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How Bribery and Other Types of Corruption Threaten the Global Marketplace

In Turkey, the apartment buildings that collapse during earthquakes are known as "bribe buildings." In Africa, bridges dot the landscape with no roads to connect them. There's no doubt that corruption, endemic in emerging economies around the world, throws economic development into chaos. Here Wharton legal studies professor Phil Nichols discusses the effects of corruption and how to combat it.
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In Turkey, the apartment buildings that collapse during earthquakes are known as "bribe buildings." In Africa, bridges dot the landscape with no roads to connect them.

There's no doubt that corruption, endemic in emerging economies around the world, throws economic development into chaos. It affects decisions made by bureaucrats, degrades the quality of those in power, and discourages foreign investment. It's also an increasingly hot business topic, with a growing number of influential business and political leaders from around the globe regularly pinpointing corruption as one of the greatest threats to global economic development.

"Corruption and bribery have moved to the forefront in discussions about business," says Wharton legal studies professor Philip M. Nichols. "The list of countries that have been politically or economically crippled by corruption continues to grow, and businesses with long-term interests abroad will ultimately be harmed by any plans that include bribery."

Nichols, the author of more than 10 studies and theoretical writings on the implications and mechanics of corruption, has spent the past decade studying corruption in such nations as France, Belize, Russia, Kazakhstan, and Bulgaria. Most recently, he examined perceptions of corruption in Mongolia, where he lived for a year while studying and teaching on a Fulbright Scholarship. In September, Nichols offered anti-corruption strategies to entrepreneurs at a national conference in St. Petersburg, Russia. Last month he led a weeklong seminar on corruption in Tashkent, Uzbekistan run by the Resource Network for Economic and Business Education. "A decade ago, corruption was not a proper subject for polite scholars or policymakers," Nichols and his co-authors wrote in a recent research paper. "Today, the creation of and comment on anti-corruption regimes is a growth industry."

Bribery, of course, is the most widespread form of corruption, and corporate strategies for dealing with bribe requests vary. According to Nichols, some companies opt to pay, sometimes damaging their public images and making it more difficult to refuse future requests. Others have the sheer bulk and revenues to successfully and consistently say "no." Oil giant Texaco, for example, has such a formidable reputation for refusing to pay bribes that its jeeps are often waved through even remote African border crossings without paying a penny.

A key, Nichols suggests, is wiring this no-bribe ideal into a corporation's culture, starting with a corporate code for managers and employees, affiliates and potential business partners. But coming to grips with what appears to be an international groundswell of corruption is far from a simple matter. Nichols believes that unraveling and explaining the mechanics of corruption is critical to helping the growing body of government and corporate organizations trying to fight it.

His research on Mongolia, for instance, compared views of corruption in Mongolia and Bulgaria, two countries at the opposite ends of the former Soviet empire. The study revealed that university students in both countries had nearly identical ideas and perceptions about corruption, something Nichols found surprising. "This does not support the idea that corruption is a completely relative cultural construct," he says. For those in the field trying to study and control corruption, it's interesting to see that there might be "a shared understanding" of it.

On a practical level, what does the upswing in international corruption mean to a company? "The fact that a great number of government officials in a great number of countries, including some potentially large markets, seem to demand bribes is critical to any business that has a cross-border presence," says Nichols. "Then there's the reality that more than 20 nations, including the wealthiest and most-active trading nations, have made bribe paying illegal, and the fact that despite this there are still competitors who will pay bribes.

"These facts combined make for some extremely difficult terrain. Officials expect you to pay bribes, some of your competitors will will pay them, but you might go to jail if you do."

The 'Corruption Perception Index'

Much of the comparative evidence about bribery is anecdotal, though Nichols alone can cite numerous instances. In Kazakhstan, several foreign businesses have told Nichols that the typical bribe amount that must be given to win approval of a large construction project is between 15% and 20% of the contract price -- which often means that the bribe alone will amount to hundreds of millions of dollars. In Russia, meanwhile, a retail chain manager told Nichols that a bribe of US $4,000 would lower the tariff on a truckload of printer cartridges from U.S. $20,000 to U.S. $4,000.

International businessmen and women say the number of countries in which they expect big bribe demands has risen staggeringly. A recent study by Berlin-based Transparency International pegged 70 of 102 countries surveyed as likely places for executives to be hit up for bribes. TI's "Corruption Perception Index" incorporates data from surveys, polls and other ratings on the number of bribe requests perceived by business people who regularly conduct business in a given country. A score of 10 means people perceive that bribe requests are never made in a particular nation, while a zero indicates the perception that bribes are always requested.

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Last updated: Oct 24, 2002




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