A recent piece of research by Ernst & Young indicated that only half of British businesses ask their suppliers about their anti-bribery and corruption (AB&C) policies.
With the increase in legislation, public ethical expectation, and the spotlight on supply chains, it is now time for companies to take a more proactive approach and ensure that supplier AB&C performance is not an issue.
What is it?
AB&C refers to anything that involves the abuse of power for financial or non-financial gain. In the corporate world this could include bribery, bribe solicitation, extortion and misconduct around accounts and business records. In terms of supply chains, there are a number of risks that buying organisations need to be aware of. This includes suppliers who operate in certain geographical locations, administer facilitating payments, interact with public officials, have ineffective training and have a lack of relevant certification schemes.
What are the issues?
Companies that become involved in Anti-Bribery & Corruption allegations can be hit with a number of direct costs including fines and prosecution. For example, one recent multi-national case saw a market-leading organisation fined nearly $500 million after being found guilty of bribing doctors and hospitals in China. There are also a number of indirect costs associated with such allegations that can leave companies fighting for their place in the market. This includes a damaged public reputation, loss of investment and the outlay of significant time and money dealing with issues such as legal liability.
AB&C has long been an issue for companies to deal with so why the increased focus now?
Although organisations have always been aware of the risks that corruption presents, there are a number of reasons why the topic is receiving a lot of attention at the moment. Firstly, there has been a dramatic increase in the amount of legislation and voluntary frameworks for combating corruption in corporate entities, with the UK Bribery Act perhaps the most extensive. Classed as one of the toughest anti-corruption regulations in the world, the Act allows for the prosecution of an individual or company with any links to the UK, regardless of where the crime transpired. Other pieces of legislation and frameworks include the US Foreign Corrupt Practices Act, the UN Global Compact (primarily the tenth principle) and BS 10500:2011.
Secondly, there is a global trend of stock exchanges requiring more detailed disclosure of non-financial performance information. The FTSE4Good Index and JSE SRI are just two examples of exchanges that now have AB&C requirements in their inclusion criteria. With the Sustainable Stock Exchanges Initiative working to bring indexes from across the world in line with each other and promote the adoption of corporate governance practices, this trend is set to continue.
Thirdly, there is the significant change in public expectation. Consumers are no longer making decisions based solely on costs, with non-financial information such as AB&C now playing a key role in helping customers determine which product or service to purchase. With the explosion of market competition, companies are being forced to pay more attention to the risk of corruption within their organisational and operational boundaries.
In addition to this, there is currently an unprecedented spotlight on multiple supply chain topics, such as slavery, health and safety and labour practices. This increased awareness around the best practice of ethical business operations, coupled with the ease of data sharing due to technological advancements, has resulted in AB&C within supply chains being in the public eye like never before.
What information should suppliers be disclosing?
From a buyer’s perspective, organisations need to be aware of the risks within their supply chains and ensure that corrupt or unethical supplier operations do not impact their performance. This can be achieved through an effective due diligence process, including asking the right questions around: policies, communications, risk assessments, management systems and procedures. Responses should then be analysed allowing any risks to be identified and subsequently addressed. From a supplier’s perspective, disclosing this kind of information places them in a better position in the market, ensuring that buyers have full confidence in their business.
The business case for ensuring compliance
Both buyers and suppliers will experience a host of business benefits from being transparent and ensuring Anti-Bribery & Corruption compliance:
o Minimised direct and indirect costs
o Reduced legal risks
o Enhanced reputation, both privately and publicly
o Ensured and improved quality of product
o Strengthened brand image
o New business opportunities
o Lower legal, operational and strategic risk
o Customer confidence