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Business in Partnership Against Corruption

Miami, Tuesday, May 20, 2008

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 Questions

- In your personal experience, have you known of instances of bribery

affecting your organization or an organization you do business with?

Yes No

-Imagine yourself working at an agency/organization operating in a high risk

environment that decides to stand up against corruption. Do you think that
your agency/organization can be successful in reducing corruption on its
own?

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 Our world is …

… out of balance

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 Our world is …

Global Gross Domestic Product (GDP)

Year 2000:

30 trillion – 5 billion people – 20% global GDP

Year 2050:

140 trillion – 8 billion people – 40% global GDP (assuming

3.5% growth)

Population Growth

2000 2025 2050

Developing Countries 5 billion 7 billion 8 billion

Developed Countries 1 billion 1 billion 1 billion

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 Gender Distribution

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 Data - Inequality
The 2007 Human Development Report (HDR) from the United Nations
Development Program shows that:

around 1 billion people living at the margins of survival on less than

US$1 a day;

 2.6 billion (40% percent of the world’s population) is — living on less

than US$2 a day :

 20% of the population in the developed nations, consume 86% of the

world’s goods;

 In 1960, the 20% of the world’s people in the richest countries had 30
times the income of the poorest 20% — in 1997, 74 times as much.

Source pictures: United Nations World Water Development Report

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 Data - Malnutrition

In a review of 80 countries, the United Nations Children's Fund

(UNICEF) and the Micronutrient Initiative found that:

 Mental development of 40% to 60% of infants between 6 and

24 months was impaired due to iron deficiency;

 Compromised immune systems due to vitamin A deficiency

was affecting 40% of the world’s “under-fives” and was
leading to the deaths of approximately 1 million children each
year;

 Approximately 18 million babies are born with mental

disabilities annually owing to iodine deficiency;

 60,000 young women die each year during pregnancy and

childbirth as a result of severe iron deficiency anemia.

Source pictures: GAIN Website

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 Diagram - Inequality

60

50

40

30

20

10

0
LAC Asia OECD Eastern Europe
1970s 1980s 1990s
Source: “Inequality in Latin America and the Caribbean: Breaking with History?” World Bank, 2003
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 Data – Water and Sanitation
The 2006 United Nations Human Development Report shows that
water problems affect half of humanity:

Some 1.1 billion people in developing countries have inadequate

access to water, and 2.6 billion lack basic sanitation;

Access to piped water into the household averages about 85% for
the wealthiest 20% of the population, compared with 25% for the
poorest 20%;

1.8 billion people who have access to a water source within 1

kilometer, but not in their house or yard, consume around 20 liters
per day. In the United Kingdom the average person uses more than
50 litres of water a day flushing toilets (where average daily water
usage is about 150 liters a day. The highest average water use in
the world is in the US, at 600 liters day.);

Some 1.8 million child deaths each year as a result of diarrhea.

Source pictures: United Nations World Water Development Report

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Financial Flows to Developing Countries

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 Data - Inequality
 Of the 100 largest economies in the
world, 51 are corporations; only 49 are
countries (based on a comparison of
corporate sales and country GDPs);

 The top 200 corporations’ combined

sales are 18 times the size of the
combined income of 24% of the total
world population;

 MNCs account for a quarter of global

economic activity, they employ less
than 1% of the world’s labor force, while
one third of the world’s willing-to-work
population is unemployed.

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 Overview

n
io
pt

a
ru

m
or

m
C

ile
D
Corruption Anti Corruption
Pressures Solutions

Government Companies Civil society

 Corruption has negative
impacts on governments,
companies, civil societies,
economies.
 Despite costs, some
individuals/groups benefit
from corruption.
Part I
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In high risk environment:
 How to ensure that
partners and competitors are
ethical?
 How to change culture of
doing business?
 How to get competitors and
stakeholdersPart
on board?
II
 Collective action can help
to unlock corruption
dilemma and create level
playing field.
 Collective action creates
incentives to avoid
corruption.
Part III
PART I

Map of corruption

According to World Bank Institute estimates, …… which is nearly twice the gross
the total volume of bribes paid annually is US$ domestic product (GDP) of Africa.
1 trillion

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 Private sector side of corruption
Lack of
Complex transparency
& changing Lower and
laws & investment accountability
regulations Lower
employment
Reduced Weak
Mistrust b/w competition,
enforcement
efficiency & Cost of
& of
Innovation Corruption
within Loss of laws and
sectors reputation regulations

