Britain's bribery shame to end?

For the past few years, we have watched with sagging spirits the abject failures of the UK authorities to get to grips with overseas bribery by British firms. It's been a real stain on the reputation of the country, its rule of law, and its businesses. With the US pressing ahead with numerous convictions under its beefed up enforcement of the Foreign Corrupt Practices Act (i.e. any firm listed in the US is liable to prosecution for bribery wherever in the world it may have occurred), Britain has become something of an international embarrassment. So much so, that at the end of last year, the former head of Transparency International UK, Laurance Cockcroft bemoaned "Britain's bribery shame".


Cockcroft's article in the magazine Ethical Corporation, written following a damning report from the OECD's working group on bribery, made the case pretty starkly:

"This extraordinarily feeble performance by the UK is regarded as symptomatic of a profound lack of commitment to addressing corruption. The report of the OECD working group suggests the UK government’s inaction is creating a situation where UK-based companies can behave with impunity in the payment of bribes to win overseas business. ... [Earlier] the OECD had raised the question of whether the UK’s failure was effectively “systemic”. This implied that the nexus of inadequate legislation, feeble prosecuting agencies and a political willingness to buckle to an ally (Saudi Arabia) made uncomfortable by a criminal investigation meant that the UK was totally unable to address corruption. This fear was quietly reinforced by the fact that in Transparency International’s corruption perceptions index, published in September this year, the UK fell from 12th to 16th place."

We've talked here before about the huge BAE scandal in the UK, and the country's decline on the TI rankings. In the new edition of our business ethics book, which is just going into production, we explore the events in even more detail. But those of you that want the 2 second overview, the bottom line is that the Serious Fraud Office was forced by the British government to cave in on its investigation of BAE's alleged millions in bribes paid to Saudi Arabian officials after heavy lobbying from the company and the Saudi government. The whole episode spoke of a huge ethical failure - and even a wrenching of the basic rule of law. As Cockcroft put it (and he was among the more reserved commentators): "Ten years ago, the international community relied on the UK to be progressive in this arena. Now, disappointment at the lack of a serious stand has turned to disbelief, and disbelief to anger."

Today though, comes news of a small but significant breakthrough, with the announcement by the SFO of its first conviction of a major British firm for overseas bribery. The firm, Mabey and Johnson, a signifant player in the world of bridge-building firm, was found to have paid bribes totalling £1m to foreign politicians and officials to secure export orders. Operated through covert middlemen, the bribes were paid to officials in a range of developing countries in Africa, Asia and the Caribbean. The SFO, learning something from its US cousins, tconcluded its first plea bargain type conviction which saw Mabey and Johnson slapped with more than £6.5m in fines and reparations to foreign governments.

This can only be good news for the beleagured SFO which only a few months ago had been left dispirited and demoralized by the BAE failure. Its head and the main BAE investigator had both left the organization soon after the government had effectively closed down their biggest ever bribery investigation. Now, media reports suggest that the new director, Richard Alderman, may be ready to push for a plea bargain at BAE too.

Today's news can only be welcomed by those of us with an interest in seeing the UK get back into the driving seat on dealing with overseas bribery. However, it will take more than one prosecution to wash away the shame of its pitiful performance over the past decade. The country's record of investigating and prosecuting bribery is still woeful in comparison to its peers – at the end of 2008, only two cases had been brought, compared with 103 in the US, 43 in Germany and 19 in France. Let's not pretend that this is because British companies are so much more honest when it comes to bribery than their contemporaries - it's more a case of them simply being able to get away with it. And realistically, only a conviction of BAE is going to change the perception of Britain as a soft-touch country, at least in the short to medium term. The SFO has little time to lose - especially if they don't want to be further embarassed by the Americans prosecuting the iconic British firm before they do. But it's still not clear if the ethics will simply get submerged by the politics again.

The Oscars of Corruption

One of the most important rankings in the world of business ethics was updated and released last week: the ‘Corruption Perception Index’ (CPI) of Transparency International. Founded by the former UN aid worker Peter Eigen the Berlin based organization regularly collects extensive data on how countries in the world are perceived with regard to corruption in business and politics.

