10 Best Practices for Stopping Corruption in the Supply Chain

by: Loraine Lawson

Bribery may be a common practice for doing business in other countries, but it’s certainly not a best practice. Wal-Mart is providing proof of this in a very public way, after a New York Times exposé accusing the retailer’s of bribing officials in Mexico.

Knowledge@Wharton recently examining the full ramifications bribery has on businesses. Bribery isn’t always a simple issue; companies sometimes feel they have no choice but to play the corruption game if they want to compete in new markets. But in the long run, experts generally agree it’s more harmful than helpful to businesses.

Realistically, what can you do to stop bribery and other forms of corruption when you’re in one country and your the supply chain and operations are in another?

Here’s a look at what experts say are the best practices for stopping corruption.
Set high standards throughout the business. The more stringent your company is in terms of transparency requirements, disclosure and documentation, the more difficult it is to follow different practices in other countries without getting into trouble, says Wharton Management Professor Filipe Monteiro.

Set the highest ethical behavior for your top employees. When senior managers act in ethically questionable ways, it has a ripple effect throughout the organization, explains Philip M. Nichols, a professor of legal studies and business ethics at Wharton. This leads to a cycle of low ethical expectations throughout the organization, according to Nichols. That’s why it’s important to set the highest behavioral standards for executive and managers. That means company leaders should decline even small gifts and free lunches, so they set a very clear ethical precedent for the rest of the company.

Assess your risk. There are four levels you should evaluate when you look at corruption risks, according to Thomas Fox, an FCPA compliance and risk management attorney who’s worked for Halliburton Energy Services. Internal, country, transaction and partnership risks should all be evaluated, he writes in a three-part series on anti-corruption best practices. These risk assessments should form the development of your anti-bribery policies and procedures, he adds.

Make employees accountable. Hold annual ethics training and ask employees to sign a document saying they understand the policy and agree to be held accountable. Also, ask international salespeople and general managers to sign letters attesting that they will not accept brides, recommends CFO.com.

Encourage internal hotlines and test their use. While the majority of workers are more likely to report a problem to their supervisor, those tips don’t always work their way up the chain to the right people. One way to encourage whistle blowing is to provide a company tipline. But you’ll also need to test these tiplines to ensure they’re working and that messages are translated correctly, advises CFO.com.

Know the signs. Abnormal cash payments, pressure for payments to be made urgently or ahead of schedule, payments made through a third-party country and abnormally high commission percentages are all signs bribery may be going on. Another possible tell: When a staff member insists on always dealing with specific suppliers individually or an unexplained preference for specific contractors.

Use a team approach with suppliers. One way to flush out bribery arrangements is to ensure more than one person deals with suppliers. This is an important step when you’re still establishing a presence in new markets. It makes it harder for suppliers and government officials to demand pay-offs if they have to deal with a team, rather than one person. It also helps makes it easier for your employees to resist the temptation to succumb to corruption.

Improve expense management and documentation. By requiring documentation for every expense and transaction, you close the loopholes that allow for bribery and other forms of corruption. But it’s important to make finances easy to keep track of, which for many companies, will mean switching from a paper-based system. A 2009 study found that paper checks accounted for about one in six of all global transactions. Email is another popular option for invoicing, with three-fourths of companies receiving emailed PDFs as invoices. By switching to EDI, you can improve your ability to monitor and manage supply chain transactions.

Increase transparency throughout the supply chain. Transparency is “an important anti-bribery tool,” according to Fox.

“Secrecy within a business and the failure to disclose important information about specific projects can facilitate the payment, receipt and concealment of bribes,” he writes. “Given the challenges posed by distance and unfamiliarity with overseas customs and regulations, businesses may wish to consider how to monitor the implementation of anti-bribery procedures in overseas offices and business partners.”

One way to achieve transparency in the supply chain is by using B2B portal technology, which can document all transactions between buyers and suppliers.

Walk away from bad partnerships. It’s easy to say you should walk away from corrupt business partners in theory, but in real life, it can get tricky – particularly when you’re trying to enter new markets. Still, global economic integration is allowing more companies to say no, according to Nichols, and increasingly, they’re getting support from local governments.

“… people from developing countries are often offended when others assume that they are satisfied with corruption as a normal part of their cultures,” writes Matteson Ellis, founder and principal of Matteson Ellis Law, PLLC, which focuses on U.S. Foreign Corrupt Practices Act (FCPA) compliance and enforcement. “Toleration when one might not have choice should not be mistaken for acceptance. Indeed, there is a reason why non-U.S. countries make bribery illegal under their local laws.”

There are other steps you can take to reduce bribery, fraud and other forms of front-line corruption. The key is to assess your risks of corruption while making it clear that unethical behavior — in any form, in any country — will not be tolerated.