Business in Partnership Against Corruption

1. § Business in Partnership Against Corruption Miami, Tuesday, May 20, 2008

2. Questions • In your personal experience, have you known of instances of bribery affecting your organization or an organization you do business with? YesNo • Imagine yourself working at an agency/organization operating in a high risk environment that decides to stand up against corruption. Do you think that your agency/organization can be successful in reducing corruption on its own?

3. Our world is … • … out of balance

4. Our world is … • Global Gross Domestic Product (GDP) • Year 2000: • 30 trillion – 5 billion people – 20% global GDP • Year 2050: • 140 trillion – 8 billion people – 40% global GDP (assuming 3.5% growth) • Population Growth

5. Gender Distribution

6. Data - Inequality • The 2007 Human Development Report (HDR) from the United Nations Development Program shows that: • around 1 billion people living at the margins of survival on less than US$1 a day; • 2.6 billion (40% percent of the world’s population) is — living on less than US$2 a day : • 20% of the population in the developed nations, consume 86% of the world’s goods; • In 1960, the 20% of the world’s people in the richest countries had 30 times the income of the poorest 20% — in 1997, 74 times as much. Source pictures: United Nations World Water Development Report

7. Data - Malnutrition • Source pictures: GAIN Website • In a review of 80 countries, the United Nations Children's Fund (UNICEF) and the Micronutrient Initiative found that: • Mental development of 40% to 60% of infants between 6 and 24 months was impaired due to iron deficiency; • Compromised immune systems due to vitamin A deficiency was affecting 40% of the world’s “under-fives” and was leading to the deaths of approximately 1 million children each year; • Approximately 18 million babies are born with mental disabilities annually owing to iodine deficiency; • 60,000 young women die each year during pregnancy and childbirth as a result of severe iron deficiency anemia.

8. Diagram - Inequality Source: “Inequality in Latin America and the Caribbean: Breaking with History?” World Bank, 2003

9. Data – Water and Sanitation • The 2006 United Nations Human Development Report shows that water problems affect half of humanity: • Some 1.1 billion people in developing countries have inadequate access to water, and 2.6 billion lack basic sanitation; • Access to piped water into the household averages about 85% for the wealthiest 20% of the population, compared with 25% for the poorest 20%; • 1.8 billion people who have access to a water source within 1 kilometer, but not in their house or yard, consume around 20 liters per day. In the United Kingdom the average person uses more than 50 litres of water a day flushing toilets (where average daily water usage is about 150 liters a day. The highest average water use in the world is in the US, at 600 liters day.); • Some 1.8 million child deaths each year as a result of diarrhea. Source pictures: United Nations World Water Development Report

10. Financial Flows to Developing Countries

11. Data - Inequality • Of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs); • The top 200 corporations’ combined sales are 18 times the size of the combined income of 24% of the total world population; • MNCs account for a quarter of global economic activity, they employ less than 1% of the world’s labor force, while one third of the world’s willing-to-work population is unemployed.

12. Government Civil society Part III Part II Part I Overview Corruption Dilemma Corruption Pressures Anti Corruption Solutions Companies • In high risk environment: • How to ensure that partners and competitors are ethical? • How to change culture of doing business? • How to get competitors and stakeholders on board? • Corruption has negative impacts on governments, companies, civil societies, economies. • Despite costs, some individuals/groups benefit from corruption. • Collective action can help to unlock corruption dilemma and create level playing field. • Collective action creates incentives to avoid corruption.

13. PART I Map of corruption According to World Bank Institute estimates, the total volume of bribes paid annually isUS$ 1 trillion …… which is nearly twicethe gross domestic product (GDP) of Africa.

14. Private sector side of corruption Lack of transparency and accountability Lower investment Complex & changing laws & regulations Weak enforcement of laws and regulations Lower employment Reduced competition, efficiency & Innovation Weak enforcement of laws and regulations Cost of Corruption Mistrust b/w & within sectors Loss of reputation Resource misallocations Higher costs of doing business Low publicsector wages Lack of competition

15. Corruption as a constraint to the private sector “Corruption adds as much as 25% to the cost of public procurement" (UNGC) Firms reporting constraints among top three (percent) “31% of firms in Latin America have to pay bribes to – get things done -” (WBG) Source: Current Survey. The question posed to the firm was : “Select Among 14 constraints the five most problematic factor for doing business in your country

16. Private sector NOT just a victim, but also source of corruption Elite Capture, Political Corruption and Inequality of Influence View of the Firm, Percentile Ranks, Higher is better best worse

17. They fear that they cannot win projects on the merits of their bids alone and thus engage in corruption, thereby contributing to its spread. PART II Cycle of corruption: companies are both victims and participants Once corruption becomes widespread, it becomes difficult for individual businesses to stand up to the problem. High risk environment

18. Corruption dilemma: How can an individual company break the corruption cycle in a high risk environment? • In high risk environment: • How to ensure that partners and competitors are ethical? • How to change culture of doing business? • How to get competitors and stakeholders on board? Few incentives to fight corruption Lack of cooperation between stakeholders Limited resources to counter corruption No credible enforcement

19. Business environment free of corruption Internal Collective Each company individually PART III There are three main steps for companies to fight corruption Collective External Assess risks Implement anti-corruption policies and compliance programs Provide guidance to managers Share internal policies, experiences, best practices and success stories Reach out to industry peers, suppliers and other stakeholders via neutral facilitators and initiate joint activities to fight and advocate against corruption

20. Business environment free of corruption Internal In high risk environments internal and external responses alone may not unlock the corruption dilemma Collective External Companies worry about corrupt competitors and fear being at competitive disadvantage • How to ensure that partners and competitors are ethical? • How to change culture of doing business? • How to get competitors and stakeholders on board?

