Monday, November 30, 2009

“Small and medium enterprises: challenges in combating corruption

“Small and medium enterprises: challenges in combating corruption

Posted By Stabroek staff On November 27, 2009 @ 5:02 am In Business | No Comments

By Elaine Burns

Small and medium enterprises (SMEs) are of huge importance to the global economy, representing over 95 per cent of businesses worldwide and even more than 99 per cent of the business sector in countries such as Belgium, Greece, Italy and South Korea. Operating, as many do, in difficult developing markets and supporting major industries as crucial links in their supply chains, SMEs are vulnerable to the threat of corruption. As a European Bank for Reconstruction and Development (EBRD)/World Bank survey has revealed, more than 70 per cent of SMEs perceive corruption as an impediment to their business, compared to around 60 per cent of large companies.

What can an SME do to avoid bribery when a customs official demands a bribe in order to allow the import of a perishable product? Where can a supplier get help when the buyer for a major retailer expects ‘encouragement’ when awarding contracts? Assisting SMEs to resist corruption is an essential component of any comprehensive anti-corruption initiative and can prevent them from becoming the weakest link.

SMEs can be as small as a sole trader or a family business of twenty, but they can also reach the size of a company with several hundred employees. Each of these categories of SME, however, whatever its size or structure, faces four main challenges, albeit to varying extents.

* It is possible that the culture of bribery may be so much a part of the business scene that SMEs are under pressure to submit or fail. In some contexts bribery may be seen as just another business device, a necessary short cut that would be an overwhelming challenge to the company to counter. A business run on bribery is not only acting illegally, however, but also exposing itself to penalties. Such vulnerabilities can further increase the pressure on SMEs to succumb to the demands of corruption.

* SMEs may often not recognise or understand the complexities or grey areas of corruption. There may be uncertainty as to when a gift or entertainment is intended as inducement; when a donation to a political party or charity might be used as a bribe; and what the consequences of undetected conflicts of interest could be. An OECD analysis of some major export countries, for example, reports that even when SMEs represented the majority of exporting businesses they still tended to be poorly informed about anti-bribery laws.
* Limited resources are also a major challenge. The amount of people, time and money needed to create anti-bribery programmes will generally be more restricted than in larger organisations, but there is already considerable pressure on many SMEs just to make enough profit to survive, let alone find additional resources to resist corruption.

* SMEs have little support when dealing with extortion – demands for money, goods or services – and as a result they are often unable to offer much resistance. While there may be good intentions and good practice among many SMEs, there are few networks of support for such organisations and little consistency in anti-bribery measures.

In order to meet the specific challenges above, SMEs need to be made aware of the clear margins of corruption, be provided with knowledge on how to resist it and be supported in doing so. As an incentive to resist bribery, businesses need to understand the damage that it causes – such as loss of control and reputation and potential penalties and convictions – as well as recognise that the money paid in bribes has a direct impact on the economic availability of companies, by eating away at the bottom line. Furthermore, as the wider business environment becomes more aware of the risks involved in corruption, SMEs need to catch up: a reputation for integrity and anti-bribery activism is becoming increasingly important in making companies attractive to financial institutions and in the selection processes for becoming part of supply chains for larger companies.

As such, it is essential that SMEs begin tackling the issue of corruption in a concerted and coordinated fashion. In order to do this, they will need support from governments, primarily through the committed enforcement of anti-bribery legislation, and also from government procurement agencies, which can establish integrity pacts for bidders and contractors as agreements on transparency and accountability prior to entering into contracts with SMEs. Incentives from banks, such as a favourable interest rate for businesses that have implemented anti-bribery plans, could also encourage SMEs to invest in anti-corruption initiatives. Importantly, assistance from large companies, which can use their experience in supporting their suppliers through training and resources, would help SMEs prepare for bribery situations.

There is also assistance being offered by civil society. Transparency International has recently developed a tool for use by SMEs that sets out clear guidance and gives practical examples of the issues involved and how to set up an anti-bribery programme.

Bribery can also be resisted in imaginative, cost-effective ways. In some countries, SMEs have formed cooperatives in order to fight corruption through mutual support and by developing their own collective anti-corruption plans. When one voice may be insubstantial or ineffective, many are strong. In another initiative, sponsored by the Danish International Development Agency through the Confederation of Tanzanian Industries, SMEs in Tanzania fought back against fraudulent tax demands by referring them to a dedicated phone number manned by a small staff who deluged callers with questions concerning the demands, requiring names, reference numbers, department heads and telephone numbers, until the scam eventually stopped, drowned out by the detai1. With all this activity, the OECD statement in its Anti-Bribery Convention, that ‘corruption is no longer business as usual’, is starting to become more convincing, even in the complex environment in which SMEs work.?

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