Entrepreneurs failing to fight corruption may end up facing unlimited fines and jail time. Yet protecting startups against this kind of threat is easier said than done
On the eve of London’s Anti-Corruption Summit on May 12, leaders of 17 professional bodies pledged to fight corruption, bribery and tax evasion. Malcolm Trotter, chief executive of the International Association of Book-keepers, was one of them. But, while he’s been fighting foul play for years, winning seems harder than ever. “It is becoming worse,” he says, blaming a culture that’s rewarding corrupt business leaders for outsmarting the system. “We have to fight against an attitude saying ‘well done’ to people for getting away with it.”
This may seem shocking considering that Britain was perceived as the tenth least corrupt country out of the 168 states investigated earlier this year by Transparency International, the global anti-corruption coalition. “Corruption isn’t seen as being British,” says Trotter. But while the UK is not perceived as corrupt as other nations, a culture that seemingly rewards businesses that circumvent regulations may change that. “If we don’t do anything about this attitude – even though we are still held in high regards overseas – then our chickens will soon come home to roost.”
Unfortunately, corruption is inherently hard to detect. It doesn’t occur like in the movies; suitcases full unmarked bills rarely change hands. “Corruption is intimately linked to greed and power but it doesn’t always involve the exchange of monetary assets: it can occur through trading favours,” says Sundeep Tengur, business solutions manager for banking fraud and financial crime at SAS, the business analytics software and services firm. In fact, according to the Bribery Act 2010, favours such as paying for a luxury dinner or front-row seats at a football game can still be very much seen as corruption. The legislation lists any act giving someone a financial or other advantage to another person to perform their functions improperly as bribery, anyone guilty of which could face up to ten years in jail and unlimited fines.
So, tempting as it may seem to bend the rules to gain a competitive edge, entrepreneurs must refrain from channelling their inner Wolf of Wall Street. In fact, rather than giving entrepreneurs an edge over their rivals, getting caught stepping outside the bounds of the law can prove to be incredibly damaging. “For startups, where the value of the company is largely based on future expectations, reputational damage can be devastating,” says French Caldwell, chief evangelist at MetricStream, the governance, risk and compliance apps company.
Even if entrepreneurs aren’t caught with their hands in the cookie jar, corrupt companies can still crumble. “Think of it from a purely selfish point of view,” says Trotter. Instead of getting a startup the best deal, having corrupt employees dealing underneath the table could mean that businesses could end up without the best product or price for a service. “Companies waste resources when employees give friends, family and whatever other connections favourable prices,” he continues.
Yet, future-proofing a company against corruption is easier said than done; attitudes toward the practice are often seeded by those at the head of the company. “This culture of condoning and normalising corrupt practices is often cascaded down from the top,” says Tengur. “The message from the senior leadership teams needs to be unequivocal: corruption isn’t an acceptable way to achieve any business objective.”
However, saying that dishonesty is not tolerated is one thing, enforcing the stance is something completely different. Eversheds, the international law firm, recently surveyed 500 board-level executives in large firms across 12 countries, 59% of which believed their anti-bribery and corruption policies did not work effectively. “Many companies and organisations have grabbed a set of generic policies from the web, a law firm or an HR firm just to tick a box,” says Trotter.
While copy-and-paste policies may seem a quick fix when trying to protect against corruption, those polices often end up as toothless paper tigers, particularly if they don’t outline which processes companies should put in place to safeguard against foul play. For instance, Trotter recommends that invoices are reviewed by multiple people and that companies don’t spend money unless it’s perfectly clear what they are paying for. “If an invoice comes in, demands £5,000 for services rendered in the past quarter and that’s all it says, then your alarm bells should ring,” he says. “You need to have a detailed list of what those services were.”
There should also be processes in place to protect against illicit activities in other company’s networks abroad. “Most cases that are reported to the Serious Fraud Office involve corrupt business activities by foreign subsidiaries,” says Michelle Wright, founder and CEO of Cause4.
For this reason, businesses are advised against accepting or making payments to a foreign subsidiary of companies they’re dealing with. “Again that should sound alarm bells,” says Trotter. Instead UK businesses are advised to stand firm and inform the other company that they want to deal with the parent company, not the foreign subsidiary, thus avoiding getting into bed with complete strangers.
And once a policy is in place, startups must ensure that it is followed. “Employees need to receive and acknowledge regular training to ensure that there are no gaps in upholding the anti-corruption values within the business,” says Tengur. Not only this but he recommends that policies are subjected to regular internal audits.
Even if fighting against corruption seems like an uphill battle, there are reasons to be optimistic. When David Cameron ended this year’s Anti-Corruption Summit, he emphasised the government’s commitment to cracking down on this kind of unscrupulous conduct. “With such political scrutiny surrounding financial crime, businesses found cutting corners will be exposed and potential fines and reputational damage may undermine their very ability to still exist in the future,” concludes Tengur.