Corruption Remains a Major Cost for Honest Companies

In 2015, 34 percent of African businesses reported losing out on deals to corrupt competitors, according to a survey conducted among more than 800 senior legal and compliance professionals

Control Risks has published its annual survey of business attitudes to corruption, comprising interviews with 824 companies worldwide.       

What became apparent is that corruption is still a major cost to international business, with 34 percent of respondents from Africa reporting losing out on deals to corrupt competitors.

And corruption risks continue to deter investors as 30 percent said they had decided not to conduct business in specific countries because of the perceived risk of corruption.

Consequently, the  conclusion was drawn that corruption is killing deals around the world, with 41 percent of global respondents reported that the risk of corruption was the primary reason they pulled out of a deal on which they had already spent time and money – this included 55 percent of African respondents.

The majority of respondents did agree however, that international anti-corruption laws are “improving the business environment for everyone”, signalling an increasing honest compliance from governments and financial institutions around the globe.

However, there is still more to do. The survey shows that there are still wide variations in the maturity of company programmes. In the worst case, conventional compliance approaches can increase risk because they lead to a misguided sense of complacency.

Ultimately, Control Risks’ survey reveals that companies are now more willing to tackle the corruption challenge, with 70 percent of companies stating they would complain to a contract awarder if they felt they had lost out due to corruption; a considerably larger figure than the overall surveyed (39 percent), compared to just 8 percent of respondents in 2006. In 2006, only 6.5 percent of respondents said they would appeal to law-enforcement authorities, compared with 19 percent of global respondents in 2015, with a quarter of respondents (60 percent in South Africa) now saying they would try to gather evidence for legal action.

Companies feel that international anti-corruption legislation is improving the business environment. More than half of respondents felt these laws made it easier for good companies to operate in high-risk markets and serve as a deterrent for corrupt competitors. This was particularly true of companies in developing markets, with 53 percent of Nigerians strongly agreeing.

Commenting on the survey’s findings, Daniel Heal, Control Risks’ Senior Managing Director for East Africa said: “Too many businesses are still losing out on good opportunities to corrupt competitors, or choosing not to take a risk on an investment or entering a new market in the first place for fear of encountering corrupt practices.

“Companies need to find a balance and do more due diligence early on in any negotiation or market entry planning, to spot the points of light in countries that may otherwise appear as no-go areas.   

“Another concern is an over reliance on compliance. Often when organisations have comprehensive compliance processes in place, business leaders treat them as a safety net and don’t police ruthlessly enough internally. More than half of the businesses we surveyed hadn’t conducted a corruption-related investigation in two years. Given the size and complexity of most organisations this would suggest there is a danger of a false sense of security in compliance departments.”

The full survey can be downloaded here: Corruption Survey 2015/16