PharmaGossip: The Corporate Responsibility to Prevent Corruption - The CSR Blog - corporate social responsibility

Map of Transparency International's Corruption Perceptions Index.

This post was written by Amol Mehra and Ajoke Agboola Earlier this year, a wholly owned subsidiary of Johnson & Johnson (J&J) was charged with conspiracy and violations of the Foreign Corrupt Practices Act. The subsidiary made illegal payments in order to obtain business, including €4.5 million to public medical professionals in Greece. As part of the settlement, J&J also admitted violations in Greece, Poland and Romania. In addition, the settlement resolved kickbacks paid to the Iraqi government under the UN Oil for Food Program. These actions stand in stark contrast to J&J’s company credo and corporate social responsibility (CSR) policies, which state:

“We must provide competent management and their actions must be ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens – support good works and charities and bear our fair share of taxes.”

The disconnect between CSR policies like J&J’s and the actions that the companytakes to secure business opportunities is alarming. Although a regulatory framework exists in the Foreign Corrupt Practices Act, the number of cases brought by the Department of Justice under this statute is still relatively low – 144 over the last ten years, averaging 14 cases per year. Given the ambit that the FCPA covers, both U.S. and foreign companies listed on a U.S. stock exchange, and the number of individual transactions engaged in by businesses, one might expect the number to be much higher. Companies will often say that they have ramped up their compliance programs because of the FCPA.

But compliance programs of this sort should not simply be seen as a means of reducing liability and risk; they are also critical components of the company’s CSR. The reality is that corruption should and does have its costs, and not just in situations where companies get caught. Bribery distorts competition and rewards those who cannot compete in an open and fair market. As Congress recognized, bribery “…rewards corruption instead of efficiency and puts pressure on ethical enterprises to lower their standards or risk losing business.”

The World Bank estimates that more than $1 trillion dollars in bribes are paid each year, roughly 3% of the world economy. Once a bribe is given, it sets a negative precedent in which bribes may be expected in order for business to continue. This is perhaps why some business leaders have come out in defense of laws like the FCPA that both incentivise companies to develop compliance programs and punish violators. Newmont Mining Director of Corporate and External Affairs Africa, for example, publicly stated:

“Newmont’s experience, particularly in Africa, has been that FCPA has been an enormously valuable protective device for us…when you have a government person saying… ‘we’ll give you that license if you buy us a car or something’…it’s not about look ‘I’m a mean guy and I don’t have value our relationship, and therefore I’m not going to give it to you,’ you say ‘look, there’s a law out there that means I’m going to go to jail if I do that, I’m not going to go to jail for you or anybody else.’”

So why does this all matter for ethical business thinkers and CSR professionals? Because a strong internal compliance program should be an integrated part of corporate social responsibility. Companies should be able to identify and mitigate against bribes and corrupt payments not only to ensure compliance with the law, but also to keep markets competitive and to ensure that their activities are benefiting the societies in which they operate. Further, companies need to follow Newmont’s lead and understand that regulations like the FCPA have the potential to be used as a shield, enabling access to areas where corruption is rampant through providing a defensive measure against those seeking bribes.

Regrettably, the FCPA has come under attack in recent months by the Chamber of Commerce, which has hired former U.S. Attorney General Michael Mukasey to lobby for amendments to the law. The changes, expanded upon in a misleadingly titled “Restoring Balance” report by the Chamber, would gut the law and create an environment where regulating such illegal payments would be much more difficult. In the end, if the changes are accepted, the only thing being restored would be a culture of impunity for corruption.