Alison Taylor: Does competition cause corruption?
Monday, June 22, 2015 at 9:18AM
Alison Taylor in Ethics, Executive Compensation, GlaxoSmithKline, Johnson & Johnson, Mexico, Siemens AG, Walmart, competition

You might expect corrupt companies to downplay and devalue the principles of market competition. In fact the opposite is true.

Corrupt companies don't acknowledge that they set out to win business through deliberate criminality. Rather, employees need to be socialized into paying bribes and encouraged to believe that corruption is an inevitable and necessary response to the hard commercial realities.

To convince employees to break the law, companies create a dominant narrative of intense rivalry and urgency. "Yes, we paid bribes, but we had no choice. Everyone else is doing it, and the ends justify the means."

Sometimes the urgency is a genuine response to the external environment and sometimes it's a top down creation.

The Johnson & Johnson FCPA enforcement action involved allegations of bribing doctors through the company’s distributor network. According to the SEC complaint, the company considered terminating a corrupt Greek distributor. But a senior J&J executive argued that “we would lose half our business… to lose approximately $4 million in sales in end user terms to the competition is totally unacceptable.”

At Siemens, the largest global corruption enforcement action to date, former executives said they believed paying bribes was necessary to maintain contracts and jobs -- “We thought we had to do it. Otherwise we’d ruin the company.”

At Walmart in Mexico, there's an ongoing FCPA investigation. Reports talk about aggressive growth targets required stores to be opened in record time and executives under pressure to do “whatever was necessary” to obtain permits.

At GlaxoSmithKline, employees bribed doctors and hospital executives in China to sell pharmaceuticals. The company initially blamed rogue elements operating outside the system. But there's evidence GSK set sales targets so high that it “stimulated every means to try to get there.”

Often we assume a corrupt culture is one of arrogance and personal greed. And that's sometimes true. But companies can also create a perfect environment for corruption when they set norms that allow employees to excuse themselves.

It's not always a healthy sign when a company appears intensely commercial, aware of its competitors, and pressing for market dominance. In that environment, senior managers sometimes encourage employees to believe they're in a war for survival and that any unethical business practices will stop at some vague future point when the battle is won.

If one sales team is hitting unreasonable targets by paying bribes, those results will project an image of failure on teams that are cleaner but produce less stellar results. This can create vicious competitive dynamics and lead to escalating corruption within the organization.

How to interrupt a downward spiral into graft? Examining incentive structures is a useful first step in understanding whether there are preexisting conditions for corruption.

And a best practice approach can combine anonymous employee engagement surveys and qualitative interviews and observation. The attitudes of employees toward competitors, incentives, leadership and informal communication can be far more revealing than compliance audits in establishing whether the organizational preconditions for corruption exist.

Corruption famously thrives in countries where there is state capture, and rampant bureaucracy mutes competition. In companies, the opposite is true. Whether real or imagined, a narrative of desperate and necessary competition is an integral part of a corrupt culture.

_______

Alison Taylor is director of advisory services at BSR, a non-profit consultancy and company network focused on sustainability and CSR.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
See website for complete article licensing information.