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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by Max Burger-ScheidlinExecutive Director, ICC Austria
In this Chapter, we analyze step by step, and in very concrete terms, how your company should prepare, organize, and communicate on its transition from a bribe-prone to a bribe-free corporate policy when dealing with its customers. Your mission as an ethics and compliance officer will consist in changing the mindsets of your colleagues, while paying heed to a number of legal, tax, commercial, human resources, and internal communications considerations. You will also need to take into account your customers’ perspective when explaining and implementing your new clean commercial policy – the ultimate goal being to achieve this transition without losing your customer base.
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Until 1999, year of the entry into force of the OECD Convention, many companies doing business across borders were inclined to ‘persuade’ customers to give them business in exchange for bribes. At the time, this practice was still legal in many countries, even though it was widely regarded as unethical. ICC warmly welcomed the OECD Convention as a historic milestone in global efforts to achieve a level playing field for international business. However, some in the business world only reluctantly accepted this new reality. Several resounding cases, such as the Siemens case, served as a wake-up call but, even in 2013, one still comes across companies which stand by their belief that they cannot run their business without paying bribes.
Some enterprises are simply still stuck in their old habits. Following decades of business relations based on corruption, they simply do not know how to break the vicious cycle of corruption. They fear that the current smooth running of their business might come to an end if bribery were to be abandoned.
Generally, it will be easier for your company to become clean if it sells relatively unique or differentiated products (tailor-made, for example), since your customer will have less competitors to turn to. If your company is not presently at this stage, aim at further differentiating your products. This should be a key strategy in your efforts to extirpate corruption.[Page172:]
Try to have change coincide with an external stimulus, such as the change of your company’s Chief Executive Officer, the appointment of a new chairman of the Board of Directors, a major change in your company’s ownership, or the occurrence of disrupting external events like a visible corruption case, the voting of a new law in your home jurisdiction or in certain key markets, such as Russia and China. Highlight the impact of said change and use it as a starting point for your company’s transition to a clean commercial policy.
In companies where bribery has long been used as a tool for winning contracts, corrupt practices may have become a ‘second nature’ to sales managers. This means that while they have acquired the skills to negotiate a bribe, they have long neglected the actual skills of selling your company’s products or services. To remedy this situation, have your company send your sales managers to training courses on sales skills and negotiation tactics. Set up internal working groups to identify your company’s unique selling propositions or niches. Your sales force needs to understand what differentiates your company’s products or services from those of your competitors.
Additionally, try to analyze and match the personality of your company’s sales people to that of the purchaser in the buyer’s company and to the specific identity of your company’s products. A street-wise salesperson, say in the mining machinery industry, may be a superb bribe negotiator but poorly skilled in highlighting the unique technical features of the products.
It may be tempting for management to believe that a top-down approach will be sufficient to change a company’s culture from corruption-prone to corruption-free overnight. What frequently happens is that management wants a ‘recognized’ ethics and compliance system to be introduced by external experts from outside the company, and then expects this move to operate some kind of automatic change. Such an approach is ill conceived. Instead, you should seek to nurture change from within the company.
Admittedly, a frequent complaint from your sales people will be that “To obtain business in countries like Russia and China, we need to bribe”. That “bribing is an offence” cannot be your only answer. The challenge here will be to explore with your sales people some of the possible alternatives to corrupt business, namely, the means for them to sell without having to pay a bribe. Keep in mind that sales managers are often technicians and not lawyers. Experience tells that they are success-driven and often conduct business under the motto: “I do everything to get my contract signed.” Their remuneration system often reinforces this attitude. Therefore, a change to a ‘clean business’ model should involve demonstrating the personal risks of paying a bribe and should shed light on successful case studies of clean business in very corrupt countries. Remember also to inform your sales people about external resources available for support, such as ICC national committees or ICC’s[Page173:]specialized division in detecting and fighting economic fraud, ICC Commercial Crime Services28.
Performance targets set by management should move away from short-term success criteria to focus on long-term achievements. Many job descriptions in the marketing and sales divisions will have to be rethought: Your company’s sales philosophy must clearly aim towards achieving long-term market shares and stable profits. The approach for landing new business will be different: It will need to move from “Go and get a contract tomorrow” to “Explore the environment for solid and stable business.” Sales managers will have to bear greater responsibility for the selection of sales partners and their performance over the medium term. Bonuses and stock options will have to be adapted accordingly. Since bribery is no longer permitted, sales managers should upgrade their technical abilities and become significantly more service-oriented, notably by tailoring the product to the customer’s wishes. This will be especially important in a context where your competitors still use bribes to obtain business.
