Best Practice on Anti-Corruption: Incentives and Sanctions for Business
Interview of Sven Biermann, Director of Anti-Corruption projects at HUMBOLDT-VIADRINA School of Governance, Berlin, Germany
Why did the HUMBOLDT-VIADRINA School of Governance choose to conduct a survey on anti-corruption incentives and sanctions for business?
In recent years we have not only seen a steady increase in the acknowledgment of the important role businesses play in the global fight against corruption, but also an emerging debate on mechanisms that could motivate businesses to counter corruption and how different societal actors could use and target these motivations.
The initiative ‘Anti-Corruption Incentives and Sanctions for Business’ at the Berlin-based HUMBOLDT-VIADRINA School of Governance seeks to contribute to this debate by analyzing existing and potential anti-corruption incentives and sanctions in order to provide external stakeholders (governmental institutions, business partners, civil society organizations etc.) with information on what they can do to motivate business to counter corruption.
In the context of this initiative we published a global survey, reflecting the views of more than 200 international anti-corruption experts from the Public Sector, Business Sector, and Civil Society.
Why did the HUMBOLDT-VIADRINA School of Governance choose respondents from the public sector, business sector, and civil society?
The HUMBOLDT-VIADRINA School of Governance is based on the vision that in order to solve global and local questions and problems in today’s society, the Public Sector, Business Sector, and Civil Society need to collaborate.
Even governmental institutions, which are considered the most important stakeholder in applying incentives and sanctions to business in our survey, need the support from Civil Society to establish societally sustainable solutions. A prominent example for such a multi-stakeholder approach is the Extractive Industries Transparency Initiative (EITI).
Requesting responses to our survey from all three societal groups also had a practical reason: in translating our research findings into practical recommendations, it is crucial to understand whether the different stakeholder groups agree or disagree on the possible ways to counter corporate corruption. The survey showed, for example, that the Public Sector considers the sanction ‘Confiscation of proceeds of corruption’, which is to be applied to businesses, as much more important than businesses themselves.
What are the survey’s key findings?
While overall incentives and sanctions, i.e. rewarding business for adherence and penalizing them for non-adherence to anti-corruption standards, were considered equally important mechanisms by the respondents, when questioned in detail almost all sanctions ranked better than incentives. Restricting business opportunities and operations as well imprisoning business representatives were rated highest overall, as well as among respondents from the Business Sector. This suggests that it is still more the “stick” than the “carrot” that is believed to influence corporate behavior.
However there was also a very strong agreement (92%) with rewarding business with a strong anti-corruption program by granting them preferential treatment (especially in procurement).
Other interesting findings include that 77% of respondents agreed that an independent, third-party assurance of a business’ anti-corruption program is needed to grant incentives, and that 69% of respondents agreed that peer pressure is the most important factor to motivate businesses to counter corruption. On a more surprising note 77% of overall respondents agreed that a public corruption ranking of businesses should be established, a view shared by a clear (if slightly less considerable) majority of respondents from the Business Sector. This again provides businesses with the opportunity of setting themselves apart from their peers.
Overall, answers from Public Sector, Business Sector, and Civil Society did not diverge as much as expected. This can be considered a promising conclusion as it will take concerted and decisive effort by all societal actors to successfully fight a problem as complex and wide-spread as corruption.
Given the results of this survey, does the HUMBOLDT-VIADRINA School of Governance recommend any particular actions that governmental institutions, business and civil society can take?The survey showed that the respondents see legal regulations, commercial & operational conditions, and reputational considerations as almost equally important factors in motivating business to counter corruption. Stakeholders should therefore think in these 3 categories when evaluating their best course of action. They should also go one step further and utilize a combination of these 3 categories, such as publically announcing the debarment of a business from public tendering (as an example for combining a reputational and a commercial & operational sanction). While sanctions for non-adherence to anti-corruption standards are an important deterrence factor, businesses that publically demonstrate good anti-corruption behavior also seek to gain competitive advantages over their peers that lag behind. Therefore, stakeholders should not only penalize the laggards, but also reward the leaders through material and non-material benefits. The latter is however an area that needs much more attention in the future.
Furthermore, in order to increase the impact of incentives or sanctions, stakeholders should consider expanding the coverage of incentive or sanction (e.g. like the cross-debarment procedures from the World Bank), extend the applicability of the incentive or sanction to related entities (e.g. subsidiaries of a business) or collaborate with other organizations that apply additional incentives and sanctions (e.g. business debars supplier after criminal conviction).
Finally, while penalizing businesses for non-adherence to anti-corruption standards may be a necessary first step (such as a large monetary fine following a conviction due to corrupt practices), stakeholders should also consider providing mitigation options (reduction of initial sanction) to motivate businesses to cooperate by self-reporting, implementation of an anti-corruption program or accepting a compliance monitor.
Tags : Best practice on Anti-corruption, survey, incentives and sanctions for business
Is your anti-corruption compliance program up to international best practices standards ?
Strengthen, benchmark and communicate positively on your program through certification.
Reach international standards. Get results.
Anti-corruption compliance questions ? comments ?Contact us!
Update: New attempts to fight corruption in the German Health Care Sector
Hans Hermann Aldenhoff, Partner, Country Head, Simmons & Simmonsread more
New attempts to fight corruption in the German health care sector
Hans-Hermann Aldenhoff, Partner, Country Head, Simmons & Simmonsread more
Keep abreast of anti-corruption compliance news
Sign up to receive our monthly newsletter