Does Anti-Corruption Compliance Help Emerging Market Companies?
To better inform global anti-corruption compliance programs, the Center for International Private Enterprise (CIPE) is teaming up with the Global Business School Network (GBSN) to research how anti-corruption compliance training impacts worker behavior and business performance.
In early July 2021, CIPE and GBSN hosted a virtual launch meeting for the research program with academics representing five schools from five countries: Indonesia’s Universitas Gadjah Mada, Brazil’s Fundação Dom Cabral, Colombia’s Universidad de La Sabana, South Africa’s University of Stellenbosch, and Nigeria’s Lagos Business School.
The new research is relevant to CIPE’s vision to “expand the opportunity for inclusive growth through market-led solutions”. For several years, CIPE has organized anti-corruption compliance training programs for small- and mid-sized enterprises (SMEs) in emerging markets. This line of work has made compliance with global anti-corruption laws more accessible and helped emerging market SMEs attract new partnerships and integrate into global value chains.
However, the organizational and business performance impact of anti-corruption compliance training – both at the multinational and the emerging market SME level – remains poorly understood. To address this issue, CIPE collaborated with Global School Business Network (GBSN), a Washington DC-based association of emerging market business schools and industry professionals, to fund research investigating the impact of anti-corruption compliance training in emerging markets. The goal is to generate new empirical data from the developing world since the small number of existing studies on the impact of anti-corruption compliance have been conducted in only advanced Western economies.
Business Corruption: What’s The Problem?
Private sector corruption encompasses bribery, fraud, embezzlement, and misleading financial reporting. Its toll on economic activity is massive: the World Bank estimates that corruption adds 10% to the total cost of doing business worldwide. These costs are especially high in developing countries where procurement corruption adds 25% to contract expenses. As Transparency International puts it, company leaders that engage in bribery and other corrupt practices “rais[e] costs, introduc[e] uncertainties, reputational risks and vulnerability to extortion”.
However, some business leaders consider corruption an unavoidable cost of doing business. A KPMG survey reveals that 2/3rds of business executives believe there are some places in the world where they cannot do business without paying a bribe. A similar survey by Grant Thornton found that 23% of executives agree that paying a bribe in some circumstances is unavoidable.
Raising global anti-corruption compliance standards has the potential to change these perceptions and strengthen norms of business integrity. Some evidence suggests that this is already happening. Corporate compliance has become increasingly important in the last 20 years due to greater enforcement of extraterritorial anti-bribery laws like the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act.
These laws encourage companies to establish codes of conduct, establish business integrity programs, and conduct anti-corruption compliance training. Meanwhile, companies that violate these laws can incur millions to billions of dollars in fines. Flagrant violators may even have to pay enforcement agencies in multiple countries, such as the $3.9 billion total that Airbus paid in early 2020 to the U.S., U.K., and France. Consequently, almost all multinational companies (MNCs) today conduct anti-corruption compliance training on a regular basis.
Current Research: The Impact of Compliance
Though emerging markets are not represented in the data, recent studies in Western countries have identified positive effects that come from anti-corruption compliance training.
In 2014, Danielle Warren et. al published a study analyzing the organizational impact formal ethics training had on the behavior of U.S. bank employees. The study showed that whistleblowing increased significantly after the training programs. The authors argued this was because trained staff (1) had a better understanding of what constituted unethical behavior, (2) were made aware that blowing the whistle on unethical behavior was part of their job, and (3) were more confident that management would respond to reports of such behavior.
In another 2014 study, Jonathan West and Evan Berman found that ethics and compliance training strengthened employee commitment to company values while providing tools to identify and resolve issues. A perceived improvement in labor-management relations was the main driver of increased productivity. Furthermore, Christian Hauser’s 2018 research showed that business professionals who have participated in anti-corruption training are more likely to reject prevailing justifications of corrupt practices than are those who have not undergone such training. Finally, a 2016 study led by Logan Steele evaluated the varying results yielded by different ethics training designs and offered insights on the tradeoffs that exist between different programs.
Altogether, these findings provide useful starting points for the new research funded by CIPE and GBSN. Research proposals are being prepared and submitted this summer and researchers are expected to begin in earnest in Fall 2021. The new research will build on previous academic work in Western contexts and provide new data about the impact of anti-corruption compliance on organizational behavior and performance.
Jacmen Kouakou is a Behavioral Compliance Consultant at CIPE
Ben Schmidt is an Associate Program Officer with the Anti-Corruption and Governance Center at CIPE