The Business Case for Putting Ethics at the Heart of Corporate Culture

Participants at Ethisphere

Participants at Ethisphere’s 2014 Europe Ethics Summit.

In today’s global business environment, corruption poses a risk that companies with operations around the world must understand and manage effectively. Those that do reap the benefits. As the Ethisphere Institute points out, the business case is clear: the five year annualized performance of the World’s Most Ethical (WME) Companies Index was 21 percent, beating S&P 500’s 18 percent. Similarly, the ten year annualized performance of the WME Index is, at 11.4 percent, significantly higher than that of S&P 500 at 7.4 percent.

The key to success in ethical business is placing ethics at the center of corporate culture and building strong compliance programs that can mitigate corruption risks. That was the overarching theme of the recent 2014 Europe Ethics Summit: Leadership through Ethics and Governance, hosted in London by the Ethisphere Institute and Thomson Reuters. The Summit was Ethisphere’s first such event in Europe and gathered nearly 150 compliance experts, professionals, and stakeholders.

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Ghana: A Trendsetter for Resource-Rich Emerging Markets?

In four out of six petroleum agreements recently approved by Ghana’s Parliament, the government required oil and gas producers to certify compliance with the Foreign Corrupt Practices Act (FCPA), UK Bribery Act, and OECD Anti-Bribery Convention. At an event in June sponsored by the Ghana government, the FCPA was referred to as model legislation for fighting abuses in the oil and gas industry. This new standard highlights the importance of anti-corruption compliance for companies and businesses seeking to do business in global markets.

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Case Studies: Advancing Anti-Corruption Efforts in Armenia and Thailand

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Corruption is a systemic problem that plagues many transitional countries across the world, rooted in weak rule of law and lack of private property rights. Not only does corruption erode trust in public institutions, such practices also hinder economic growth and weaken democratic governance.

The corruption challenge can be addressed by building responsive institutions that offer basic assurances of private property rights and ensure law and order. CIPE programs address the root causes of corruption through a multi-pronged approach. CIPE programs mobilize the private sector to raise anti-corruption standards and advocate for reforms; streamline regulations and reduce implementation gaps to limit opportunities for corruption; improve corporate governance to strengthen firm-level integrity; facilitate collective action to level the playing field and coordinate company efforts; and equip small and medium-sized enterprises to resist bribery and meet the requirements of global value chains.

Two recent case studies, described below, show these CIPE approaches in action.

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To Escape From Violence, Iraq Must Tackle Its Economic Problems As Well As ISIL

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Smoke billows from a key oil refinery damaged by ISIL attacks in northern Iraq in June. Repairs are expected to take more than a year.

After months of political wrangling in Baghdad and advances made by the Islamic State of Iraq and the Levant (ISIL) – also known as IS or ISIS – the Iraqi Parliament finally approved a new, more inclusive government led by a new prime minister, Dr. Haider al-Abadi, in early September.

At a recent roundtable event with Iraqi and U.S. experts, held under the Chatham House Rule, participants expressed cautious optimism over the new government. However, in the uphill battle to confront immediate threats to the country’s security, Iraq’s economic crisis has largely been ignored.

According to one participant, the fact that the new cabinet of ministers included members of Iraq’s various minority groups, and that three leading political rivals – former Prime Ministers Nouri al-Maliki and Iyad Allawi and former parliament speaker Usama al-Nujaifi – were given posts as vice presidents, was a good sign.

Another in the room pointed to the moderate leadership of Iraq’s new Prime Minister. Dr. Abadi, who belongs to the Shi’ite Islamic Dawa party, has a reputation as a political moderate, was educated in the UK, and has served on various Iraqi parliamentary committees since 2006, including those for finance and economics. A change in political leadership at the top, the participant argued, could rebuild trust between the central government in Baghdad and Iraq’s marginalized communities. More importantly, Abadi has pledged to foster national dialogue, political reconciliation, and decentralization.

Iraq’s economic challenges – high unemployment, poverty, rising prices, and food shortages – will only contribute further to the security crisis if they are not addressed. More than 50 percent of the goods imported into Iraq – including raw materials and food – have been blocked at the only official border crossing with Jordan, which is now under the control of ISIL. Iraq’s final budget for fiscal year 2014 remains unapproved by the Iraqi Parliament, and since the economy is dominated by the public sector – the government and state-owned enterprises employ about half of Iraq’s total workforce – the lack of government spending has ground the entire economy to a halt.

At the end of the day, ordinary citizens in Iraq are bearing the brunt of economic damages caused by the regional insecurity and the political process in Baghdad.

