Risk Management

Corruption Is Costly — and Pervasive

An anticorruption survey from AlixPartners shows redoubled efforts at checking the rising tide of fraud and graft.
Corruption Is Costly — and Pervasive

Companies appear to be waking up to corruption’s pervasiveness. According to the 5th Annual Anticorruption Survey by AlixPartners, more executives appear to be taking action (1) when dishonest behavior by those in positions of power is exposed and (2) beforehand, by establishing practices to prevent bribery and other malfeasance from happening in the first place.

Forty-two percent of the corporate counsel, legal, and compliance officers surveyed by AlixPartners last fall say they have stopped doing business with certain partners due to corruption risk, up from 32% in 2015. Thirty-one percent lost business due to corruption risk, up from 23% the year before, and 37% pulled out of or delayed an acquisition due to corruption risk, compared with 36% in 2015.

Executives in the AlixPartners survey also indicate that it is becoming tougher for their companies to steer clear of potential corruption. About two-thirds (67%) of respondents believe there are some geographies where it is impossible to avoid corrupt business practices: Russia (35% of respondents), the continent of Africa (33%), and China (27%) top the list. In Russia and Africa in particular, CFOs shouldn’t expect the situation to change anytime soon: Africa has the worst anticorruption laws, according to 81% of respondents, followed closely by Russia (73% of respondents).

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Fortunately, companies have adopted more controls and compliance policies in recent years, according to AlixPartners. A higher percentage of companies today have implemented a dedicated anticorruption program in the past 10 years (60%) and 76% have reviewed their policies within the last year (up from 67% in 2016). More respondents in 2017 indicate their companies’ compliance programs specifically address the Foreign Corrupt Practices Act (59%) and the Office of Foreign Assets Control laws (51%).

What methods are companies finding most successful at mitigating corruption risk?Internal audits and anticorruption compliance policies take the lead for survey respondents, at 84%. For 81% of respondents, training is also considered effective.

“Whistleblower programs continue to be a key tool in identifying and dealing with corruption risk; 95% of companies said they have a process in place for handling whistleblower reports,” according to AlixPartners. More than one-third of survey respondents (37%) indicate they have received a tip related to bribery or corruption in 2016, up from 27% the previous year.

But compliance programs don’t catch every impropriety. The biggest challenges for compliance programs are due diligence on third parties (78% of respondents call it “challenging”), doing business in high-risk regions (76%), and variations in local laws (75%).

Regarding due diligence processes, although half of respondents are very confident in them, there are factors limiting their effectiveness: multiple business partners (44%), time pressures (39%), and difficulty in accessing information (37%) are mentioned most often by respondents to the AlixPartners survey.

Indeed, executives now say the biggest challenge to tackling corruption risk is not, as in the past, getting the organization behind the effort. Instead, the biggest stumbling block is the volume of information that companies must contend with.

For the anticorruption study, AlixPartners surveyed executives at companies with annual revenue of $150 million or more, representing more than 20 industries based in the United States, Europe, and Asia. The survey was conducted in November and December of 2016.