21. Unlocking the corruption dilemma Collective action... Central principles of collective action are to: • Strengthen corruption commitments between and among different stakeholders. • Create incentives for stakeholders to avoid bribery and corruption in transactions and eliminate cheating on commitments by individual members. • Create incentives to avoid corruption by individuals within companies and governments. … is a potential solution to the corruption dilemma. It helps to make compliance the norm and to isolate the guilty.

22. CollectiveAction Government Civil society Key characteristic of Collective Action is to involve various stakeholders – different types of Collective Action exist • Different types of Collective Action Primary stakeholders of Collective Action Integrity pact Anti-corruption declaration • Formal, written contract between customer and bidding companies • Bidding and implementation processes monitored by external monitor • Sanctions may apply in case of infringements • All stakeholders are asked to sign declaration onanti-corruption principles • Public commitment leads to enforcement 'by honor' Project/ trans-action based agree-ment Companies Certifying businesscoalition Principle-basedinitiative • Compliance-relatedprerequisites for membership • Adoption of membership requirements checked by external audits • Members get certified or will be excluded • Ethical principles bind signatories to not engage in corruption in the daily business • Public commitment leads to enforcement 'by honor' Long-term-initiative XXXX ProjectName MM/YY – FileName.ppt

23. All stakeholders can benefit from anti-corruption Collective Action • Benefits of anti-corruption Collective Action from different stakeholders' perspective Bidding companies Customer • Increased chance of fair selection as a supplier and enhanced access to markets • Protection from legal penalties • Saving of finances formerly paid as bribes • Enhanced reputation • Ensure employees and competitors behave ethically and responsibly • Enhanced competition in bidding process – most efficient, not best connected bidder wins bid1) • Enhanced reputation • Avoid time consuming lawsuits / blocking points after decision on supplier company • Focus of business relationships on quality and reliability of goods and services Government Civil society and NGOs • Incentives to be transparent • Strengthened rule of law, increase credibility and political stability • Higher investment levels from domestic and foreign investors • Improve image of country • Effective governance mechanisms and more effective procurement • Improved access to essential resources, such as health care and education • Increased trust and confidence in business • Consistent and fair enforcement of regulations • Social development if money / taxes are used for social projects instead of bribery • Civil society part of government-business anti-corruption efforts

24. 1% CompanyC Organi-zation A CompanyA Independent facilitator CollectiveAction Collective Action can be successful! • Examples of existing collective action initiatives Project / transaction based agreement Integrity pact Anti-corruption declaration Code of pharmaceutical marketing practices Mexico suburban train Berlin airport Frankfurtwaste incinerator Business pact for Integrity and against corruptionBrazil EMB Bavarian construction industry Long-term initiative Business coalition China business leaders forum Business Ethics PactParaguay Certifying business coalition Principle-based initiative

25. Results of selected collective action initiatives IFPMA PACI BERLIN AIRPORT EMB • Creation of incentives to abstain from corruption • Introduction of certification • Development of sectoral code of conduct • Introduction of compliant mechanism • Raising awareness about corruption • Company commitment to be solution to corruption problem • Introduction of transparent bidding procedures • Suppliers have to adhere to anti corruption principles

26. Collective actions are not a panacea for corruption challenges • Common challenges of collective action initiative Collective Action is difficult, it can fail. Common challenges include:

27. Demand for guidance and tools • Collective Action Initiatives; • Joint effort of Companies, NGOs and Multi-laterals; • 25 case studies, 50 country profiles, 15 industry profiles; • Implementation guidelines. • Joint effort of: • World Bank Institute; United Nations Global Compact; Center for International Private Enterprise (US); Global Advice Networks (Denmark); Grant Thornton; Siemens; Transparency International USA; and as a supporting partner: InWEnt Capacity Building International (Germany)

28. GUIDE: FIGHTING CORRUPTION THROUGH COLLECTIVE ACTION - A practical guide for business - Find the right approachfor your situation Follow detailedprocess steps Benefit from various real life examples and templates Examples • Classification and definition of Collective Action • Decision trees • Process steps • Highlighted topics and issues to consider(e.g. anti-trust) • Contract templates • Profiles of initiatives • Contact list • Definition of corruption, dangers of corruption • Overview on various ways to fight corruption Basis XXXX ProjectName MM/YY – FileName.ppt

29. Web Portal: www.fightingcorruption.org Tools for practitioners Lessons learnt Case studies Country and Industry Profiles Country and industry profiles Events and workshops

30. Three key questions for panel: • How can the private sector participate in collective actions and governance reforms to create a business environment with reduced risk of corruption? • What are the biggest challenges in achieving and sustaining results through collective actions? • How can key stakeholder, such as government officials, business, NGOs and international organizations, partner to more successfully promote transparency and accountability?

31. § Djordjija PetkoskiWorld Bank Institute THANK YOU