the full range of good business practices commonly associated with corporate social responsibility. More narrowly, it reflects a commitment to abide by minimum legal requirements and norms of ethical business conduct. Organizations that act with integrity follow the law and ethical norms, they treat their employees, customers and business partners fairly and respectfully, they abide by their commitments, and they generally conduct their affairs in a socially responsible manner.
Corporate conduct today, whether good or bad makes a much greater footprint than ever before not only on human communities but also on the natural environment.
Furthermore, as corporations have become more powerful, the civic institutions that have upheld them in the past have developed the tendency to get weaker. Today, the overall direction of global corporation gives us a notion of what it must have been like travelling on the Titanic: to be slowly moving in the wrong direction but too big and powerful to change course.
One of the most efficacious recommendations for business practice for multinationals is Collective Action. The idea is simple – get companies working together with their competitors and other stakeholders to create decisions that are driven by economic considerations and not by corrupt transactions. Implementing this idea, however, is more difficult. How do we convince companies that it is in their interest to work with their competitors to eliminate bribery? How do we convince them that it makes economic sense to invest their individual resources to reduce bribery? What are the key components of Collective Action against corruption? What is the business case for it? Where should companies begin?
These are all interesting questions that we’ll attempt to answer. But before we get into corporate integrity best practice, it is useful to take a closer look at the different faces of corruption and how it affects the private sector not as a monolith – but as a complex web of companies with different priorities, resources, and perspectives. Doing so will help us set the ground work for understanding what corporate integrity is all about.
The term corruption can be simply defined as the abuse of entrusted power for private gain. The word can cover a whole range of abuses. On one level, it can refer to the risk of taxpayers’ money in Government’s projects being fraudulently spent or stolen. On another level it can refer to corruption within a country’s financial structure and institutions in the private sector, with the negative impact that this has on growth forecast.
In a business context, this can include false or misleading financial reporting, procurement fraud, embezzlement and especially bribery. Bribery in business is a universal problem, affecting companies of all countries, where companies are victims as well as perpetrators.
Corruption in Sierra Leone as elsewhere is a complex and multifaceted problem that cannot be solved by either governments or companies acting alone. Companies are a common source of corrupt funds, but they are also victims of extortion with a shared stake in reform. Small local businesses are especially vulnerable to extortionate demands by corrupt public officials, while larger domestic and global corporations that manage to control bribery in their own ranks must still worry about unfair competition from less ethical peers. Moreover, Sierra Leone can benefit from the expertise and resources that ethical businesses are able to bring to the fight against corruption.
In Sierra Leone this is a major challenge, with data on the control of corruption showing the country to be well below the sub-Saharan African average. A recent survey by the Global Barometer Report showed that over 80% of respondents have experienced paying a bribe within a twelve month period. Corruption is a crucial problem for all – companies, governments, and citizens alike. Over the past decade, the amount of attention devoted to corruption has grown exponentially. Yet, while the need for effective anti-corruption tools remains pressing.
The reality of the effects of corruption is the grave socio economic threats it poses to nations. Corruption suppresses economic growth by driving up costs, and undermines the sustainable management of the environment and natural resources. It breaches fundamental human rights, exacerbates poverty and increases inequality by diverting funds from health care, education and other essential services. The malignant effects of corruption are felt by billions of people everywhere. It is driven by and results in criminal activity, malfunctioning state institutions and weak governance.
Sierra Leone too faces the menace of corruption in all spheres of human activities. It is clearly the nation’s most formidable challenge and a threat to our future. The campaign against corruption is one in which we all have a direct and important stake. Corruption retards the pace of development and impedes developmental activities. Corrupt practices create hindrance in government’s efforts aimed at providing basic social services and alleviating poverty.
The question for resolution is how does the fight against corruption interplay within the panoply of corporate integrity within multinational operations?
It is often said that an ounce of prevention is worth a pound of cure and for business organizations, this is achieved through an effective internal program for preventing and detecting violations of law or for ethical standards.