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The Role of International Trade Agreements in Fighting Corruption

Cargo ships in Rotterdam Harbor. In 2013, trade between the U.S. and EU totaled more than $650 billion.

Cargo ships in Rotterdam Harbor. In 2013, trade between the U.S. and EU totaled more than $650 billion. (Photo: Wikimedia Commons)

This post was published in Corporate Compliance Trends, CIPE’s new blog focused on anti-corruption compliance issues in emerging and frontier markets.

The next year is shaping up to be a big one for multilateral free trade agreements and, by extension, efforts to fight corruption in international commerce.

First, there is the historic Trade Facilitation Agreement (TFA) that grew out of the World Trade Organization (WTO) accord reached in December 2013 in Bali. Under the TFA, all the WTO’s 160 members agreed to work toward reducing the red tape and corruption at ports of entry, so that goods can move more quickly and economically from country to country. Second, there is the Transatlantic Trade and Investment Partnership (TTIP), between the United States and the 28 nations of the European Union. Together, the U.S. and EU account for 60 percent of the world’s GDP.

What do trade agreements have to do with reducing corruption? Historically, not much. But these two agreements break new ground both in their scope and their potential for attacking corruption as a barrier to trade. This fact is often lost in media coverage that focuses on winners and losers within specific countries and economic sectors. Adding to the lack of attention paid to corruption issues is the fact that negotiations are complex, not always transparent and can take years to conclude.

To zero in on the role of corruption in disrupting free trade, American University’s Washington College of Law recently put together a panel of experts and advocates, headlined by former World Trade Organization Director General Pascal Lamy. The moderator of the “Addressing Corruption in Global Trade” session, Nancy Boswell, framed the issue concisely.

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Shaping the Post-2015 Development Agenda

In 2000, the United Nations laid out an ambitious global development agenda known as the Millennium Development Goals (MDGs), which sought to resolve some of the most pressing international challenges of our time: eradicating extreme poverty and hunger, achieving universal primary education, promoting gender equality, improving maternal health, reducing child morality and promoting environmental sustainability.

While the world has made progress on many of these objectives over the past 15 years, the deadline for developing the new set of global development goals is quickly approaching. The current goals will expire on December 31, 2015 and a new set of principles will replace them. The question of what these principles will look like is explored in detail in the latest Economic Reform Feature Service article Shaping the New Development Agenda.

Author James Michel argues that the post-2015 agenda will need to address an increasing number of complex issues and reconcile the goals of a diverse group of actors in the development landscape. While the concrete set of goals have yet to be outlined, what is becoming clear is that there has been a shift in thinking related to international development. Michel’s article explores the emerging consensus that the post-2015 goals will be based on advancing “human security, well-being, and dignity” and will incorporate the Busan principles of “developing country ownership, a focus on results, inclusive partnerships, and mutual accountability and transparency.”

Furthermore, the traditional relationship between donor countries and recipient states, characterized by North-South dependency, will be transformed to an active partnership with an emphasis on local ownership and South-South exchange of knowledge, expertise, and trade. The agenda will pay greater attention to “exclusion and inequality, urbanization, demographic challenges and the positive contribution of migrants” among others. The paramount challenge will be to incorporate these diverse concerns in a coherent policy agenda focused on sustained, inclusive growth.

To read more on the topic of the post-2015 development agenda, read the article here.

Teodora Mihaylova is a Research Coordinator at CIPE.

Nigeria Elections 2015: Building the Private Sector Voice through Coalitions

Coalition members meet with political parties. (Photo: @sentellbarnes, IRI)

Coalition members meet with political parties. (Photo: @sentellbarnes, IRI)

Nigeria’s upcoming elections have been attracting a lot of international attention because of the country’s population, economy, and political status, which are among the highest on the continent. Over the course of a few weeks in early 2015, Nigerians will elect state and national level leaders, including governors and the president.

While Nigerian civil society and the private sector have had difficulty in the past moving national political dialogue towards substance and policy, recent success has been seen at the state level. It is hoped that success will continue in the rhetoric surrounding the state elections, so much so that there can be spill-over into the national dialogue.

Over the past few years, the Center for International Private Enterprise (CIPE) has partnered with coalitions of business and professional associations in seven states across the North Central Zone and Enugu State. The partnerships have been centered on building the advocacy capacity of the various coalitions. Because Nigeria is has a federated system, civil society can attempt to effect change at the state level when it would prove too costly, inefficient, bureaucratic, or in a few cases too corrupt, at the national level.

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