Update Summer 2012

Welcome to the Summer Issue of Update.

Welcome to the Summer Issue of Update.

Once again, the subject of business ethics has dominated the headlines. The Libor scandal and subsequent resignations of senior Barclays executives illustrate how damaging unethical conduct can be.

When Bob Diamond resigned, George Osborne described it as “the first step towards a culture of responsibility”. So what is the second? Our blog outlines the GoodCorporation view.

The Bribery Act has also had an impact on corporate behaviour. When it became law last summer, it represented the first major change to UK anti-corruption legislation in over a century. Since it came on to the statute books it has been the focus of much management attention as businesses endeavour to ensure that adequate procedures are in place to prevent corruption.

In addition to hosting debates which have allowed businesses to share best practice and outline the challenges compliance has presented, we have also conducted some research into anti-corruption practices in the logistics sector. A staggering one in three leading logistics companies has no published anti-corruption policy and more than half make no statement on facilitation payments.

So far, despite the law making it easier for prosecutors, there have been few investigations by the Serious Fraud Office over this period. However, although businesses will be waiting to see how the re-organised SFO will operate, fear of prosecution is not the only driver here.

From our business ethics debates and the work that we have been doing with companies, we know that increasingly, operating an effective anti-corruption system has more to do with winning work, particularly from large corporates or the public sector, than staying out of jail.

This issue of Update takes a look at what businesses have been saying at our debates about meeting the requirements of the new law.

Michael Littlechild

GoodCorporation discusses third party due diligence at Business Ethics Debate

Twelve months on, it is due diligence that is proving to be the most challenging aspect of complying with the UK Bribery Act.

Hard though this is proving to be, businesses cannot afford to put it in the ‘too difficult’ box. In 2011, every US Foreign Corrupt Practices Act/Securities and Exchange Commission investigation (FCPA/SEC) involved the payment of bribes to third parties.

GoodCorporation’s March Business Ethics Debate looked at the issues involved in implementing a sound due diligence process and the problems some companies are facing in order to ensure that their practices and procedures would be deemed adequate.

For many companies, the definition of good due diligence remains unclear, creating confusion as to the lengths a company should go to in order to check the businesses with which they work. While some companies called for shared due diligence across sectors or some form of certification to avoid repetitive checking, it was noted that any form of certification or checking is only as good as those that carry it out.  As businesses are responsible for the activities of companies acting on their behalf, it really is essential that any information provided is double checked, particularly in high-risk areas.

This doesn’t mean that a collaborative approach should always be avoided. In some parts of the world, companiesindividually, collectively or on a pan-industry basis, should be working with governments and embassies to effect a change in culture. Having put the Bribery Act on the statute book, the government should be empowering its embassies to help UK businesses abide by the legislation when operating abroad.

To develop a truly effective due diligence system, businesses need to be clear who is responsible for the process and ensure that it is really being driven from the top of the organisation. It is also essential to make sure that the system is properly embedded with an effective speak-up process in place to act as an ongoing monitoring device.

Finally regular checks should be conducted, not just to ensure that the systems are working but also to verify that. having passed the selection test, there is evidence that good behaviour is meeting expectations.

Read the full summary of the debate.

The Bribery Act Twelve Months On

GoodCorporation’s Business Ethics debate on The Bribery Act twelve Months On invited companies to share their experiences and the challenges they have faced implementing the Act

Not surprisingly perhaps, the key areas up for discussion were gifts and hospitality, due diligence and facilitation payments.

Gifts and Hospitality

Prior to July 2011, much of the media opposition to the Act focused on the fear that its introduction would herald the end of the UK’s hospitality industry. This has not proved to be the case, nor has its implementation been as challenging as people expected.

There has been no significant change to policies in the UK as many firms already had limits in place, although some companies now ask guests to confirm that accepting the invitation adheres to their own company policy. The only hospitality that was called into question was that at the Olympics, with its hefty price tag placing it in the ‘excessive’ box for some companies (see full story in ‘In Brief’).

Due Diligence

Almost all businesses are finding due diligence a real challenge, as we had heard at our debate in March. Some companies are performing checks on tens of thousands of suppliers, while others remain unsure how best to tackle this and have no system in place.

Risk assessment is undoubtedly the key, enabling businesses to conduct the appropriate checks on the right suppliers.

GoodCorporation urges companies to look closely at the activity of suppliers to identify the opportunities for corruption. Suppliers should then be categorised according to risk and checked using questionnaires, audits, or research as appropriate, signing agreements and conducting training as an additional safety net, where possible.

Facilitation Payments

Although facilitation payments have never been allowed under UK law, the biggest problem for businesses is working out whether or not someone is paying them on your behalf. While a ‘miscellaneous expense’ is an obvious alarm bell, they are usually hidden far more subtly, built into the fee structure which makes them hard to identify.

Ensuring that a company’s own employees deal directly with public officials can help, but the policy on ‘tips’ should be clearly communicated. Where possible, work with organisations with a stated policy not to make such payments. In many parts of the world however, this is easier said than done.

The majority of companies felt that appropriate plans were in place, but there was still some way to go to ensure that they were properly implemented. Our full summary of the debate covers other areas that were raised including training, speak up, major bids and dealing with problem suppliers.