First, you will need to convince your company’s owners and shareholders of the need for change. They should be informed that the new anti-corruption policy may reduce business in the short or medium term but will, on the other hand, yield a more stable, long-term business profile with solid profits and a lower risk rate (which should itself improve the stock market valuation, as the company is demonstrating solid risk management). Then you will need to talk to your Supervisory Board or Board of Directors and, finally, to your staff.
Ultimately, all company stakeholders will have to be informed, trained, and convinced to embrace the new company culture. This includes contractors, subcontractors, technical consultants, parts suppliers, agents, and intermediaries. Only start re-educating stakeholders once you are at an advanced stage of delivering anti-corruption training to your own staff. Try convincing your stakeholders, such as your suppliers, that the change to a robust anti-corruption culture will benefit them as well. Your suppliers should see that they stand to gain from convincing their own suppliers (your sub-suppliers) to follow suit and adopt a similar clean commercial policy.
It will probably not be a good idea to talk openly about your company’s past corruptive practices when presenting and justifying your new reform agenda. However, to make a successful anti-corruption stand, your company should be in a position to demonstrate its anti-corruption efforts in the media. This will make your company policies more credible in foreign markets. Try to combine your new anti-corruption policies with other company initiatives relating to corporate social responsibility,[Page174:]environmental issues, or compliance with new laws. Inform the public that your owners desire stable, long-term business. Your sales managers can use such media reports to convince old business partners and bribe-takers that your company has now changed course.
Start the implementation of your new policy at a point in time when there are no key contracts up for negotiation: Try to identify a ‘relaxed’ moment in your business relationship. You might for instance seek to re-negotiate smaller contracts first, and observe the results. At first, your old customers may stall: They may threaten to stop buying from you, and may even make a small purchase from one of your competitors to show how serious they are about the situation. If relationships have been difficult in the past, you might lose some of your customers. If, however, your technology is unique, and your business relationship has been frictionless over the years, many (but perhaps not all) of your customers will return and continue to do business with you.
One of the major hurdles your company will face in its transition to a zero-bribe policy is the fact that laws differ from country to country. This is true of anti-corruption legislation, but also of tax, accounting, and anti-money laundering legislation. In certain countries, it will be possible to ‘confess your old sins’ to the judicial authorities but that will not necessarily mean that the tax authorities of the same country will take the same attitude as their colleagues of the Department of Justice. To successfully manage your legal transition, you will need to consider the laws and regulations of:
It will be important to find out if under these different laws a voluntary disclosure by your company of its past misconduct may shield it from disproportionate liabilities. Analyze if and how you can correct the accounts, reintegrate slush funds into the regular accounts, and how you can regularize your tax situation. You may come to the conclusion that confessing to the authorities is not your best option. Unfortunately the international legal environment is not yet ready to help companies that are becoming clean. A disclosure may seriously damage your customer’s business and ruin your bilateral business relationship. However, while it is still difficult to report past offences to the authorities, nothing stands in your way of becoming clean in your future business dealings. If your partner disagrees, you may have to stop the relationship altogether.[Page175:]
Most people resent change. It is most likely that you will hear former bribe-takers tell you: “Our arrangement worked so well in the past.” As you want to retain your old customer, changing from the old illegal relationship to a clean new one will require great tact and care. You will receive two types of advice. Your lawyers will probably tell you to become clean overnight. Your sales team, on the other hand, will tell you that “This is an excellent customer” and that “The profitable long-term relationship with this customer should not be disturbed.” You should pay heed to both arguments.
The first reaction of the old bribe-takers will likely be: “Well, we fully understand your new policies, and we have come across well-publicized cases in the media. However there are wonderful covert and secret ways to get around all these new laws and regulations. Surely you want to remain in business, don’t you?” At this point you must stand your ground. If you have not yet spoken to your customer’s owner (or Chief Executive Officer), it is time to do so. This will not always be possible, especially if you are a small- or medium-sized supplier and your customer is a giant company, but do try. Be aware that your customer’s corrupt purchasing manager will do everything to prevent you from contacting the company’s owner (or Chief Executive Officer). You will hear many excuses. External organizations like your ICC national committee may help you in these circumstances.
