The Reputational Risks of Corruption.
Updated: Jul 31
The Reputational Risks of Corruption
Corruption, perhaps more than anything, risks irreparably damaging a hard-earned reputation. While reputation risk due to corruption goes along with other risks (especially ESG risks), reputation damage typically arises when a company pretends to have proper anti-corruption measures in place and then gets caught in a corruption scandal it is ill-equipped to deal with.
The emergence of anti-corruption compliance
Citizens in countries across the globe continue to see business executives and politicians as corrupt. Corruption shakes the foundations of civil society, weakens trust in public institutions and destroys faith in democratic leadership.
Though corruption has been decried throughout history and across cultures, like other crimes, it has grown increasingly sophisticated over the last several decades with devastating effects on the well-being and dignity of countless innocent people.
Corruption and bribery, price-fixing, systemic financial manipulation, toxic spills and corporate misconduct have tragic and far-reaching consequences for individual victims and society at large.
Fines for corporate misconduct have reached astronomic levels which were unthinkable a handful of years ago. Individual managers and directors are now also being held accountable.
Boards of international companies and those looking to expand their global footprint face constantly shifting politics, economic, tax, regulatory and legal risks. They are being challenged to evaluate these risks in the context of ongoing operations and expansion. They are often faced with the additional challenge of needing to deal in real-time with the actions of foreign governments and their regulators who may be influenced by unethical motives, politics, culture, and value systems embedded in foreign markets but unknown to corporate headquarters. These require a proper set of policies, protocols and other mechanisms to identify and cope with these threats.
Is your board structured to accommodate the constant demands of your geographic presence, use the tools at its disposal and demonstrate vigilance leading to reliable oversight?
How does your board make informed decisions and assess the financial impact of these risks?
Who does your board rely on and how does it obtain truthful, independent, knowledgeable feedback through formal or informal channels when it cannot be onsite?
The most challenging aspect of anti-corruption compliance is ensuring that it is integrated into company operations and the overall business strategy. In the same way that security regulations are only effective if they are accepted, understood and implemented by all, anti-corruption procedures require employees to accept and appreciate their effectiveness in order to ensure appropriate implementation.
Although talented people with the best intentions design anti-corruption compliance procedures, they are up against audacious individuals who can be very creative at bypassing company rules. It is therefore necessary to question our way of addressing the issue on a regular basis. Compliance must evolve constantly to adapt to the ever-changing methods used by criminals.
Combating corruption and fraud is an endless battle and in order to keep up with global fraud trends, fraud deterrence must show determination and perseverance.