Tackling the Supply Side of Corruption in Thailand

Corruption is widespread in Thailand, hindering business activity and impeding economic growth. According to Transparency International’s Corruption Perceptions Index, Thailand ranks 102 out of 177 countries and territories. Since 2010, under the guidance of the Center for International Private Enterprise (CIPE), the Thai Institute of Directors (IOD) has built a coalition of Thailand’s largest businesses and most influential business associations united in their commitment to tackle the supply side of corruption. Coalition members all sign the Collective Action Against Corruption Declaration and pledge to take tangible, measurable steps to proactively reduce corruption-related risks. These steps include implementing anti-corruption policies and compliance programs, providing guidance on business conduct to managers and employees, and disclosing internal policies and experiences to help disseminate and promote best practices. Significantly, a company submits to an external evaluation that verifies whether it is meeting its commitments. The IOD estimates that member companies now represent nearly 20 percent of the Thai economy and more than one million employees. By establishing uniform standards of conduct and sharing anti-corruption experiences and practices, this campaign is leveling the playing field for business and increasing transparency and accountability in Thailand.

Background

In emerging markets and fragile democracies, increased attention is being paid to the economically disruptive and politically destabilizing impact of corruption. The vast majority of reform efforts focus on the public sector, such as regulatory reforms, disclosure requirements, and the creation of new oversight bodies. Many anti-corruption advocates overlook the role of the private sector in a country’s fight against corruption, believing that business interests fuel corruption. However, a mounting body of evidence shows that high levels of corruption harm the private sector, with smaller businesses suffering the most. In Thailand, CIPE’s work is demonstrating not only that private businesses are interested in reducing corruption, they can be mobilized to take concrete steps against it.

Corruption is perhaps the most destabilizing issue facing Thailand. It has been the principal stated justification by the military and by the courts for the dissolution of elected governments. In Thailand, public perceptions and allegations of corruption can undermine government to such an extent that elected governments lose legitimacy in the eyes of competing segments of society.

In 2009, the government of Thailand began exploring possible collective action approaches to combating corruption, and interest in this concept rapidly grew. In June 2010, CIPE launched a project with the Thai Institute of Directors (IOD) to cultivate private sector support for anti-corruption strategies. The CIPE-IOD project galvanized the burgeoning interest in collective action and translated it into a viable private sector campaign that is rapidly gaining momentum.

Initial Steps

Through meetings with various governmental, donor, and corporate stakeholders to discuss potential collective action, CIPE learned that two key factors were frustrating the country’s efforts to initiate a collective action program. First, while all agreed that this initiative would fail without the full support and buy-in of the Thai business community, there was no consensus on how the business community could take the lead, and no private sector champions were emerging.

Secondly, there was limited understanding of what “collective action” meant, with initial discussions focused almost exclusively on integrity pacts. Because integrity pacts are highly complex and limited in scope, and because other collective action strategies (that are more feasible and easier to implement) were not pursued, early efforts to design a collective action program did not go far. With the aim of harnessing the widespread but disjointed interest in collective action in Thailand, CIPE approached IOD to explore potential partnership opportunities, and in June 2010, CIPE and IOD launched a project to design private sector approaches to combating corruption.

Initial steps included a series of workshops at which CIPE provided examples from around the world where CIPE partners are pursuing collective action approaches to fighting corruption (initiatives not limited to integrity pacts). These case studies illustrated successful efforts to strengthen national corporate governance standards, and to promote the adoption of anti-corruption declarations, stronger internal codes-of-conduct, and business ethics pacts within the national business community.

To determine which forms of collective action would be most applicable and relevant to the Thai marketplace, IOD conducted a survey (which CIPE helped design) of its member companies – and the member companies of other business associations – to document the private sector’s experiences with and opinions on corruption. This survey found that Thai businesses both large and small were interested in taking practical steps to contribute to a national anti-corruption effort.

Collective Action Against Corruption Declaration

CIPE equipped IOD and the private sector coalition with an array of collective action tools, based on examples from CIPE’s partners and programs around the world. IOD emerged as the local leader for the campaign and designed a strategic roadmap for implementing a collective action program within the Thai business community. At a large conference that attracted considerable media attention, several dozen of Thailand’s most prominent firms and business associations pledged to support this initiative and to sign IOD’s Collective Action Against Corruption Declaration. IOD’s position and reputation within the business community was invaluable to establishing the credibility and business value of this initiative.