Your legal anti-corruption experts will tell you to stop all bribes immediately, to dismiss the bribe-givers and bribe-takers on the spot, and to inform the authorities of any wrongdoing. While this may be considered the optimal solution, you should try to find a legal and practical way to become clean without upsetting exceedingly your business relationship. Not all customers will agree to your new anti-corruption policy. Many will threaten to withdraw their business. In anticipation of this, many may contact your competitors.
The line prescribed by your lawyers might also be hampered by twists and conflicts of interest. Let us imagine various hypotheses. The purchasing manager of your customer may be opposed to your new policy as past bribes from your company represented a vital source of income. The customer’s general manager may be a recipient of part of the bribes. This might give this person leverage over the purchasing manager. The owner of the customer’s company, on the other hand, may have a totally different view on how to conduct business than the general manager and the purchasing manager. In some instances, the owner may be fiercely opposed to corrupt practices, as they reduce the company’s profit margin. In other circumstances, an owner may not oppose corruption because the company’s purchasing manager may demand higher salaries in return for abandoning an additional income previously derived from bribes. Additionally, in high-tax countries, even the owner may be an indirect recipient of bribes and be happy to receive money in an off-shore tax haven. When the bribe-takers are public officials or politicians, the situation becomes even more complicated and involves many interests.[Page176:]
Concluding corrupt deals often results in purchasing subpar raw materials or machines, or obtaining suboptimal services. Over time, this may result in a significant fall in the performance and competitiveness of the corrupt company. Your argument should be that without bribes being included in the sales price, the customer’s company will become more competitive and profitable and less exposed to risk in conducting its business. More specifically, you can show your customer (and its owner) how they will directly benefit from your new anti-corruption policy: as prices can be lowered, after-sales services will increase. You could also deliver higher quality goods at the same prices as before and give better technical training to your customer’s staff. Time saved on lengthy and lousy bribe negotiations will make both companies more competitive.
Still, many customers may be reluctant to follow your arguments, especially if you are a small- or medium-sized enterprise with little leverage on the market. What will follow is a longer series of negotiations, battles, and threats during which you should stay firm about your new anti-corruption policy.
In developing your negotiation technique, always try to take into account the bribe-taker’s perspective. Presently, the bribe-taker makes a good additional income by accepting bribes. But to go on like this, he or she has to hold sway. Everyone has competitors and opponents. This means that a bribe-taker must be outwardly successful to keep opposition at bay. This person cannot risk being continuously responsible for mismanaged, technically inferior, non-performing, or loss-making operations. So, if he or she wishes to survive, simply going for the highest bribe is a dangerous path. You should therefore research your counterpart’s overall position. Is there an opportunity to make your corrupt counterpart more successful? Finding ‘face-saving’ support for the manager concerned would create more willingness to support your policy change, and this without compromising your anti-corruption standards.
Also, when conducting these negotiations, think about reshuffling your sales team by reallocating responsibilities. If you send your old sales manager (the one who has negotiated bribes in the past) along to negotiations, put this person as a second-in-command in your company’s delegation. It must be clearly visible that this individual is no longer in charge and comes along only to provide advice. If you can make an appointment with the owner of the corrupt customer’s company, the top echelon of your company (or at least a member of your Board) should attend. The message should be clear, strong, and simple: “We want to support you, to make your business more competitive, but there will be no more bribes.” Do not yield to temptation; do not negotiate a “bribe only for the next six months”, a “reduced bribe”, or any other form of circumvention of your new policy. Price reductions, however, are possible.
Be patient in your negotiations. You might have to fly in several times to retain your customer. Give your old partners time to get accustomed to the new situation, to ponder the difficulties as well as the new opportunities which are now on the table. If possible, give examples of old but rejuvenated business relationships, and show that this was a successful process. In situations where you have a relatively unique[Page177:]product or service, and have enjoyed a good, frictionless business relationship for an extended period of time, there is a good chance that you will be able to retain your customer. Be aware, however, that in a number of instances the negotiations will end inconclusively.