Resource
Higher costs
misallocations
Low public of doing
business Lack of
sector wages
competition
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Corruption as a constraint to the private sector
60
Infrastructure
Bureaucracy
Firms reporting constraints among top three (percent)

50
Corruption
Tax regulations
40
“Corruption adds as
much as 25% to the cost
of public procurement"
30
(UNGC)

20 “31% of firms in Latin

America have to pay
bribes to – get things
10
done -” (WBG)

0
OECD East Asia East Asia South Asia Sub- Transition Latin
NICs Developing Saharan America
Source: Current Survey. The question posed to the firm was : “Select Among 14 constraints the five most
Countries
problematic factor for doing business in your country

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 Private sector NOT just a victim, but also source of
corruption
Elite Capture, Political Corruption and Inequality of Influence
View of the Firm, Percentile Ranks, Higher is better

best 100
90
80
70
Elite Capture (trough Bribes
60
50
40 Undue Political Influence

30
20
10
worse
0
OECD East Asia NICs Sub-Saharan New EU Latin America
Africa Accessed

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PART II

Cycle of corruption: companies are both victims and

participants

Once corruption becomes widespread,

it becomes difficult for individual businesses
to stand up to the problem.

High risk
environment

They fear that they cannot win projects on the merits of

their bids alone and thus engage in corruption,
thereby contributing to its spread.

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 Corruption dilemma: How can an individual company break the
corruption cycle in a high risk environment?

Few
incentives
In high risk environment:
to fight
corruption

 How to ensure that partners

and competitors are ethical?
Lack of
cooperation
between
 How to change culture of doing
stakeholders
business?

Limited
resources to No credible
 How to get competitors and
counter
corruption enforcement stakeholders on board?

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PART III

There are three main steps for companies to fight corruption

Business
Each company individually Collective
environment
free of
corruption
Collective
External

Internal

1. Assess risks 4. Share internal policies, 5. Reach out to industry

2. Implement anti- experiences, best peers, suppliers and
corruption policies and practices and success other stakeholders via
compliance programs stories neutral facilitators and
initiate joint activities to
3. Provide guidance to
fight and advocate
managers
against corruption

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 In high risk environments internal and external responses alone
may not unlock the corruption dilemma
Business
environment
free of
Collective corruption
External

Internal

Companies worry about corrupt competitors and fear being

at competitive disadvantage
 How to ensure that
partners and competitors
are ethical?

 How to change culture of

doing business?

 How to get competitors

and stakeholders on board?

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 Unlocking the corruption dilemma
Collective action...
… is a potential solution to the
corruption dilemma. It helps to
make compliance the norm and
to isolate the guilty.
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Central principles of collective action are to:
 Strengthen corruption commitments
between and among different
stakeholders.
 Create incentives for stakeholders to
avoid bribery and corruption in
transactions and eliminate cheating
on commitments by individual
members.
 Create incentives to avoid corruption
by individuals within companies and
governments.
 Key characteristic of Collective Action is to involve various
stakeholders – different types of Collective Action exist
Different types of Collective Action

Primary stakeholders of Integrity pact Anti-corruption declaration

Collective Action  Formal, written contract  All stakeholders are asked
Project between customer and bidding to sign declaration on
/ trans- companies anti-corruption principles
action
based  Bidding and implementation  Public commitment leads to
Companies agree- processes monitored by enforcement 'by honor'
ment external monitor
 Sanctions may apply in
case of infringements
Collective
Action

Certifying business Principle-based

coalition initiative
Civil society Government
 Compliance-related  Ethical principles bind
Long- prerequisites for membership signatories to not engage in
term- corruption in the daily
 Adoption of membership
initiative business
requirements checked by
external audits  Public commitment leads to
 Members get certified or will be enforcement 'by honor'
excluded

