The World Economic Forum – an organization for public-private partnership which has its flagship meeting in Davos each year – thinks ABAC is so important it has created a specific initiative around it. Called the Partnering Against Corruption Initiative (PACI), the group launched a new report, The Future of Trust and Integrity in August 2018. The report talks about how bribery and corruption can be reduced through projects that focus on change in three key dimensions of trust and integrity – institutional, behavioural and technological dimensions. The PACI group is now targeting projects in all three dimensions.
The fact that the World Economic Forum is engaging so explicitly in ABAC should make it clear to boards how important the fight against bribery and corruption is. However, below are five more good reasons why boards should make their ABAC programs a priority:
- Reputation risk – One recent academic article calculated the loss in firm value for public companies facing bribery investigations from 1978 to 2010 – total market penalties amounted to $60.61 billion. Of that amount, more than 80% could be attributed to reputational risk losses – the remainder were losses due to financial penalties and legal action. Other studies also show significant reputational risk losses for organizations under investigation for bribery or corruption. Recently a number of big brand names have hit the headlines because they have had to pay large fines to settle bribery or corruption charges, including Petrobras, Rolls-Royce, Panasonic, Société Générale, and Credit Suisse. All have been the focus of media attention – both traditional media and social media – that has impacted their reputations.
- Shareholder value loss – As noted above, a bribery or corruption scandal can have a direct and significant impact on the share price through loss of reputation. However, shareholder value is lost in other ways too. Management time and attention will be taken up with managing the crisis, as opposed to pursuing the organization’s goals. Other costs will also bite into the balance sheet, such as legal fees, consultant fees, and audit bills. Regulators will often demand significant immediate investment in compliance programs to plug the gap that led to the risk event. Siemens, which was hit with a corruption scandal a decade ago, estimates the total cost to the company was €2.5 billion, including €2 billion in fines. Such scandals can impact revenues too. As more organizations implement ABAC programs, it will become more likely that scandal-hit companies will fail vendor onboarding reviews. In short, bribery or corruption accusations can have numerous and lasting negative impacts on shareholder value.
- Duty of care – Board directors have a duty of care to a range of stakeholders, including to customers, shareholders, partners, vendors, and employees. Now more than ever, a failure of a board of directors to put in place a robust ABAC approach, embedded within its TPRM program, is considered a failure of a duty of care. The consequences of such a failure in oversight could be catastrophic, particularly in the event that a justified bribery or corruption accusation is made. They can range from financial and reputational loss all the way to corporate collapse. The personal impact of this failure on individual stakeholders – such as the job losses – can be very high.
- Ethical leadership – Today customers are increasingly swayed in their purchasing decisions by ethics. For example, a recent YouGov survey showed that the average ethical spend per household in the UK is now £1238, compared with just £542 a decade earlier. Investors are also turning towards ethical investing, and finding it rewarding. For instance, the publicly traded companies within Ethisphere’s 2018 World’s Most Ethical Companies® outperformed US large cap Indices by 4.88% over the past three years. Additionally, people are more attracted to employers who are rated highly for ethical behaviour. Showing ethical leadership through a strong ABAC program – with robust policies and procedures – can help build the right reputation for an organization. The benefits of this reputation will be felt across the stakeholder spectrum.
- Personal liability – When it comes to corporate wrongdoing, regulators and prosecutors are increasingly targeting individual executives, including board members. In some cases, even board members who are not directly involved in ethical scandals have been forced to resign for not fulfilling their oversight obligations. This trend towards personal liability is a broad one and is impacting much of the compliance spectrum, including ABAC programs. As a result, it’s hardly surprising that nearly a quarter of respondents to a recent survey indicated their they were more concerned about personal liability when it comes to ABAC compliance than they were the year before. Another 65% said they had the same level of concern. For those in responsible roles within organizations, ABAC non-compliance can have serious negative consequences.