Sweden, New Zealand and Denmark top the list while Iraq, Myanmar and Somalia come out at the very bottom. But it is not just a list where rich Western industrial democracies win while poor developing nations lag behind. It’s interesting to see who went up and who went down. Britain took a hit, as did France and Germany – all due to high profile corruption cases in recent years. We talked about the BAE scandal in the UK in this blog which appears to have led to a drop in the UK's rating – in particular the government’s decision not to pursue the case due to ‘national security concerns’. Endemic corruption at one of Germany’s biggest companies, Siemens, arguably contributed to a drop in the ranking for Europe’s biggest economy. The US comes out 18th – just before St. Lucia – largely perhaps because of dubious campaign finance practices and special interest lobbying in Washington.

You might by now have noticed that one of the recent ‘pet theories’ of Crane and Matten focuses on the political role of the firm. Seen through the lens of the CPI the collusion and non transparent role of business in politics is interpreted as a form of corruption. And the fact that by no means all democratic countries lead the ranking and some of the them even dropped can be seen as an indicator that the political role of the corporation is on the rise.

So what is the solution? Clearly, there is still a role for strong government. The top countries, in particular Sweden and Denmark, are long standing democracies with a strong welfare state where the spheres of business and politics are reasonably held apart. Georgia, Nigeria, South Korea or Turkey – all countries which improved their ranking – did so mostly through improvements in the political governance of these countries.

But generally, we would argue that the CPI reflects the rise of private business in influencing politics, both for better or for worse. One way of addressing this then might be to just tackle these issues from the business angle. Some of the most creative approaches to eradicating corruption focus on business-government relations, such as the Extractive Industries Transparency Initiative (chaired by Eigen). Creating more transparency, clearer accountability and new forms of democratic control, both for governments and powerful corporations can be effective in addressing corruption. After all, corruption is not just an ethical issue: a one point improvement in the CPI coincides with 0.5 percent increase in GDP and a 4 percent rise in average income of a country. In particular in the global south, corruption translates into a matter of life and death for ordinary people...

Business and politics: Berlusconi and BAE back in the news

This week sees Crane and Matten travelling to Europe. At the moment we are in Milan in Italy, being hosted by the CSR Unit at Bocconi University. Later in the week, we will be off to the UK for meetings, research interviews, and a general catch up in London and Nottingham.

It's an interesting time to be here in Italy, with the Alitalia sale in the news every day, and the national election having taken place over the weekend. As expected, Silvio Berlusconi has come out on top, and is now set to lead the country for an incredible third time. As a renowned media tycoon, it just goes to show how ingrained business is with politics here, a point that we have been discussing a lot in our work on the political roles of corporations over the last few years. In fact, when we gave a seminar on Corporations and Citizenship at Bocconi yesterday, it struck us just how comfortable our Italian colleagues were with the idea that corporations have political roles and identities - an issue that often arouses controversy elsewhere, where the idea that corporations have solely economic roles in society often prevails. It made a change to get such a warm reception.

Of course, the intersections of business and politics will also be on the agenda when we touch down in the UK later in the week. One of the most popular cases in our Business Ethics book deals with the BAE corruption scandal, and it seems that this whole issue is very much back on the agenda again in the UK. Last week saw the high court in London rule that the Blair government's decision to quash the inquiry into the alleged corruption on the grounds of national security was unlawful, yet the new PM, Gordon Brown looks set to continue on the path of his predecessor in attempting to block any further investigation - despite what appears to be considerable international pressure from the OECD, the US and elsewhere to do otherwise.

The upshot of all this is that it is clear that the untangling of business and politics is getting increasingly difficult, whether here in Italy, the UK, or pretty much anywhere else. The cosy world of distinct sectors with clear responsibilities looks to be increasingly a feature of the past (if it ever was much more than a myth). The resulting challenge of working out what roles and responsibilities this poses for corporations will test the imagination of all of us. We have a new book, Corporations and Citizenship, coming out later in the year with Cambridge University Press, which attempts to make a start on this question. But even we have to admit that we end up asking more questions than we answer. But, hey, you've got to start somewhere.