Bribery Is Bad... For Business
I wrote this piece for Forbes in 2017, as the first Trump Administration got underway, and it is sadly very relevant again eight years later.
The new Administration is keen to emphasize its enthusiasm for rolling back regulations that make American companies less competitive. Regulatory schemes vary dramatically in their scope, merit and purpose. Anti-bribery laws should not be swept up in this frenzy lightly.
The social arguments against bribery are compelling. Bribery of government officials constitutes theft from the public. Bribery undermines security when police, military, customs officials and border guards can be bought. Bribes are paid to ensure building inspectors look the other way, health officials approve unsafe products, toxic waste is disposed of inappropriately, and government contracts are awarded for inferior products at inflated prices.
But these arguments don’t resonate with those who argue that corporations should focus on shareholder value and not on corporate social responsibility. Far too little is said in reply to explain how bad bribery is for business.
Well-run companies prefer predictability and bribery introduces uncertainty and delay. No contracts are signed formalizing bribes, so the negotiation never officially ends. Entrepreneurial bribe-takers identify or create opportunities for more demands. Delays increase as more people want in on the deal. The bribes themselves introduce delay. It takes time to generate the bribe funds, often through false invoices or non-existent subcontractors, and more time to bury the details in the company’s books. And because bribery is illegal everywhere—whether or not the laws are actively enforced—there is no recourse when the bribe recipient reneges or sells the same deal to a higher bidder. Companies can’t sue for breach of a bribe-tainted contract.
Companies suffer in other ways when management tolerates bribery. There is less enthusiasm for research and development when recourse to kick-backs ensures a sale. The sales team will spend less time differentiating and promoting products if the product matters less than the payoff. Talented employees will abandon companies where their contribution is marginalized by bribery schemes.
If the business argument against bribery is strong, why does the U.S. government need to continue to lead the world in anti-bribery enforcement?
Bribery certainly accounts for some short-term successes. A mediocre sales team with a substandard product and inflated prices can still win the day with a well-placed bribe. Anti-bribery laws and enforcement should be directed at these companies. Bad actors in international markets can be ostracized. Most people familiar with the international business community can name three or four of the worst offenders—so, at least anecdotally, this is already underway.
The argument that U.S. enforcement puts American companies at a disadvantage isn’t convincing. Opaque markets are more costly to companies than developing a culture of compliance. U.S. companies lose more money to corrupt competitors than most ever spend on getting this issue right.
Our anti-bribery leadership role wins us supporters in challenging markets. U.S. companies are still lauded internationally for superior products. They’re still considered to be prestigious partners in some measure because their reputation for good governance increases the perceived value of the undertaking. And, finally--for the cynics--anti-bribery enforcement added $2.48 billion to U.S. coffers in 2016 and only three of the ten companies that have been hit hardest by U.S. anti-bribery enforcement are headquartered in the United States.
The United States has led the world in addressing commercial bribery. G. W. Bush’s administration emphasized the link between bribery and terrorism. Obama’s administration underscored this argument and decried the human cost of bribery. If this Administration is to be as emphatically pro-business as we have been told, rolling back efforts to reduce bribery internationally is a bad place to start.
President and Founder, TRACE