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Corporate Governance: staying ahead of the risk of corruption
British High Commissioner to Sri Lanka James Dauris recently spoke on “Corporate Governance: staying ahead of the risk of corruption”
Below are excerpts from his speech:
I’d like to use my opening slot to give some general context to our topic this morning and to issues our expert panel members will be talking about in more detail.
First, Corporate Governance. Corporate governance is, quite simply, the system by which companies are directed and controlled. It is about what the board of a company does and how it sets the values of the company. Doing this well requires relationships in which directors can be frank and open with each other. It is about the relationship between the board and the shareholders, and the auditors who the shareholders appoint.
Its purpose: to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.
And the second term key to this morning’s discussion: Corruption.
Here’s the Transparency International definition: Corruption is the abuse of entrusted power for private gain. The scale and the context can vary greatly.
The maths isn’t precise, but there’s no doubt that the cost of corruption is enormous. At the global level World Economic Forum estimates show that the cost of corruption equals more than 5% of global GDP. The World Bank estimates that over US$ 1 trillion are paid in bribes each year. Ethics aside, the cost is unaffordable – in political, economic, social and environmental terms.
As you would expect of so costly a problem, its consequences go widely.
Corruption is one of the main obstacles to sustainable economic, political and social development, for developing, emerging and developed economies alike.
It increases the cost of doing business – the cost of bribes and time wasted in drawn-out negotiations; the risks of prosecution and reputational damage; the business uncertainty that it creates. The World Economic Forum estimates that corruption increases the cost of doing business by up to 10% on average. It makes honest business harder to do.
On the macro level, corruption distorts market mechanisms, like fair competition; IMF research confirms that it deters domestic and foreign investments, thus stifling growth and future business opportunities for all stakeholders.
At the public level it leads to waste or the inefficient use of public resources; it helps to perpetuate poverty; it corrodes public trust, undermines the rule of law and ultimately delegitimises the state. It damages safeguards that are good for human rights and for business. Democratic freedoms, good governance, the rule of law, and accountability create fertile conditions for private sector led growth. Dealing effectively with the threat of corruption helps to build a fairer, more inclusive and more sustainable global economy.
The fight against corruption is a priority for the British government. Indeed, the United Kingdom Bribery Act 2010, which is extra-territorial in its reach, has been described as “the toughest anti-corruption legislation in the world”. We can’t and don’t claim to have beaten corruption. But we do take it seriously, we take the fight against it seriously, and we demand that companies with links to the UK take it seriously. In May 2016, we hosted the first Anti-Corruption Summit for heads of state and government – its purpose to step up global action to expose, punish and drive out corruption in all walks of life. It was good to have President Sirisena representing Sri Lanka at the Summit, at which he said that Sri Lanka would be working towards making the public service corruption-free at all levels, and addressing corruption within the private sector. These are laudable goals. The recent passing of the Right to Information Act provides a useful tool to help advance these goals.
I am proud of the work my High Commission has been doing, at the invitation of the Prime Minister, to share our experience of tackling financial crime with practitioners here. We have had colleagues from our Serious Fraud Office working in Colombo with local agencies, sharing expertise and providing training that we hope will help to lead to successful prosecutions. We committed to giving this support because we believe that making progress in the fight against corruption is good for Sri Lanka, for Sri Lankans, for Sri Lankan businesses. Get it right, at least get it better, and it will be easier for Sri Lankan businesses to prosper, will help companies and country alike to attract investment, and will enhance the country’s international reputation.
Where does Sri Lanka stand in all this? I hope you’ll agree that it’s fair to say that it has been worse but it’s not as good as it needs to be in the national interest. In the 2016 Corruption Perceptions Index prepared by Transparency International, Sri Lanka is ranked 95 out of 175 countries, with a score of 36%. India, to make a neighbourly comparison, is ranked 79 with a score of 40%. The report comments that the year’s results highlight the link between corruption and inequality. In turn, Transparency International assesses, the interplay between corruption and inequality feeds political populism.
This may sound a bit dry. But ask yourself why good corporate governance should matter to your business, and evidence from markets and the experience of companies around the world paints a consistent picture:
- It creates trust among your shareholders, leading to higher share values.
- It creates trust among your investors, making it easier to source capital for growth.
- It creates trust with your customers, giving them greater confidence that your products will be good.
- It enhances your company’s public image, and helps you to operate with integrity, protects your reputation, allows you to operate in more markets with confidence.
- It makes your company an attractive place to work – making it easier for you to recruit, motivate and retain the best employees.
- And effective corporate governance will make your company stronger, to stand up to corruption, avoid its costs, and reduce the risks from it.
In short, my point is this: that corporate governance and being tough on corruption are two clear all round wins, at the national level, the corporate level and the individual level.