Advancing Business Integrity as Social Responsibility Agenda
Corruption remains to be one the biggest global problems as it brings detrimental impacts to economic development and worsens poverty. Estimations from The World Bank and the World Economic Forum suggest that the loss of corruption is more than 5% of global GDP ($2.6tn) annually, and more than $1tn is paid in bribes annually. According to United Nations, various illegal acts such as cross border corruption, foreign bribery, tax evasion and related illegal financial flows cost developing countries of around US$1.26 trillion per year. In that sense, corruption clearly hampers development of a nation and prevents people from gaining the maximum benefit of economic growth. Many actors have been involved in corruption cases such as bureaucracy and government officials. The private sector, nevertheless, has also been part of the problem.
Crimes of corruption involving business are rampant and even increasingly put into spotlight. The recent bribery case of The Keppel Offshore and Marine (O & M) in Singapore and 1Malaysia Development Berhad (1MDB) corruption case signaled an alarming prevalent practice of business involvement in corruption. In Indonesia, data from Indonesia’s Corruption Eradication Commission (KPK) reveals that private sector is the most prosecuted actor. From 2004 to 2017, there are 183 people from private sector that were arrested by KPK for their involvement in bribery and corruption with executive and legislative institutions.
Just recently, an Indonesia’s minister, a parliament member and a businessman were named as suspects in a graft case related to the construction of a power plant project. The now-former minister is suspected of having misused his authority to arrange the project’s procurement process. Meanwhile, the parliament member is accused of having received bribes from a businessman who is a shareholder of a company that is also a member of a consortium selected for the power plant project.
These cases show that the cure for corruption by targeting government and law enforcers are no longer sufficient and call for greater involvement of businesses. Companies have to take actions by embracing higher and advanced level of business integrity and demonstrate it as part of their practice of being ethical and socially responsible. Social responsibility broadly means companies have to mitigate impacts of its activities and decisions, including during situations when being faced by possible bribery or corruption.
Enforcing integrity reflects key element of responsible business. ISO 26000 SR, an international guidance on social responsibility, suggests that to be a socially responsible, an organization must apply the seven principles as outlined in the standard: accountability, transparency, ethical behavior, respect for stakeholder interests, respect for the rule of law, respect for international norms of behavior, and respect for human rights. Ethical behavior principle states that organization’s behavior should be based on the ethics of honesty, equity, and integrity.
There are a number of reasons why companies should embrace stronger integrity as part of their social responsibility. Firstly, corruption is simply bad for business. Transparency International (2018) states that there is symbiotic relationship between market and firm performance. In highly corrupt settings, aggregate growth and firm performance is lower. The ASEAN Business Outlook Survey (2018) also found that US companies consider corruption and enforcement of laws and regulations to be among the biggest concerns across ASEAN. Corruption is a major obstacle for doing business and disincentives investors which prevents the flow of potential capital entering a country. Hence, to improve business climate and reap wider commercial benefits, it is vital for business to actively participate in addressing corruption.
Secondly, upholding business integrity practices serves as an avenue to preserve company’s reputation and perform risk management. Disregarding integrity and committing corrupt or dishonest practice can cause severe consequences for a firm’s reputation and performance. Finding from a Roper poll (in Thomas, et al, 2004) shows that where a company caught to have behaved unethically, 91% of people would consider using another provider, 85% would criticize the company’s actions to friends and family, 83% would reject in investing invest in the company’s stock, 80% would say no to working at the company and 76% would boycott the firm’s products or services. Allegations of bribery and corruption can tarnish a company’s reputation and take years to restore. Hence, implementing high level of business integrity can be an instrument to mitigate reputation damage and other harmful commercial risks for the company.
Thirdly, tackling corruption is important to achieving SDGs, especially Goal 16. Goal 16, focusing on peace, justice and strong institutions, represents a country’ commitment to combat corruption, improve transparency and fight unlawful financial transactions. Private sector has been hailed as one of key actors beside government and civil society organization to demonstrate its contribution in realizing SDGs. In that regard, increasing efforts in curbing corruption serves as a tangible way for companies to pursue Goal 16 of SDGs. If corruption remains, sustainable development goals will likely to be achieved. José Ugaz, Chair of Transparency International states that,
Given this background, it is imperative for business to embrace a more zealous anti-corruption commitment and bring it to another level by advancing its business integrity practice. To do this, integrity should be at the heart of companies’ social responsibility. There are a number of concrete actions that a company can undertake to actively address corruption through business integrity.
Firstly, it must strengthen its understanding that social responsibility is beyond charity or social program and essentially includes tangible efforts of undertaking anti-corruption measures. Preventing corruption by private sector can be done through strengthening business integrity by implementing effective corporate governance. This means ensuring that good corporate governance principles are in the vein of overall business operations and consistently implemented. Accountability and transparency are part of corporate governance and actually are not new terminologies in business lexicon since many corporate codes of conduct and policies have embedded such principles. Yet, corruption involving private sector still occurs, hence, this calls for greater improvement.
Secondly, enhancing business integrity can be implemented by adopting voluntary global initiatives and standard such as UN Global Compact and the Extractive Industries Transparency Initiative that promotes internalized anti-corruption program. In addition to this, companies can adopt ISO 37001 anti-bribery management systems for its daily business operations. ISO 37001 is an international standard that provides guidance for establishing, implementing, maintaining, reviewing and improving an-anti bribery management system. This management system helps an organization to prevent, detect, and address bribery and comply with anti-bribery laws and voluntary commitments applicable to its activities. By implementing ISO 37001, companies are able to reinforce its business integrity and bribery dealing with a more structured and systematic approach.
And lastly, improving company’s disclosure regarding policy, procedure and practice of anti-corruption can help promote business integrity. By making known their business integrity efforts, companies are held accountable and at the same time send messages to the stakeholders regarding their stance towards corruption. ASEAN CSR Network and Centre for Governance, Institutions and Organizations of National University of Singapore in their recent study of corporate disclosure on business integrity suggests that,
“Through disclosure, companies can make themselves accountable internally and externally, creating a robust mechanism that can guide companies to operate transparently, responsibly.”
Despite various global eradication efforts, corruption continues to exist. It takes two to tango, and cases have shown that companies are also often the side entangled with dishonest and corruption practices. If a company aims and is committed to be socially responsible, advancing business integrity should be undoubtedly a major agenda.
*Mardian is a Fellow of the ASEAN CSR Fellowship Programme 2018
