What’s at stake for suppliers, customers and business integrity in general

Many of the perspectives and ideas below were shared by participants at a private-sector roundtable in November 2019 and a practitioner roundtable on September 2020.

Based on these, we have published a Working Paper on local certification that summarises and analyses the key issues.

We are continuously refining them as we progress in our research and analysis on local certification projects. All feedback is welcome.

The view from multinationals

Multinational companies have to protect their reputations and manage their corruption risks, including in supply chains and partnerships.

The regulatory landscape continues to evolve, especially with regards to due diligence. Companies have to demonstrate their dynamic and responsive anti-corruption compliance programmes to regulators, investors and governments – as well as, increasingly, consumers and civil society.

However, compliance and risk assessment professionals at MNCs report that in some countries it is difficult to get hold of basic information needed for proper due diligence on third parties. And even if the information is available, it is often hard to verify or corroborate. Language and cultural barriers add to the difficulty.

Common challenges can be as basic as obtaining extracts from company registers or knowing if a passport is genuine. Such situations understandably arise in countries with weak political economies or opaque business cultures. But even in places with greater transparency, a compliance officer may still lack knowledge about local standards.

This all makes the compliance aspect of entering new markets or onboarding new suppliers time-consuming and expensive. It also adds to potential risk.

Of the international companies we have spoken to during our research for this project, almost all stated that being able to rely on local anti-bribery and corruption certification would be helpful.

It would be most relevant for third parties with a low or medium risk level. High-risk third parties, they agreed, would still need enhanced due diligence with greater oversight and controls.

The companies agreed that having trust in the certifying institution and process was key.

Options for SMEs

Those on the receiving end of the due diligence – mostly SMEs – have long complained of their frustration with the processes to which they are subjected by their MNC customers.

We have seen many cases where, even if the company meets their customer’s or investor’s requirements, completing multiple forms and providing documents is often difficult. Why? Because each customer or investor has their own specific set of requirements and may require similar but not identical documents. Additional hurdles are language barriers and the fact that requests for evidence may not align with locally available documentation. 

On top of this, practitioners report that many of the SMEs they work with start out with a modest understanding of anti-corruption compliance. Their customers seldom provide support in terms of information or training.

What are the options for these smaller companies? Not many. The internationally recognised ISO 37001 certification for anti-bribery management systems is, they say, too expensive and too burdensome. Those who have explored the possibility of ISO certification say that the certifiers may not be acceptable to their customers either.

In these cases, local certification can be part of the solution. According to feedback received by the Thai Collective Action Against Corruption on its certification programme, business leaders recognise multiple benefits from both the certification itself and the process leading up to it:

  • Support in strengthening compliance and internal controls;
  • A better understanding of how to approach government agencies to reduce the risk of being asked for bribes;
  • A better understanding of procedures in high-risk transactions;
  • Significant savings if introducing a strict gifts and entertainment policy.

Other initiatives report that certified companies or compliance professionals use their certification to raise their profile in the industry as a reputable partner and supplier. Several initiatives support this promotional aspect by listing certified members, companies or individuals on their websites, such as the Nigerian Corporate Governance Rating System’s “honour roll” of certified company directors.

Although it is difficult to link cause and effect, some practitioners have seen recently certified companies gain new contracts with large customers.

Why governments should care

Governments that wish to attract foreign companies and investment need to provide a favourable business climate. This includes improving their performance on indices related to transparency, corruption and money laundering risks, such as Transparency International’s Corruption Perceptions Index and the Basel AML Index.

Supporting local efforts to raise integrity in key business sectors can help with this, as well as offering MNCs an easier path to doing business in the country.

Some members of local certification initiatives call for greater direct benefits from government for certified companies. Ideas include preferential treatment in government procurement processes, tax benefits or expedited customs clearance and permit issuing.

Although these ideas are controversial, they may be appropriate in some cases. Many of the 40 central banks that support the Banknote Ethics Initiative, for example, require BnEI certification as a prerequisite to bidding on tenders. According to the BnEI members, this is helping to raise standards of integrity and transparency across the banknote industry.

Similar direct support from government for other forms of Collective Action, such as Integrity Pacts or the High Level Reporting Mechanism, has also helped to improve transparency and efficiency in high-value procurement processes. These tools have also contributed to creating confidence for foreign companies interested in bidding in these processes.

Challenges in implementation

Local compliance certification often makes sense in theory. In practice it’s often difficult to get a project off the ground.

Why? Our research and conversations with practitioners indicate several possible reasons:

  1. The need for trust in the local certifying organisation
  2. The high set-up costs of a certification programme
  3. The difficulty in persuading companies or individuals to undergo certification – what is the added value?
  4. The need for first movers and a critical mass
  5. Managing expectations – certification is not a silver bullet
  6. External political, economic and social factors play a big role and are difficult to influence

How a Collective Action approach can help

A Collective Action approach can help solve some of the above challenges. Here are the main ideas, which we will expand on as the project progresses. You can see some of the practical approaches taken by current certification initiatives on the “In practice” page.

Although implementation differs in different contexts, the main idea of a Collective Action approach to certification is to bring all stakeholders together. This often means compliance officers at MNCs with the leaders of SMEs plus government or civil society where relevant. The presence of an independent facilitator helps mitigate antitrust issues and allow the members to listen to one another and jointly find solutions. How does this help solve the problems identified above?

First, practitioners find that the involvement of a variety of stakeholders, including where possible the MNCs themselves, helps to build trust in the project.

Second, costs can be kept low if the scheme is run for the benefit of members and not as a profit-making enterprise. Member-to-member support and in-kind contributions, such as hosting meetings, are also reported to help to reduce the set-up costs of a certification programme.

Third, where companies are involved in developing an initiative through Collective Action, they are able to provide input and influence the final outcome. In the case of a certification standard, this means it is more likely to be relevant to their business needs – and therefore clearly provide added value.

Fourth, when certification builds on a Collective Action initiative, practitioners find it is easier to persuade companies to be first movers. The networking aspect means that others will quickly see the benefits and join themselves.

Regarding expectation management: Collective Action has been described in many different ways since the World Bank first wrote its oft-quoted definition in 2008:

“A collaborative and sustained process of cooperation between stakeholders. It increases the impact and credibility of individual action, brings vulnerable individual players into an alliance of like-minded organisations and levels the playing field between competitors.” – World Bank Institute (2008), Fighting Corruption through Collective Action – A Guide for Business.

What nobody has ever called Collective Action is a quick-fix solution to one-off problems. Seeing certification as a “sustained process of collaboration” in which companies can advance together can help keep expectations realistic.

Lastly, this collaborative and sustained approach can also help ensure flexibility and resilience in the face of external changes in the political, legal, economic and social landscape.