Download Corporate governance

Corporate Governance:
An Antidote to Corruption
John D. Sullivan
July 11, 2006
Washington, D.C.
An Affiliate of the U.S. Chamber of Commerce
The Third Pan-African Consultative Forum on Corporate Governance
successfully brought together 160 participants from 30 African
countries dedicated to improving good corporate governance on the
continent
CIPE © 2006
Corruption: Magnitude
Magnitude
• Corruption costs African countries an estimated
25% of its combined national income - some
$148bn a year.
Olusegun Obasanjo, President of Nigeria
(BBC 2/17/06)
Impact
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Less investment
Larger informal sector
Higher transaction costs
Higher costs of doing business
Higher poverty and inequality
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• Market uncertainty
• Poor public services
• Misallocated resources
Private Sector and Corruption:
Different Views
Private sector as a _________ corruption
• Victim of
• Direct – extortion, costs of doing business
• Indirect – loss of competitiveness, weak market institutions
• Source of
• Public procurement
• Private-private corruption
• Gaining unfair competitive advantage
• Solution to
• Mobilizing private sector for reform
• Say “No” to corruption
• Reform company (internal) and country (external) institutions
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The Corruption Dilemma
Dilemma
• Although corruption is bad for business, individual
companies that engage in corruption receive a
short-term advantage
Approach
• It is important to set up a system that makes it
hard for companies to engage in corruption, even if
though corruption seems desirable
In other words…
• Corporate governance as one antidote to corruption
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Two Sides of Corruption
Corruption
Demand-Side
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Checks and balances
Procurement codes
Independent audits
Legal reform
Simplify tax codes
E-government systems
Enforcement
Supply-side
• Anti-Bribery Convention
• Conflict of interest
• Transparency in private-public
transactions
• Freedom of information
• Accounting standards
• Corporate governance
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Corporate Governance
The core values of corporate governance:
• Transparency
• Accountability
• Fairness
• Responsibility
- OECD Principles
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Corporate Governance
Effective corporate governance means that:
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Board members exercise good judgment
Transparency values are present
Investors receive timely and relevant information
Decision-making is not done behind closed doors
Decision-makers are held accountable for their actions
Managers act in the interest of a company
The bottom line: effective corporate governance makes it
hard for companies to provide bribes or other company
resources to government officials in exchange for services.
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Internal Controls and Ethics
TI’s Business Principles for Countering Bribery
• Political and philanthropic contributions, gifts, hospitality, etc.
• Facilitation payments!
Implementing the principles requires that:
• Boards of directors take formal responsibility
• Effective whistle-blowing channels exist
• Embedded internal control measures
• Formal accounting procedures set up that check for bribery
• Internal communication and training
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Business Principles for
Countering Bribery
• Business Principles for
Countering Bribery
• Six-step
implementation
process (a how-to
guide)
• Self-evaluation to
assess performance (in
development)
• Voluntary external
evaluation tool (in
development)
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Case Studies
• Center for Corporate Governance |
Building national capacity to implement
corporate governance in Kenya
• Confecámaras | Transparency pacts in
public procurement and corporate
governance in state-companies in
Colombia
• ADFIAP | Corporate governance in
development finance institutions
• Egyptian Institute of Directors | Multistakeholder effort to develop a
corporate governance code in Egypt
• Lebanese Transparency Association |
Corporate governance code for SMEs in
Lebanon
Available on CIPE’s Africa
regional webpage
www.cipe.org/regional/africa
CIPE © 2006
“Corporate governance is one of the
most effective tools to improve the
functioning of domestic economies and
increase the investment appeal of African
countries.”
-Philip Armstrong, Global Corporate Governance Forum, speaking
at the Third Pan-African Consultative Forum on Corporate
Governance held in November 2005 in Dakar, Senegal
CIPE © 2006