CIPE Hosts USAID Community of Practice Event: Reducing Private Sector Corruption Through Development Projects

Thailand’s Coalition Against Corruption is a successful example of private-sector-led collective action.

How do you convince skeptical anti-corruption activists that business can be part of the solution? How do you better coordinate anti-corruption efforts between governments, aid organizations, development banks, and the private sector? How do you establish a useful set of indicators for measuring the impact of programs seeking to reduce corrupt practices?

These challenges were among the many discussed by development practitioners on the International Anti-Corruption Day as part of the third Community of Practice event organized by the Governance and Rule of Law Team at USAID’s Center of Excellence on Democracy, Human Rights, & Governance.  CIPE hosted the event, and presented on its value chain anti-corruption program, which seeks to improve anti-corruption compliance among mid-sized firms in emerging markets and help them join global value chains.  CIPE presented two country case studies – Thailand and Russia.

CIPE Regional Director for Asia John Morrell discussed CIPE’s work in Thailand with the Institute of Directors (IOD). Morell described how CIPE assisted the IOD in expanding its focus on sound corporate governance to include anti-corruption.  Working with the IOD, CIPE created an integrity pledge that interested companies sign. The next step in institutionalizing anti-corruption within the Thai business community is a training and certification process where companies commit to specific compliance measures they need to adopt. The certification includes a third-party audit (as a part of the routine financial audit) that validates whether or not businesses in fact implemented these commitments.

Although integrity pacts focusing on individual transactions have been a popular anti-corruption tool in the region, CIPE suggested that IOD consider other forms of collective action that would make it more accessible to a larger group of companies and apply integrity principles more broadly to how businesses operate.  Since its inception, the Thai Collective Action Coalition, coordinated by CIPE and IOD, has grown to include over 500 companies – both Thai and multinational – generating a snowball effect. The Thai project represents a successful model for how the private sector can lead in a systemic approach to reducing corruption.

Director of Multiregional Programs Anna Kompanek presented CIPE’s work with 45 regional chambers of commerce in Russia. In spite of the corrupt environment, Russia remains a profitable market for multinationals, raising serious compliance concerns. CIPE’s approach in Russia was to train compliance consultants who would then work in the chambers of commerce and provide low-cost advice. The chambers are now actively working in this area, providing services such as hotline hosting, model policies and procedures, and compliance education and training based on international best practices summarized in CIPE’s Anti-Corruption Compliance: A guide for Mid-Sized Companies in Emerging Markets. CIPE recently left Russia because of the worsening political situation in the country.   Encouragingly, though, the chambers of commerce are moving forward with the compliance efforts even without continued support from CIPE. Their motivation is two-fold: to fulfill the government’s mandate for anti-corruption compliance programs, and to make compliance a sustainable fee-based service for chamber members and other local companies.

Finally, CIPE Evaluation Officer Denise Baer offered some approaches to measuring the effectiveness of anti-corruption programs and led a discussion on indicators that organizations working in this space are using.  Baer notes that it is challenge to devise valid and reliable indicators for anti-corruption work. Perception indicators have an “eye of the beholder” problem and are often lagging rather than leading indicators, while direct indicators (e.g., number of corruption-related arrests) are incomplete and proxy indicators (e.g., level of trust in government are difficult to validate.  Based on CIPE’s approach to measuring systemic change and its model of focusing on institutional reforms, Baer stressed that similar to democracy indicators, corruption is a difficult thing to measure. “Corruption is embedded in a society, in its culture,” Baer remarked. However, change is possible. Measures that emphasize change drivers as well as project-based outputs (e.g., strength of a compliance program), outcomes (e.g., proportion of GDP generated by companies with compliance programs) and impact (e.g., economic growth attributed to less corrupt business environment) are more likely to provide meaningful indicators of systemic change.

Bruce Kay, Division Lead on USAID’s Governance and Rule of Law Team, brought the session to a close. He noted that in addition to promoting better compliance there are other key areas – including tax regulation and property rights – that chambers of commerce and business associations address in order to improve the business environment that also bolster anti-corruption work. By joining forces through chambers and associations businesses can successfully pressure governments in many instances to move forward with reforms that address corruption.  Such demand-side anti-corruption reforms are also an important area of CIPE’s work. Kay emphasized that USAID will continue to look for ways to engage private sector in addressing corruption globally and to strive toward robust measures of systemic change in its anti-corruption work.

Laura Van Voorhees is a Program Officer for Global Programs at CIPE.