TI released its Bribe Payers Survey (BPI)2006 on 4 October, assessing the propensity of firms from leading export countries to bribe when doing business overseas. The index, which reflects the experiences of more than 11,000 executives from companies in 126 countries, presented some startling findings on the performance of companies from emerging economies.

Control Risks, an independent, specialist risk consultancy, and Simmons & Simmons also recently released their International Business Attitudes to Corruption Survey 2006. Based on telephone interviews with 350 international companies from seven jurisdictions (the United Kingdom, the United States, Germany, France, the Netherlands, Brazil and Hong Kong), the survey shows surprising complementarity with the BPI.

TI: What are the main similarities between the two surveys? What is the greatest contribution of each?

JB: The main area of overlap is the part of our survey where we asked respondents to rate a selection of companies from different countries based on their standards of compliance. While we included fewer countries than the BPI, the general drift of the answers was similar: Both raised concerns about the BRICs economies [Brazil, Russia, India, China] and about the countries that are not covered by the anti-bribery Organisation for Economic Cooperation and Development (OECD) Convention. At the same time, I think our survey complements the BPI by going into more detail about how corruption is affecting companies and how they are responding to it.

TI: Indeed, some of the most interesting findings to come out of the BPI are related to the emerging market economies, that companies from these BRIC countries have a higher propensity to bribe when doing business overseas than other developed market economies included in the survey. Some of your findings corroborated this as well. Can you elaborate on why this might be the case?

JB: In my opinion it is a variety of things. Corruption is on the agenda of the home economies of all these governments but their standards of governance still have some way to go, and that carries through to the way their companies operate abroad. In the home countries of these companies, the standards of governance are improving, but different countries are still at different stages. One may postulate that certain companies that are ‘new on the block’ could see a competitive advantage in operating to lower standards in countries where there are higher levels of corruption. Anecdotal evidence does seem to support that.

For me, the most interesting point in our survey was the Brazilian comments: Good Brazilian companies made it very clear that high levels of corruption were difficult domestically but also internationally. Domestically, one of them referred to the “Brazil cost”, which was the extra cost of getting things done in Brazil, through extra payments. What also struck me were the comments from Brazilian companies saying they suffered internationally because they couldn’t get the right partners due to their countries’ reputation.

TI: The results of the BPI show that companies perform very differently in different parts of the world. It is not just that a company is likely to pay bribes when doing business abroad, but that they are more likely to pay bribes in certain places rather than others. Does your survey have anything to say on this aspect of corruption? How can host countries protect against foreign bribery?

JB: This links to the question about losing business to corrupt competitors. According to our survey, companies from the UK are the least likely to go into a country with high levels of corruption. Countries with high levels of corruption may still get investment, but are more likely to get investment from second- or third- rate companies or companies with lower standards. So, what should host governments do? First, they should start by enforcing their own existing laws. Then they should institute reforms where necessary. The kinds of reforms of particular interest to international companies would include, for example, procurement procedures. Good governance reforms are important for the private sector generally, but will be particularly important for attracting investment from good international companies.

The investment climate goes beyond the issue of corruption. The World Bank has a regular survey where one of the questions is: “How long does it take in this country to start a new business?” - in Indonesia the process is very long, in Singapore it is really quick. I take that question as a proxy for bribery because if procedures are slow and cumbersome that increases the temptation for business people to offer bribes, or for officials to create obstacles in order to solicit extra payments for removing them.

TI: The International Business Attitudes to Corruption Survey found that companies in the oil, gas and mining sectors were most likely to make annual compliance statements. Why is this? Does the public hold higher expectations of these companies?

JB: These companies face particular risks, because the projects are often large and they are working with government officials with discretionary powers, so the corruption risk is there. They are also much more in the public eye, for a combination of reasons. Companies which have downstream operations, like petrol stations, are especially high profile. For example, Shell and BP are well-known names and have to be sensitive to their reputations. Governance among these companies is closely monitored, and not just in relation to corruption, but also because of environmental issues or the fact that they are working in sensitive countries. High profile oil, gas and mining companies are more likely to have compliance measures in place in part because they have been stung in the past, either by legal problems or reputation issues.

TI: How does motivation to comply based on legal incentives compare with those which are reputational?

JB: The biggest penalty may be reputational, rather than legal in the narrow sense. Large corporations may be able to avoid fines financially. It is often the reputational consequences that really matter. There are, in any event, a series of risks in addition to legal and reputational hazards. If you pay bribes you are going to get more demands; if you pay bribes and try to stop you may face the threat of violence; if you pay bribes and the political regime changes, you could be exposed. These risks are important, quite apart from the risks to prosecution.

TI: Accepting the risks you point out, they are largely risks faced by companies over the long term. How can you get companies to prioritise their long term interests as opposed to the short term gains they may possibly gain through bribery?

JB: The companies that work the hardest are often the ones that have been stung in the past. Experience does concentrate the mind. At the same time, I am very interested in positive incentives. Here we should be looking to host governments -- not just national governments but regional administrations as well. People are looking for win-win situations. The truth is, good governments get good companies to invest. This means not only better financial figures, but also more sustainable business. Better governance simply leads to better economies.

TI: But how does one get to these better levels of governance? Where should governments start?

JB: Increasing awareness is important, and not just about legislation. It is also important to know what to do in very specific situations. Both governments and companies need to provide support by letting people know where they can turn for help. One thing that came out of our survey is that more companies are introducing whistleblower hotlines, and that is a positive thing. But the need for such measures applies equally for a government.

TI: Another finding was that many non-OECD countries were seen as having poorer standards of compliance than OECD countries. What could account for this? How much weight would you attach to the OECD convention in terms of affecting compliance?

JB: I attach quite a lot of weight to the OECD Convention. I think it is the most important international initiative. It establishes a clearer standard, and good companies are responding. What did surprise me, is that our survey indicated low levels of awareness of international anti-bribery legislation. It is clear that OECD governments can do more to raise awareness; business associations have a role as well.

TI: Is it because of these laws that OECD countries seem to be performing better in terms of compliance?

JB: I don’t think it is just the laws. I think there are other factors too. One driver for improved standards for non-OECD countries is the role of stock exchanges. For example, the Hong Kong stock exchange is requiring higher governance standards of Chinese companies. Another driver is partnerships, if you are seeking a commercial partnership you want assurances of the integrity of your partner.

For an in-depth look at TI’s recently released Bribe Payers Survey (BPI), visit the homepage: www.transparency.org . To see Control Risks’ International Business Attitudes Towards Corruption survey, go to: www.control-risks.com/default.aspx?page=719