The Corruption Crackdown: Companies Are Increasingly Taking a Zero-Tolerance Approach to Bribery as the Cost of Walking Away from a Contract Pales into Insignificance Relative to the Penalties for Wrongdoing

Article excerpt

Austrian Peter Loscher, the first non-German to head engineering giant Siemens, is one of a new breed of chief executives behind a worldwide crackdown on bribery and corruption.

Loscher took over when the previous board quit in the wake of a scandal that cost the company [euro]2.5bn in fines and fees. Since then, he has transformed the way it tackles bribery and corruption. He has provided fresh leadership and set out new anti-corruption regulations, while the compliance team has grown from 170 to nearly 600 to ensure the company's rules are adhered to.

Loscher is among a growing number of business leaders who recognise that bribery pollutes the world of business. In India Azim Premji, chairman of technology provider Wipro, and Deepak Parekh, head of the Housing Development Finance Corporation Bank, are among those who have called on the government to fight the growing tide of corruption.

In the UK, Ian Tyler overhauled compliance processes and procedures at infrastructure group Balfour Beatty when he became chief executive in 2005. This followed "payment irregularities" and "inaccurate accounting records" on an Egyptian construction project-the firm paid [pounds sterling]2.25m to settle the case.

Despite their work and that of others, bribery and corruption casts a long shadow. Nobody can be sure how much is paid in bribes. After all, accountants don't assign a column to "pay-offs" in their ledgers. But the World Bank says that it could top $ltrn annually.

"Corruption in all its forms remains a cross-cutting challenge of momentous proportions," says Georg Kell, executive director of the New York-based UN Global Compact, which promotes ethical business practices worldwide. "In order to mount an effective response to the scourge of corruption we need targeted, collective action that can stimulate lasting change."

As part of its contribution to collective action, the UK government is planning to implement a new Bribery Act, probably later this year (see panel on page 34).

Siemens provides a good example of targeted policies in action. Loscher appointed Peter Solmssen, a US lawyer, as the company's first compliance director with a seat on the main board and bluntly told the firm's 405,000 employees: "Only clean business is Siemens' business-everywhere, everybody, every time."

Loscher's anti-corruption policy is based on three principles: prevent, detect, respond. "Prevention is about training in the anti-corruption policies, detection is about monitoring and controlling how the policies are working and responding is about taking action on violations," explains John Garred, Siemens' UK regional compliance officer. "If somebody crosses the line and nothing happens, then your programme is not worth the paper it's printed on."

Management accountants play a key role in ensuring Siemens sticks to its compliance rules. "They work in the background helping with reconciliations and making specific control checks on payments," Garred says. "If they see a payment that looks untoward they'll scrutinise it more closely. They are the eyes and ears of the compliance organisation."

Loscher believes it's possible to both run a global business and avoid the bribery bear traps by chasing nothing but clean business. But it can go awry all too easily. In December, FTSE 100 engineering company Weir Group was fined [pounds sterling]3m for bribing allies of Saddam Hussein in2001 in an oil-for-food project. It had already paid [pounds sterling]13.9m, the profit it made from the project.

"Today," says Lord Smith of Kelvin, Weir's chairman, "we have in place robust ethical policies and procedures and operate a zero-tolerance approach to any behaviour that contravenes them."

But fines and reputational damage are not the only penalties a company could face. When Macmillan Publishing admitted bribing officials in Sudan to win an education deal, the World Bank banned it from bidding on any of the contracts it sponsors for six years. …