April 7, 2003	Monday	Safar 4, 1424

In Turkey, the apartment buildings that collapsed during earthquakes are known as “bribe buildings.” In Africa, bridges dot the landscape with no roads to connect them.

There’s no doubt that corruption, endemic in emerging economies around the world, throws economic development into chaos. It affects decisions made by bureaucrats, degrades the quality of those in power, and discourages foreign investment. It’s also an increasingly hot business topic, with a growing number of influential business and political leaders from around the globe regularly pinpointing corruption as one of the greatest threats to global economic development.

Corruption and bribery have moved to the forefront in discussions about business. The list of countries that have been politically or economically crippled by corruption continues to grow, and businesses with long-term interests abroad will ultimately be harmed by any plans that include bribery.

A decade ago, corruption was not a proper subject for polite scholars or policy makers. Today, the creation of and comment on anti-corruption regimes is a growth industry.

Bribery, of course, is the most widespread form of corruption, and corporate strategies for dealing with bribe requests vary. According to Nichols, some companies opt to pay, sometimes damaging their public images and making it more difficult to refuse future requests. Others have the sheer bulk and revenues to successfully and consistently say “no.”

A key, is wiring this no-bribe ideal into a corporation’s culture, starting with a corporate code for managers and employees, affiliates and potential business partners. But coming to grips with what appears to be an international groundswell of corruption is far from a simple matter. Unravelling and explaining the mechanics of corruption is critical to helping the growing body of government and corporate organizations trying to fight it.

On a practical level, what does the upswing in international corruption mean to a company? The fact that a great number of government officials in a great number of countries, including some potentially large markets, seem to demand bribes is critical to any business that has a cross-border presence. Then there’s the reality that more than 20 nations, including the wealthiest and most-active trading nations, have made bribe paying illegal, and the fact that despite this there are still competitors who will pay bribes.

These facts combined make for some extremely difficult terrain. Officials expect you to pay bribes, some of your competitors will pay them, but you might go to jail if you do.

International businessmen and women say the number of countries in which they expect big bribe demands has risen staggeringly. A recent study by the Berlin-based Transparency International pegged 70 of 102 countries surveyed as likely places for executives to be hit up for bribes.The TI’s “Corruption Perception Index” incorporates data from surveys, polls and other ratings on the number of bribe requests perceived by business people who regularly conduct business in a given country. A score of 10 means people perceive that bribe requests are never made in a particular nation, while a zero indicates the perception that bribes are always requested.

In the 2002 index, Finland scored a 9.7, the United Kingdom came in at 8.7 and the US earned a 7.7. Pakistan stood at the 77th level in 2002 with a score of 2.6 (compared to 79th level with a score of 2.3 in 2001). With 70 of 102 countries scoring 5.0 or lower, however, the index shows that business people believe bribe requests are likely to be made in more than two-thirds of the nations examined. These countries include some of the world’s biggest: China, which scored 3.5; India, 2.7; Indonesia, 1.9; and Bangladesh had the lowest score of 1.2.

Two treaties governing the northern and western hemispheres will soon weave a comprehensive system of laws prohibiting the payment of bribes to foreign government officials.. Countries like Austria, Belgium, Canada, Germany, Japan, Korea and the UK are bound by the Organization for Economic Co-operation and Development (OECD) convention to criminalize transnational bribery. Three years ago the US alone criminalized paying bribes abroad. Today at least 20 countries have such laws and 14 more will soon enact them.

Once the public outcry against paying bribes becomes as loud as it is for environmental and globalization issues, the risk for corporations willing to pay bribes will rise significantly. Already the penalties can be severe. In the US they include incarceration, fines and disqualification from doing business with the US government. A French proposal would impose a 1 5-year prison sentence on certain types of transnational bribery. Even in Norway, which has the least punitive of the new laws, bribery of foreign government officials is punishable by a year in jail.

The risk of prosecution is quite real. Both direct government investigations and reports by competitors can bring a corporation under the spotlight. Competitors who wish to uphold high ethical standards have every motive to report another company for failing to do so. Corporations, must create a corporate culture that doggedly refuses bribe requests and establish clear corporate codes that employees unwaveringly adhere to. They must also assure managers that the company will back them when they refuse to pay. A company would be foolish not to develop two general strategies, one for dealing with bribe demands and another for dealing with competitors who offer bribes. The potential, in terms of criminal liability, skewed relationships, lost contracts, disqualification from government contracts, loss of reputation and so on is simply too great to ignore.

Perhaps the most useful action a business can take is to really understand corruption, and to create and articulate a general response to corruption before it encounters difficult situations. It’s also useful for businesses to work together to create assurances that each will adhere to some agreed level of behaviour.

Because bribery is illegal, it is conducted behind closed doors, with those involved expending time and resources to keep their secret. But those who have endured them often describe them as unhealthy, unstable and unenforceable. Firms’ reputations suffer when word ultimately leaks. Companies also face the very real possibility of being pushed to pay more and more bribes as their reputation as a bribe-payer spreads.

Lastly, there are international trade implications surrounding bribery. Bribery degrades markets. One economist finds a direct link between high levels of corruption and low levels of foreign direct investment. There are three likely reasons. First, corruption actually increases the amount of time a company must spend with a bureaucracy; second, corruption makes it more difficult to obtain information, which increases transaction costs, and third, corrupt relationships are less predictable and less enforceable. There’s probably a fourth reason too, which is that most business people are good people and have a distaste for endemically corrupt environments.

Corruption also drastically affects economic development by causing a misallocation of resources. Yes, Africa is littered with bridges instead of hospitals. But more damaging is the fact that in endemically corrupt systems, regular people are not getting served by the government; they don’t trust the government so they don’t interact with the government. But people have to get things done. So they create their own systems to do things, such as resolve disputes or enforce contacts or even police neighborhoods.

These systems, however, are not free. They cost money. So money goes to supporting the government system and money goes to supporting the shadow system; twice as much money goes to bureaucracies as it should. That means money is not going to increasing food production, or to health, or to enlarging the economy. And that stinks.