The choice is not difficult

[ By Luiz Ramalho ]

„We want to support Africa in finding a solution to the problem of high indirect costs of doing business.“ This intention is expressed in the programme for Germany’s double presidency of the EU and the G8 this year. At stake are not only infrastructures and monetary flows of aid. Corruption needs to be tackled, and weak institutions must be strengthened. Otherwise, individual businesses as well as the entire economies of poor countries will remain uncompetitive internationally. The same is true of developing countries in other continents too, of course.

While multilateral agencies and international conferences have been discussing governance issues for over a decade, little attention has so far been paid to the role of private-sector companies. How can businesses contribute to establishing well-performing and trustworthy institutions of governance? What can their associations achieve? And in what sense can entrepreneurs and private-sector managers help to sustain adequate institutions wherever they are already in place? Obviously, there is a vast, untapped potential.

At the global level, there are not many well-defined and universally accepted rules, norms and regimes yet. A coherent system of global governance is only just beginning to emerge. For many business leaders, this state of affairs implies difficulties – but also opportunities for action. Consider corruption, for instance. Some facts are well-known:
– At least ten percent of all investments made internationally are siphoned off into dark channels. According to World Bank estimates corruption internationally amounts to a sum of $ 1 trillion every year.
– As the World Bank Institute has found out, more than 70 % of companies in South Asia identify corruption as the major bottleneck in their daily operations. The figures are almost as high for East Asia, North Africa and the Middle East. In Africa and Latin America, the respective shares are of 64 % and 60 %.
– Corruption scandals, moreover, do not only affect poor countries, as recent events at Siemens or Volkswagen have shown in Germany.

In view of these problems, various initiatives to fight corruption were launched in recent years:
There are global agreements, such as the UN Convention against Corruption of 2005 or the OECD’s Anti-bribery Convention of 1997.
Voluntary approaches are another way to tackle the issue. They include the UN Global Compact, Transparency International’s Business Principles for Countering Bribery and the Extractive Industry Transparency Initiative (EITI).
Finally, codes of conduct help to implement good intentions. Examples are the International Chamber of Commerce’s Rules of Conduct to Combat Extortion and Bribery, Transparency International’s Integrity Pacts or the UN’s Principles for Responsible Investing.

It is evident, that business leaders and major industry associations are aware of the matter. Their willingness to commit to various initiatives and approaches proves that they are looking for solutions. After all, corruption multiplies risks and thus seriously affects the business climate. Not only are the costs of bribery substantial. In globalised financial markets, loss of reputation and embezzlement with political authorities immediately translate into falling stock prices and lower bottom lines. Increasingly, companies have to make sure they are not pilloried for their management’s and staff’s misdeeds by governments, civil society and international organisations. Corporations that want to be active at the global level, need a social licence to operate.

Ethical Business is good business,” says Huguette Labelle, the chairwoman of Transparency International. “Corruption does not lead to competitive advantages”. Striving for sound business ethics fits in well with the general idea of Corporate Social Responsibility (CSR). In the long run, transnational corporations will only enjoy enduring success if they pay attention to the triple bottom line of profitability, environmental sustainability and social fairness.

For small or mid-sized companies, however, things may look more daunting. In their day-to-day operations, they have to cope with mundane obstacles. All too often, bribes are the only way to conclude a vital contract, making sure that the business can survive and its owner thrive. In such cases, the challenge is to strike a reasonable balance between ethical behaviour and potential business disadvantages.

Obviously, companies fighting on their own in such difficult environments will hardly succeed. However, “collective solutions” can prove meaningful, according to the World Bank Institute. In such cases, companies team up to define industry-wide rules and norms. Sometimes, such agreements even span all sectors of a national economy. Another promising approach is to involve actors from the public sector as well as from civil society in multi-stakeholder initiatives. InWEnt and the World Bank Institute clearly see the need to broaden and deepen research and dialogue in this field, in order to replicate and scale-up existing models.

In any case, it will be of critical importance to enhance monitoring and evaluation of collective approaches. At the same time, the instruments to measure corruption need to be refined in order to get more exact data, which, in turn, would be helpful for understanding the issue and designing strategies to fight the phenomenon. No doubt, business leaders can – and should – play a decisive role for ensuring higher standards of governance this way. InWEnt and the World Bank Institute agree on this assessment, both are tackling the issue in multifold capacity-building programmes.

Ultimately, the question is whether business actors define themselves as active “investment-climate makers” or rather as patient “investment-climate takers”. For socially responsible business leaders that choice should not be difficult. They will regard sustainability issues as relevant criteria for investment decisions, and therefore embrace opportunities to make better governance happen. In October, InWEnt and World Bank Institute will host their 12th International Business Forum in Washington D.C., which will focus on the matter (see box).

Where regulative and normative environments are fragile, companies struggle with corruption and bureaucratic impediments. Their leaders should not accept that dismal state of affairs. They should join in strategic alliances with international agencies, striving to improve governance. Doing so will, in the long run, boost their companies’ competiveness as well as that of their host economies.

Obviously, there is a “business case” for supporting the goal spelled out in Germany’s G8 and EU programme. As UK-based network “Business Action for Africa” recently stated, “strategies for reducing poverty will fail unless there are clear initiatives to facilitate private enterprise and trade”. In this view, the progress the G8 have made in terms of boosting aid and relieving debts is welcome, but will not suffice to make the fight against poverty succeed.

For too long, the G8 process was predominantly an affair of governments. Non-governmental organisations – and civil society in general – have mostly acted as vocal critics. It is time for corporate leaders to assume more responsibility. In the true sense of the word, global governance, recognises and even depends on the engagement of the business sector. And this is particularly so in the current debate on improving the business environment of poor countries.