The Central Role of Governance in Building a Robust Business Ecosystem

Environment, Social and Governance (ESG) has been the buzzword in the corporate and political echelons for obvious reasons. Our last three blogs emphasised on the importance of environment and some emerging solutions – you can read them here: The Push Towards Global Net-Zero, The Impending Need to Make Renewable Energy Mainstream and Making Renewables Mainstream: Transporting Humans Cleaner & Greener. In this piece, we are sharing our thoughts and views on Governance, via an approach of comparison.

Governance refers to all the guidelines and procedures to manage the day-to-day affairs of an organisation in a manner that ensures accountability, participation, transparency, diversity, and inclusiveness. Given the ever-increasing involvement of different stakeholders in businesses, sound governance practices are fundamental to the success of an organisation. These practices are often driven by the vision, mission, objectives, integrity, values, principles of the organisation as well as the legal and regulatory framework.

Knowing and comprehending the relevance of good governance practices for a conducive business environment, countries across the world have formulated various laws to facilitate transparency and fairness in doing business. A key example is the UK Anti-Bribery Act, formulated in 2010, which applies to bribery of foreign or quasi-government personnel, and to any sort of commercial bribery between two private organisations or individuals. According to the UK law, any type of commercial bribery is punishable by sanctions to both the giving and the receiving party.

The UK regulator ensures stringent enforcement of this law which requires companies operating in the UK to review and revise their individual anti-corruption policies in the backdrop of the UK Anti-Bribery law – particularly regarding the company’s code of conduct for its personnel, its procurement and supply chain policies, and facilitation payments policy. In addition, employees (primarily in the accounting, finance, procurement functions) must be apprised with the updated procedures and practices. The board and the compliance team not only emphasize the implications of the UK Anti-Bribery law on the company’s operations, but also review and analyse the effectiveness of the changes implemented.

In 2019, the House of Lords Select Committee published a report titled “The Bribery Act 2010: Post-legislative Scrutiny” to review the implementation and enforcement of the act nearly 10 years after its inception. The report indicates the number of prosecutions has not been significant. In addition, most of the prosecuted cases relate only to minor offences (bribes of less than £10,000) instead of large-sum corporate bribery offences. However, the implementation of the act has been quicker in comparison to its American counterpart, the US FCPA. In the future though, the prosecution rate will likely act as the prime yardstick to measure its effectiveness.

The US Foreign Corrupt Practices Act (FCPA) 1977, prohibits any US citizen or entity to offer, pay, or promise to pay money or anything of value to any foreign official to benefit their business interests. The US government has also been extremely serious and has diligently pursued cases in the anti-corruption domain. The law further empowers the Department of Justice, responsible for federal criminal corruption prosecutions as well as the Securities and Exchange Commission, which regulates publicly traded companies in the US. In fact, the US FCPA and the OECD convention on combating bribery (1997) have been at the core of various actions on corruption across the world. Another significant development is that since 1997, the OECD Convention has close to 40 signatories including non-member countries such as Brazil, Argentina, Israel, and New Zealand. This has positively resulted into a steady movement by governments taking proactive actions to enforce anti-corruption laws globally.

In China too, there are strong anti-corruption regulations, both with reference to its public officials as well as businesses (public and private), which are strictly enforced especially since Xi Jinping came to power. According to a report, five years after an anti-corruption campaign executed by Xi Jinping, more than 2.7 million officials were investigated, more than 1.5 million were convicted, and around 58,000 were criminally tried.

India also has its own Prevention of Corruption Act (PCA) since 1988 to control corruption and other malpractices in government and public sector business. The Act prohibits taking gratification with the intent of influencing a public servant, through illegal and corrupt means or of wielding personal influence with a public servant. The PCA makes bribery a punishable act and empowers the government to appoint judges to investigate and try such cases. However, its enforcement has been questionable for a long time now. The latest annual report of the Central Vigilance Commission (CVC) points out that, as on 31 Dec 2021, almost 6,700 corruption cases probed by the Central Bureau of Investigation (CBI) were pending trials in different courts. About 275 of these were pending for more than 20 years; 1,939 were pending since 10 to 20 years; and 2,273 were pending since 5 to 10 years. The data suggests that the pace at which cases are solved in India puts a question mark to the business ecosystem of the country, which can impact the growth of the country while also adversely impacting its reputation.

Bribery or corruption is always detrimental for a business ecosystem. In addition to hurting the reputation of an organisation, or of a country, it deters potential investors to have a healthy relationship with businesses. This re-emphasises the necessity of having both stringent anti-corruption laws and their effective enforcement to facilitate good governance practices.

Author: Prithwijeet Mukherjee,

Sr Consultant, Strategy Consulting

Image courtesy: Sean Pollock on Unsplash