The threat and fear of losing business or a customer must not paralyze you in your move towards a clean commercial policy. Keep your company’s global picture in mind. Provided your products and services are somehow unique or special, your new policy should lead to less risk and higher profits. Stay firm. Do not let corrupt buyers and other business partners interfere. Communicate your new policy to all local stakeholders known to you and show them the potential advantages for themselves. Where possible have your top management see your customers (and their owners) in person, explain the situation (past and future) and promote your new anti-corruption policy.
Offer to conduct anti-corruption training workshops at the premises of your bigger customers. Or invite customers to an annual meeting at which all kind of new business is discussed, but which includes, for example, a two-hour anti-corruption workshop. Wherever necessary, have your lawyers meet your customers and provide them advice about the validity and continuity of the contracts concluded with your company. Past corrupt business relationships should be no hindrance to future business dealings.
Let them also ascertain that your company is not blacklisted, for instance by a municipality or another important buyer, an export credit agency, an international lender (such as the World Bank, the Asian Development Bank, or the European Bank for Reconstruction and Development). Should anything look amiss, seek contact with the institution, be proactive and transparent. Do not wait until they contact you. It is much easier to prevent facing the issue than having your company removed from a blacklist. Should trouble loom due to past mistakes, try to have your new anti-corruption compliance system certified by a well-known international auditor (as for instance SGS, one of the big four auditing firms or any specialized certification firm.).
Try to introduce in all your agreements the ICC Anti-corruption Clause (2012), as suggested in Chapter 16 of this Training Handbook. If you and your customer have an ethics and compliance officer, have both of them meet and suggest they install a hotline to handle possible incidents.
Even when negotiations have remained inconclusive, business must go on. Under the contract, you still may be obliged to deliver parts and services or find yourself under the threat of no payment, or face the risk of your customer simply not confirming receipt of your goods and services.
Even if you have not received the corrupt customer’s explicit consent, start implementing what you had promised when negotiating the move to a clean policy. For instance, start lowering prices on spare parts or give extra services at reduced or no cost. Behave as if your partner had[Page178:]consented to the policy change and ensure that not only the old corrupt purchaser but also his superiors and the company owner take note of the new policy and your new practice. There is no need to brag about your new conduct; take a low profile but remain clear and clean while signalling your new behaviour to all other stakeholders involved.
For your first shipments, select items which are non-essential and of low value. Select shipments which can be delayed at customs and are not easy to damage. To be on the safe side, have somebody from your side (a member of your staff, an independent consultant or an inspection company) at the receiving end of the first shipments to independently document the receipt of goods or the implementation of services. Make sure that your company performs exceedingly well.
Although success never is guaranteed, there is a strong likelihood that your policy change will be well received, the more so if your company has experienced an extended and well-functioning business relationship in the past, and where the experts from both sides trusted each other. Should, however, your business partner still insist on receiving a bribe, let him go, but do not rule this partner out for future opportunities. Keep a positive contact, like with any other potential customer. This partner may come around eventually: times change, managers retire, and others come up with new ideas and a different outlook. Globally, the pressure mounts for stricter ethics and compliance standards, and a new global level playing field is slowly emerging.
The most important trend in your favour (at least in the context of private-to-private business) is that many companies are moving to some forms of profit-sharing agreements. Through this, formerly corrupt buyers and managers receive higher rewards in the absence of corruption, as slowly everyone realizes that the days and weeks needed to negotiate a bribe is time wasted and that buying suboptimal raw material or underperforming machines strongly reduces possible rewards in profit-sharing agreements.
The transition from past corrupt practices to ‘clean’ business is a stony path. If properly prepared, you will be able to retain the majority of your existing customers, especially when dealing with other business entities. However, this may be more difficult to achieve with customers from the public sector.
About the author
Max Burger-Scheidlin is Executive Director of ICC Austria. He consults companies on foreign trade contracts, the prevention of commercial crime (corruption, counterfeiting, import-export fraud, and espionage), global competitive challenges to business, cross cultural negotiation tactics, and the prevention of international disputes. He is a lecturer at several universities in Austria and events and conferences internationally, including China. Mr. Burger-Scheidlin has published extensively on anti-corruption, anti-money laundering, corporate compliance, and macroeconomic topics. He has lived 16 years in Asia and the Middle East.
28 http://www.icc-ccs.org/