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XXXX ProjectName MM/YY – FileName.ppt
 All stakeholders can benefit from anti-corruption Collective Action
Benefits of anti-corruption Collective Action from different stakeholders' perspective
Bidding companies
 Increased chance of fair selection as a supplier and
enhanced access to markets
 Protection from legal penalties
 Saving of finances formerly paid as bribes
 Enhanced reputation
 Ensure employees and competitors behave ethically and
responsibly
Government
 Incentives to be transparent
 Strengthened rule of law, increase
credibility and political stability
 Higher investment levels from
domestic and foreign investors
 Improve image of country
 Effective governance mechanisms
and more effective procurement
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Customer
 Enhanced competition in bidding process – most efficient,
not best connected bidder wins bid1)
 Enhanced reputation
 Avoid time consuming lawsuits / blocking points after
decision on supplier company
 Focus of business relationships on quality and reliability
of goods and services
Civil society and NGOs
 Improved access to essential resources, such
as health care and education
 Increased trust and confidence in business
 Consistent and fair enforcement of regulations
 Social development if money / taxes are used
for social projects instead of bribery
 Civil society part of government-business anti-
corruption efforts
1%

Collective Action can be successful!

Examples of existing collective action initiatives

Integrity pact Anti-corruption declaration Project / transaction

Code of based agreement
pharmaceuti
Mexico cal
suburban train marketing
practices
Berlin
Frankfurt
airport
waste
incinerator
Collective
Action
EMB Bavarian Business pact
construction for Integrity Long-term initiative
industry and against
corruption
China Business coalition
Brazil
Business business Independent
Ethics Pact leaders Company facilitator

Paraguay forum A
Company
Certifying business Organi-
zation A
C

coalition Principle-based initiative

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 Results of selected collective action initiatives

BERLIN PACI IFPMA EMB

AIRPORT

 Introduction of  Raising  Development  Creation of incentives to

transparent awareness about of sectoral code abstain from corruption

bidding procedures corruption of conduct
 Introduction of certification
 Suppliers have to  Company  Introduction of
adhere to anti commitment to compliant
corruption be solution to mechanism
principles corruption
problem

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 Collective actions are not a panacea for corruption challenges
Common challenges of collective action initiative

Common Challenges

Finding facilitator as neutral party to initiate and implement a Collective Action

Building confidence among stakeholders

Collective Action is Securing funding for the initiative

difficult, it can fail. Getting top-management commitment of participating companies

Common
Creating public awareness
challenges include:
Agreeing upon enforcement and sanctions mechanism

Agree upon clear consequences in case of infringement / non-compliance

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 Demand for guidance and tools

Collective Action Initiatives;

Joint effort of Companies, NGOs

and Multi-laterals;

25 case studies, 50 country profiles,

15 industry profiles;

Implementation guidelines.

Joint effort of:

World Bank Institute; United Nations

Global Compact; Center for International
Private Enterprise (US); Global Advice
Networks (Denmark); Grant Thornton;
Siemens; Transparency International
USA; and as a supporting partner:
InWEnt Capacity Building International
(Germany)

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 GUIDE: FIGHTING CORRUPTION THROUGH COLLECTIVE ACTION
- A practical guide for business -

Benefit from various real

Find the right approach Follow detailed
life examples and
for your situation process steps
templates

Integrity Pact / Anti-corruption declaration

Principle-based initiative Certifying busin
Examples Integrity Pact
template defence industry
Integrity Pact Berlin
airport

Decision tree 1 helps to design Fourthe Integrit

appr
ONGC Integrity
Pact
IP Ecuador
Hydroelectric

collective
 Classification and definition
of Collective Action actions 2.1
 Process steps
How
 Highlighted topics and to get have to be a
 Profilesstarted?
 Contract templates
of initiatives
 Decision trees issues to consider  Contact list
(e.g. anti-trust)
Decision tree 1 Initiate business coalition (1/2) Pact contr
Integrity
 Definition of corruption, dangers of corruption
Basis
 Overview on various ways to fight corruption Are tender 1
documents Is customer willing
C
Yes No
already finalized fight corruption
co
Page 28 / released? XXXX ProjectName MM/YY – FileName.ppt
 Web Portal: www.fightingcorruption.org

Tools for
practitioners

Lessons learnt

Case studies

Country and
Industry Profiles

Country and
Events and
industry profiles
workshops

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 Three key questions for panel:

 How can the private sector participate in collective actions and governance
reforms to create a business environment with reduced risk of corruption?

 What are the biggest challenges in achieving and sustaining results through
collective actions?

 How can key stakeholder, such as government officials, business, NGOs and
international organizations, partner to more successfully promote transparency
and accountability?

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 §
THANK YOU

Djordjija Petkoski

World Bank Institute

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