Can Boards Help Fight “Compliance Fatigue” In Emerging Market Firms?

compliance-fatigue

In the first half of 2014, anti-corruption enforcement actions by the U.S. alone cost the business community more than $500 million. It would seem logical that as a result anti-corruption compliance would be at the forefront of every multinational corporation’s activities. But that’s not the case, at least as described in the 2014 Global Fraud Survey, perhaps one of the largest and most credible surveys on the topic, released by Ernst and Young (EY) earlier this summer.

The report indicates that businesses around the world are suffering from what EY has dubbed “compliance fatigue.” After surveying more than 2,700 business executives in 59 countries, EY discovered that “despite the aggressive enforcement environment…the percentage of companies that have anti-bribery/anti-corruption (ABAC) policies has increased by only 1%.”

According to the survey, the reason for such stagnation rests with chief executives who are reluctant to participate in compliance training programs and take other necessary steps. EY does note that “the majority of businesses have put in place many of the building blocks of effective compliance programs.” However, “one-fifth of respondents say that either their business does not have an ABAC policy or that they do not know if there is a policy” representing a “persistent minority” of firms that have yet to adopt any measures to prevent bribery.  Within this minority, the report shows that executives are not only apathetic towards compliance, but “are willing to act unethically to win or retain business.”

Because executive officers face greater exposure to corruption risks, EY posits that the best course of action to alleviate this compliance fatigue is for boards of directors to maintain a high level of pressure on C-suite executives to ensure they are taking the necessary precautions. The survey authors state, “This level of scrutiny will drive a higher level of engagement among senior executives.” This solution, however, hinges on the idea that board members have sufficient knowledge and understanding to provide such oversight. Unfortunately, CIPE’s work in emerging markets around the world have shown that this is not always the case.

Read More

Investing in Corporate Governance Practice in Palestine

steve-pgi2

Program Officer Stephen Rosenlund discusses best practices in corporate governance based on CIPE’s experience in the MENA region.

On September 9-10 in Ramallah, I had the privilege of participating in a CIPE-supported training workshop on corporate governance with the leaders and technical staff of nine Palestinian chambers of commerce from the West Bank. This was an unprecedented gathering organized by our partner the Palestine Governance Institute (PGI) and the Federation of Chambers of Commerce, Industry, and Agriculture to activate the chambers as resources for their member firms on corporate governance matters.

The two-day training workshop immersed participants in applicable legal and regulatory frameworks, the role of oversight institutions, and best practices in corporate governance at the firm level. While the different requirements applicable to publicly traded and private companies were examined, presenters emphasized the imperative for all firms regardless of size or ownership structure to adopt sound corporate governance practices. Data from numerous studies show that investing in corporate governance is a good business decision that enhances the performance and sustainability of companies. In addition, it has a positive aggregate effect on society in the form of economic development.

Moreover, well-governed companies tend to act ethically — by resisting paying bribes, for example — and therefore reduce the amount of corruption in society. A private sector that has its own house in order is also better positioned to engage in dialogue with public officials to bring about needed policy, legal, and regulatory reforms that will improve the environment for business. Continue reading

Case Studies on Democratic Reform in Yemen and Paraguay

paraguay debate

Democracy is a process of governance most often based on compromise, grounded in broad-based inclusiveness of differing viewpoints and the representation of diverse constituency interests. While free and fair elections are certainly one of the most recognizable hallmarks of the democratic process, a vibrant dialogue between political candidates preceding an election makes a vitally important contribution to the quality of governance.

Candidate debates serve multiple purposes. First, debates inform the electorate of the issues being considered. Second, televised debates offer an opportunity for voters to form an opinion and differentiate between candidates based on the substance of their policy positions. Third, debates promote transparency and improve the quality of democratic governance as candidates are able to directly express their views to the electorate, engage with their colleagues, and elevate certain issues over others in the national consciousness. Similarly, input from the private sector and civil society in the formulation of economic and social policy is another characteristic of a vibrant democracy as broad-based participation in the policymaking process ensures that proposed legislation represents the interests of all constituents.

CIPE possesses over thirty years of experience in strengthening democracy worldwide and promoting market oriented reforms in various country contexts. In the forthcoming publication Strategies for Policy Reform, two case studies from Paraguay and Yemen represent distinct approaches to ensuring that democracy delivers economic and political freedoms to citizens.  Continue reading

Pakistan Seeks Potential Solution to Political Protests

ISB-protest

For the past several weeks, Pakistan has faced a set of dual protests that have sparked a political crisis. One protest, led by former cricket star turned politician Imran Khan, head of the PTI party, draws on Khan’s allegation of widespread rigging in the landmark 2013 elections. Khan’s demands include electoral reforms, a redo of the election, and, controversially, the resignation of Prime Minister Nawaz Sharif of the PML-N party.

The other protest, led by Sufi cleric Muhammad Tahir-ul-Qadri, who heads the PAT party, seeks justice for followers killed and injured in a June incident at his headquarters. Qadri has demanded a full investigation, and also seeks the resignation of Punjab Chief Minister Shahbaz Sharif, the Prime Minister’s brother. After marching to Islamabad and holding daily rallies, the protests eventually turned violent. While the violence subsided, and the army has mediated talks among the government, Khan and Qadri, the situation has not yet abated.

These crises come at a difficult time for Pakistan. The country is dealing with massive floods after heavy monsoon rains. Furthermore, because of the protests, the center of Islamabad has been shut down for more than month, freezing legislative and ministerial activity in the capital. As a result, the government has been unable to make any progress on meeting an extensive set of conditions to keep badly-needed funds flowing under an IMF loan facility. Moreover, the much-awaited visit of Chinese President Xi Jinping has been postponed.

Over the past year, as shown by CIPE’s partner PRIME, an Islamabad-based think tank, the government has made only limited progress toward implementing an ambitious economic reform agenda, thus engendering widespread frustration. Against this backdrop, many observers worried that the military could seize power again, as it has done in the past, or at least seek greater influence. Citing a report from the US Congressional Research Service, there was fear that this could cause the US to withdraw crucially needed support. Continue reading

The Democratic Alternative from the South

day-of-democracy

Each year on September 15, the UN observes the International Day of Democracy to celebrate efforts to promote and consolidate democracy around the world.  Despite these efforts however, the realization of consolidated democracy continues to be a struggle for many reformers.  This year, the UN has chosen a theme of “Engaging Young People in Democracy” and acknowledges that “study after study show declining faith among young people…with declining levels of participation.”  Compounding this declining faith in democracy is a rising ideological competitor in the form of economically successful authoritarian regimes.

As much as young people are recognized as dreamers and agents of change, these characterizations tend to be the result of youth wanting to see an improvement in their quality of life.  In emerging countries such improvements are often delivered through economic growth, and in cases such as China and Singapore youth populations can honestly say their standard of living has gotten better year after year.  These examples can lead youth to become disillusioned with democracy, especially at a time when the world’s major democracies are suffering the aftereffects of a major financial crisis. Meanwhile, in the developing world, kickstarting growth in democratic regimes often takes time due to a need to build consensus and develop proper policies.

Quality of life, however, is not measurable only in terms of indicators such as income levels, consumption, and GDP — though almost all of the world’s most prosperous countries are democracies.  Other, arguably more important aspects such as human rights, liberty, and freedom are also vital components.  Since 2012, CIPE has been part of a consortium seeking to analyze the development paths of three emerging democracies (India, Brazil, and South Africa) in order to create an argument in support of democratic development. Continue reading