Fear of enforcement and the consequential reputational fallout of an enforcement action are the top drivers for developing an anti-corruption compliance program, states a new report by the Organization for Economic Co-operation and Development (OECD).
The OECD report, “Corporate Anti-Corruption Compliance Drivers, Mechanisms, and Ideas for Change,” presented an analysis of why companies develop anti-corruption compliance programs, specific corruption risks they face, and what steps they can take to guard against these risks. It also explores what resources companies use to develop their anti-corruption compliance programs and the challenges faced in establishing them. The report incorporates interviews with 15 compliance professionals from multinational companies, providing further analysis into the results.
Among 130 respondents, most serve in a legal or compliance role at large multinational companies and come from a variety of industries, including healthcare, manufacturing, financial services, and energy. Twenty-eight countries were represented—mainly Europe (54 percent), followed by Latin America and the Caribbean (18 percent), and North America (16 percent). Nineteen of the respondents were from small- and medium-size enterprises (SMEs), defined in the OECD report to include companies with fewer than 250 employees or less than €50 million (U.S. $58.3 million) in annual turnover.
The publication of the OECD report comes at a challenging time, to put it mildly. “The ongoing pandemic has rapidly permeated every aspect of our lives, unsettling our democracies, our economies, and our societies. This has created conditions in which corruption can thrive,” said OECD Deputy Secretary-General Jeffrey Schlagenhauf during a Sept. 23 Webinar discussing the results of the report. “With companies under enormous financial pressure to recover, anti-corruption compliance departments and systems around the world are being put under a real stress test.”
“Yet, many corporations across the globe—notably, SMEs—continue to face challenges in implementing a compliance program that functions effectively in practice,” Schlagenhauf added. Among the 124 total respondents who said their companies have in place an anti-corruption compliance program, 89 percent indicated a desire to protect the company’s reputation was a “significant” or “very significant” factor, which strongly correlates with the 81 percent who indicated avoiding prosecution or other legal action was a “significant” or “very significant” factor in this decision.
“Where a company itself comes under investigation, it will almost certainly establish a compliance program to avoid similar incidents, obtain credit during sentencing, and to restore operations,” said France Chain, senior legal analyst with the OECD Anti-Corruption Division. “An interesting secondary factor is the bystander effect. Enforcement and reputational concerns can often arise when watching similarly situated companies facing investigations.”
Other respondents cited widespread anti-corruption investigations occurring around the world as another driving force behind implementing an anti-corruption compliance program. One compliance leader of a South American company, for example, commented in the OECD report how the Odebrecht case has been a “wake-up call for South and Latin America.”
“The problem is that compliance is seen as a cost center. The risk is that you see corruption as a potential threat, whereas the risk of losing business is a much more immediate and concrete threat.”
France Chain, Senior Legal Analyst, OECD Anti-Corruption Division
For other respondents, customers and investors played an influential role in their decision to establish an anti-corruption compliance program. “Pressure from the supply chain may be a particularly strong motivator in the case of SMEs, which may not fear enforcement of corruption offenses but do want to maintain business relationships with larger companies,” the OECD report stated. “Often, large companies that have already adopted an anti-corruption program may encourage—or even require—smaller companies with which they do business to adopt similar measures.”
Anecdotally, respondents discussed two other driving factors for adopting or strengthening anti-corruption compliance programs that weren’t seen in the survey results, Chain said. These included changes in local anti-corruption laws—such as Sapin II in France—and changes in business activities, such as a merger or acquisition in a high-risk region of the world following a risk assessment.
Another part of the report discussed the challenges of implementing an anti-corruption compliance program. Here, most respondents (59 percent) said the biggest hurdle was overcoming the “perception that a compliance program is not needed.” Generally, the attitude is that “corruption risks are often intangible until an incident occurs,” the OECD report stated.
This perception may vary by industry, however. As one respondent from the financial services industry commented, while everybody understands the importance of compliance, “’We still have employees who don’t understand the difference between compliance and internal audit.’”
Perceptions may also vary by region. As the OECD report noted, citing the views of another compliance officer, “anti-corruption compliance tends to be viewed as a U.S. issue, rather than ‘something that a local office needs to worry about.’”
While changing these perceptions starts at the top, 62 percent of respondents said a lack of executive commitment was either a “significant” or “very significant” challenge to effectively implementing an anti-corruption compliance program. “Often, you have to start by educating the organization’s leadership,” Chain said.
Even when the executive team is truly committed to anti-corruption compliance, management decisions must be trusted. Yet, 34 percent of respondents indicated a “lack of trust towards management’s decisions” also was a “significant” or “very significant” hurdle for companies in implementing an effective anti-corruption compliance program.
Inadequate resources were another challenge, both from a budget and personnel standpoint. Forty-nine percent cited inadequate financial resources, and 55 percent cited inadequate personnel resources, as a “significant” or “very significant” challenge.
“The problem is that compliance is seen as a cost center,” Chain said. “The risk is that you see corruption as a potential threat, whereas the risk of losing business is a much more immediate and concrete threat.”
Moreover, several interviewees said, “pressure to increase corporate profits is often fundamentally at odds with the importance of a compliance program,” according to the OECD report. One respondent cited bonuses inherently conflicting with ethics as an example.
Anti-corruption compliance best practices
During the Webinar, Chain shared several measures companies should take to enhance their anti-corruption compliance program, including:
A seat at the table. “Compliance needs a seat at the management table in the form of appropriate executive support and autonomy to function effectively,” Chain said.
An enterprise-wide compliance culture. There also needs to be in place a compliance culture that includes not only clear standards that are developed and applied consistently across the company, but also regular communication to demonstrate to all employees a sincere commitment to integrity.
On-the-ground compliance personnel. “A central team in headquarters can only do so much to enforce a global compliance program,” Chain said. You need to rely on local personnel on the ground who are well-positioned to recognize and deal with local risks, “who have built relationships of trust within and beyond the organization,” she said.
Compliance partnerships. Finally, engage in forums, conferences, and other events that allow for the exchange of best practices with other companies in related industries or geographies, Chain said. Consider opportunities for collective action. The OECD report further recommended larger companies “consider ways to share information about anti-corruption measures with their supply-chain partners, including SMEs, perhaps through convening regular roundtables or launching joint initiatives.”
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