Ethics in the Construction Industry

Representatives from some of the world’s leading construction companies met at the House of Lords recently to participate in GoodCorporation’s debate on Ethics in the Construction Industry.

The debate began with a summary of the key ethical challenges that the industry faces. With the UK Bribery Act due to come into force in April, much of the discussion focussed on corruption and the implementation of Adequate Procedures and robust systems to ensure compliance with the new law.  But the debate also touched on labour standards, supply chain management as well as cover pricing and collusion in bidding.

When asked if construction companies were doing enough to meet the ethical challenges they face, the vast majority felt that the industry could do better.  A minority felt that the sector had a long way to go and somewhat tellingly perhaps, not one individual present felt that the sector was already doing enough.

On the subject of corruption it was agreed that this is a hugely problematic area for this industry.  A number of leading companies admitted that they have turned down business in certain countries due to the impossibility of working there without engaging in some form of corruption.  Yet in order to grow, businesses need to move into new countries in particular to access fast growing markets. Globally enforced anti-corruption legislation, therefore, could help business rather than hinder it by creating a level playing field and this was called for.

Some felt that it was possible to take a commercial decision to move into a potentially corrupt market, but it had to be done without compromising ethical standards which takes time and can be costly.  It was also suggested that unless companies with high ethical standards work in difficult environments to challenge their systems, then nothing will change.

The current pressure on the Ministry of Justice to delay the implementation of the Act, possibly by as much as two years, was discussed.   Some felt that much of the antipathy towards the Act amounted to scaremongering and was devoid of any common sense.  If we delay the Act, it was argued, it would imply that the UK thinks it is acceptable to pay bribes.  The Act should be put in force; any problems would be solved once it was in place; common sense and proportionality would prevail, in companies, in the courts and in the SFO.

Some were sceptical that common sense and the law made a good marriage, but agreed that the current focus on the Act encourages real project scrutiny and a thorough assessment of the way businesses work.

One concern that was raised about the Act was its likely impact on SMEs.  Large companies, it was felt, have the resources to develop and implement Adequate Procedures and are able to take advice on what to do.  Not only are SMEs unlikely to have the resources to prepare adequately, they are more likely therefore to find themselves on the wrong side of the law, becoming an easy target for an SFO prosecution.  It was suggested that as the UK is an SME economy this could be a problem for growth as smaller companies caught and prosecuted for breaking the law would go out of business.

Gifts and hospitality were also discussed.  Although part of the Act, it was not felt that this was what the Act was really about.  The world is changing and shareholders as well as prosecutors should be asking questions about how company money is spent. If the public sector can successfully oblige employees not to accept gifts of more than a certain level, why can’t the private sector apply the same rules? It was also suggested that businesses have a responsibility to ensure that their employees work in the right culture where undue favours are not sought or expected and any corporate gifts are modest.

Facilitation payments, however, do lie at the heart of the Act and are illegal.  Transparent payments to agents as part of a contract are permissible under the law and companies should have a clear understanding of this. Enforcement will be critical with regard to facilitation payments.  Will the SFO prosecute single instances or will it have to be endemic within a business to bring about prosecution? It was felt that more guidance on this area was still needed in order to protect employees properly. US companies at the debate felt that preparation for the FCPA stood them in good stead to cope with the requirements of the Bribery Act. But they did express some concern about how hard it is to really stamp out facilitation payments.

The debate also looked at the issue of supply chain management and how to deal with JV partners and other intermediaries. The need and extent of any due diligence was discussed in this regard. Some companies argued that the due diligence should be greatly increased as a result of the Act, but others felt that current screening activities would be adequate. The cost of due diligence was also debated, with some fearing that this could develop into an expensive exercise without really protecting the company from bribery.

However, certain steps can be taken.  Working with businesses with a properly implemented code of conduct is a start.  One company mentioned that not so long ago not one of its top 50 suppliers had a code of conduct or a compliance officer.  Today, 70 per cent do, so clearly the industry is striding forward but still has a way to go.

Embedding a code of conduct, it was agreed, was crucial to running an ethical business.  Ensuring that good policies cascade through a company determines how that company conducts its business.

Ethical values, just like safety and quality standards, need to be instilled throughout an organisation in order to enforce change.  Where ethical values are high, a business may lose out by refusing to work in certain parts of the world.  But it may also win business as a result of its reputation for high ethical standards.

To truly eradicate corruption, the industry needs to achieve systemic change by working with governments and trade bodies as part of a collaborative and collective process.

GoodCorporation Business Ethics Debate January 2011