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03 Mar. 2011 | Comments (0)

When boards and management discuss corruption, it’s usually in the prism of the Foreign Corrupt Practices Act (FCPA) or some other ethics-related law such as the recent United Kingdom Bribery Act. However, the United Nations is trying to change this mindset as it continues to implement it newest principle to its Global Compact.
[caption id="attachment_1038" align="alignright" width="256" caption="Ronald Berenbeim, Senior Fellow, The Conference Board"]Ronald Berenbeim, Senior Fellow, The Conference Board[/caption] The Tenth Principle, which was adopted in 2004, states that “businesses should work against corruption in all its forms, including extortion and bribery.” It defines corruption as “the abuse of entrusted power for private gain.” The UN Global Compact asks companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labor standards, the environment and anti-corruption.
In December during the UN’s celebration of the 62nd anniversary of the drafting of the Universal Declaration of Human Rights, Ron Berenbeim, senior fellow at The Conference Board, gave a speech [Read the full text here.] to the Global Compact Working Group on the link between human rights and anti-corruption. In that speech, he said the Global Compact message is that corruption violates both human rights categories: in political terms, such as freedom of speech and religion, and in terms of the governmental ability to provide minimal standards of security, welfare and education.
In a recent interview with me, Berenbeim cited preliminary results from a yet-to-be-released report that found corruption is the issue that has engaged the largest number of boards, but that much lower figures for human rights and sustainability may indicate boards do not yet accept the close link between those issues and corruption. Here is the conversation I had with Berenbeim: You recently gave a speech to the UN meeting of the Global Compact Working Group on the Tenth Principle against Corruption in which you argued that corruption is linked to human rights abuses. Why were asked to speak to this group?  I am a member of the Global Compact’s Tenth Principle Working Group. As we were meeting on December 10 which is the 62nd anniversary of the UN Universal Declaration of Human Rights, I suggested that we should have a panel on human rights.  What are the links between human rights and anti-corruption?  The connection has seldom been persuasively made. There are indexes on human rights and corruption perceptions that rank individual countries from first to last. There is significant overlap in the worst countries in both categories. This outcome is not surprising since those countries are failed states that don’t do anything right. Roads, water supply and electricity, not to mention representative institutions, are a mess. Rather than indexes, look at the way corruption operates on the ground. For example, personal safety and security is one of the enumerated rights in the Universal Declaration. If a company bribes a governmental official to obtain a contract to build a bridge, it will cut corners in building it. You don’t want to drive over that bridge. The Romans addressed that problem by making contractors sleep under the bridges that they built. We are still using those bridges.      How do you define corruption in today’s globalized business environment?  Bribery is payment to a state actor to obtain a benefit. Extortion, which is person to person or company to company bribery, is not in the same category, in part, because it is much more difficult to enforce prohibitions against it. You need to prove that the bribe recipient obtained money or emoluments in excess of a certain amount but the prosecution must also show that measurable damages to one or both of the parties occurred as a result. Some years ago, a buyer for a major retailer was shown to have accepted bribes that totaled in the seven figures but he was also named “buyer of the year” on more than one occasion so it could not be proven that the company had been damaged. He wound up in jail for the usual default reason. He did not report the income.  Do you believe the many multinational companies based in the U.S. and abroad understand corruption’s broad range of negative effects?  Yes, but global business practice in corrupt regions often involves joint ventures and such third parties as agents and suppliers. These local people often do business in the usual way. And to do otherwise will put them at a competitive disadvantage.  Can you share an example of a company understanding the effect of corruption on society?  As in the Bible, once discovered, miscreants can usually be counted on to do the right thing. The Siemens case may ultimately involve 300 people in a bribery scheme to win contracts in Russia and Nigeria. [Read April 2010 article here.] Siemens has responded by instituting a vigorous compliance regime. Also, pursuant to a settlement agreement with the World Bank, Siemens is now funding large scale anticorruption research and technical assistance. While many U.S. companies look at corruption from a compliance perspective, particularly with regard to the Foreign Corrupt Practices Act, what do you think it would take for them to see corruption’s broader ramifications?  Whether it is about corruption or something else, the ethics and compliance conversation has mistakenly focused on whether the company approach is compliance- or values-based. The focus on values trivializes the steps that need to be taken. Values are what you look for on President’s Day at a mall in New Jersey. The real issue is how successfully companies and Boards are designing, implementing, and monitoring effective systems and reconciling there processes and policies with well articulated principles that result from rigorous discussion. Research by The Conference Board [The Convergence of Principle- and Rule-Based Ethics Programs: An Emerging Global Trend?, March 2007 MEMBERSHIP REQUIRED]shows that a growing number of countries are offering incentives to companies to do this.  Explain the difference between company reliance on compliance systems and on well articulated principles?  Compliance systems are designed to deter, detect, and punish violations of law or company policy. In so doing, they institutionalize prudential decision-making. The Talmud calls this approach “building fences around the law.” Celebrate holidays worldwide for two days instead of one so that you can be sure that you have the right day wherever you are. Safe Harbors are a recognizable example of that rationale.   Well-articulated principles may be utilitarian in their insistence on outcomes that result in the greatest good for the greatest number. Or they can resolve the problem based on answering the question “to whom is a duty owed and for what?” A third analytic method determines the proper course of action based on the company’s vision of what kind of community it wants to be. If you try to work your way through a problem using all three of these methods, each one may prescribe a different course of action. Then you have to choose.  What’s your advice to public boards on dealing with the connection between corruption and human rights violations?  The Conference Board has conducted a survey on Ethics Issues and Programs – the Role of the Board and the report is scheduled for release at the end of the fiscal year. (So far 226 organizations have responded – including a few public sector and NGO operations). The 2004 report on this subject had 162 participants so there is greater interest in 2010-2011. Corruption is the issue that has engaged the largest number of boards but the much lower figures for human rights and sustainability may indicate that boards do not yet accept how closely related these problems may be.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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