In an anti-corruption context, corporate integrity means conducting business in a manner that avoids bribery and other corrupt acts that undermine the operation of and public confidence in the marketplace. First and foremost, businesses have a legal responsibility to follow the law in the countries in which they operate, which under the ACC framework extends to all forms of bribery – active and passive, public and private, domestic and international. Companies that engage in bribery risk public exposure, prosecution and sanctions that can significantly damage their interests, as well as have severe consequences for the personnel involved. Businesses also have a responsibility to act as good corporate citizens, which includes following the laws that apply to their operations.
There is increasing awareness among companies that fighting corruption makes good business sense. At the most basic level, corrupt payments are a tax on business, cutting into profits and return on investment. While difficult to calculate because of the hidden nature of corruption, estimates put this additional tax on doing business as high as 10 percent in some markets. Companies that refuse to bribe also must worry about losing business to less ethical competitors. Many now recognize the broader harm of corruption on business interests. Corruption makes it more difficult for governments to implement laws and policies which undermine trust in public institutions. Most importantly for multinational companies, corruption undercuts the rule of law on which their ability to do business and secure investments ultimately depends.
Embedding corporate integrity in business operations can also have more immediate and practical benefits. Better systems and controls to prevent corruption provide for more certainty and control over operations. They also help to protect an enterprise’s reputation-often its most valuable asset-with employees, customers, business partners and the public at large. Companies that have made a demonstrable commitment to corporate integrity find it easier to attract and retain good employees and to maintain high morale, and they also benefit in dealings with like-minded investors, customers and business partners. The comparative advantage from a good reputation for smaller businesses that work with global corporation can be especially valuable, as global corporation work to strengthen practices within their supply chains. Ethical suppliers are more reliable and also less likely to create legal or supply chain problems for a multinational customer.
Ensuring best practice in multinational company’s setup generally, involve a leadership commitment to ethical business practices, awareness training, anti-corruption policies and procedures, channels for seeking guidance and reporting concerns, and internal systems and controls to ensure that policies are being followed.
The implementation of a meaningful and effective anti-corruption program for business is primarily a private sector function and responsibility. Anti-corruption measures are an investment, and like other business investments, they must compete with other demands for scarce resources based on perceived risks and benefits. States can help to shape these corporate investment decisions through a combination of enforcement sanctions and good practice incentives.
Building a climate conductive for improved investment Countries suffering from violence, bribery and corruption face business risks that can significantly affect their commercial prospects and thus returns on investment. Certain companies operating in areas of political instability spend quite a chunk of investment portfolio meeting political risk insurance coverage. Therefore, a country’s compliance with transparency and accountability initiatives can therefore help to reassure foreign companies and investors that the government will observe recognized standards, thus enhancing business incentives to invest. In Sierra Leone today, we experience the entrance of multinational companies such as, London Mining Company, Cluff Gold Mining Company Addax, African Minerals, OCTEA, to name but a few as actors into the investment climate. Clearly, there is a seeming opportunity of stability and the Operation of the Rule of Law.
Accountability and Transparency Initiatives (ATIs) are increasingly promoted as effective ways to tackle government corruption and inefficiency. These are based on the premise that increased information flows from government enable greater civil society oversight. This helps make government more accountable to their citizens, leading to improvements in resource and revenue management and service delivery.
Accountability and Transparency has been high up on the international political agenda. It was a core element of the 2013 G18 Summit and continues to be a key part of other processes such as the Open Government Partnership (OGP), the Extractive Industries Transparency Initiative (EITI), Global Initiative for Fiscal Transparency (GIFT) and many more.
I will close with the words of Peter Drucker, when he commented on the importance of integrity: “the purpose of business Is not to make a profit, or create jobs, or benefit society, although all of these are necessary if the business is to be sustained. Instead, he said, “The purpose of a business is to create a customer.” So, to create a customer, the business must create something of value- a product, an experience, a relationship- which customers want or need to have. This thing of value, from which springs the brand promise, must sit at the heart of the corporation, and management earns its reputation by developing it and protecting it. The customer in this sense is the people, the Government and society as a whole.