When a company signs this declaration and joins IOD’s anti-corruption coalition, the company pledges to take tangible and measurable steps to proactively reduce corruption-related risks. These steps include the implementation of anti-corruption policies and compliance programs that are in line with international best practices, and companies must provide guidance on business conduct to managers and employees. Additionally, coalition companies pledge to disclose and share their internal policies and experiences – even with competitors – to help disseminate and promote best practices. Perhaps most significantly, a company must submit to an external evaluation that verifies whether or not it is actually doing what it has promised to do.

Developing Content

CIPE and IOD developed curriculum for new anti-corruption training courses for companies. The first is a one-day course for corporate directors and senior executives that provides instruction on anti-corruption and corporate compliance concepts. Participants also learn how they can establish high-level compliance protocols that reduce the likelihood of company employees resorting to corrupt business practices.

The second course is for corporate staff with duties related to compliance and internal controls. At this two-day program, which is more technical in nature, participants learn how to assess corruption risks and how to design internal controls that address these risks. Both courses were such demand by companies that IOD began charging participation fees. This is not only a testament to the value companies place on these issues, but also provides a dedicated source of revenue which helps ensure the long-term sustainability of this collective action initiative.

Numerous events have maintained a high level of media attention and public awareness of this initiative. This has helped IOD continue to attract new members to the coalition, which now consists of the largest Thai and multinational corporations in Thailand, along with the country’s most influential business associations. CIPE and IOD estimate that the coalition companies (not including the business associations) represent over 15 percent of the entire Thai economy.

Certification

Finally, CIPE and IOD developed a new methodology for certifying compliance by member companies. The certification process consists of a self-evaluation by coalition companies, an external audit to verify this evaluation, and final approval by a panel of experts. The panel of experts is a 12-member committee comprised of former business executives, former government regulators, and corporate governance experts. IOD serves as the secretariat for the committee. The compliance self-evaluation audit is built into a company’s annual audit. When coalition companies undergo their required annual audit, the auditor is provided a short checklist which verifies that the company is in compliance with all requirements laid out in the Collective Action Against Corruption Declaration. In this way, the company is following through on its anti-corruption commitments. Companies that do not pass the certification are given time to address outstanding issues. Continued noncompliance results in removal from the coalition. To date, nearly 60 coalition companies have completed the certification process and another 15 have submitted applications to do so.

This process of formally verifying that companies live up to their anti-corruption promises, and sanctioning those that do not, ensures that the CIPE-IOD collective action initiative is as robust and comprehensive as any private sector anti-corruption effort in the world.

Conclusion

As a result of the CIPE-IOD partnership, collective action is no longer an abstract concept in Thailand – it is an actual movement within the business community to attack the supply side of corruption. By establishing uniform standards of conduct to which companies must adhere, and by facilitating the sharing of information on anti-corruption experiences and best practices, this anti-corruption campaign is leveling the playing field and increasing transparency and accountability in the Thai marketplace. This reduces the likelihood that businesses engage in corruption. In other words, this collective action initiative is changing “the way things are done” in Thailand. To date, the coalition stands at 325 members; 157 of the member companies are listed on the Stock Exchange of Thailand (SET). This represents more than 25 percent of all listed companies and these member companies make up more than 50 percent of the stock exchange total capitalization. CIPE and IOD estimate that the coalition represents nearly 20 percent of the Thai GDP and more than one million employees.

The success of the anti-corruption efforts in Thailand have been outlined in the following best practices and lessons learned:

• Private sector collective action cannot be a government-led or donor-led initiative. To achieve local buy-in, it must be viewed as a genuinely local effort.
• Private sector collective action against corruption involves much more than integrity pacts. These efforts must include a plan and roadmap that is in place at the outset of the collective action effort, including the key elements of the effort, before steps are taken to recruit members to the coalition.
• Standards and requirements of coalition companies should be specific and measurable, so that companies understand their commitments, and their compliance can be verified.
• Generating positive media coverage of the collective action effort provides a strong incentive for companies to join the coalition.
• When public sector action is not possible (for whatever reason), the only way to make progress in the fight against corruption is to mobilize the private sector.

This case study was published in CIPE’s “Strategies for Policy Reform Volume 3: Case Studies in Achieving Democracy That Delivers Through Better Governance,” click through to download and read more.