Large Companies Have a Key Role in Strengthening Small Supplier Integrity

February 7, 2019
  • Alison Taylor portrait

    Alison Taylor

    Senior Advisor, BSR

Last year, I was proud to participate as an adviser in a project commissioned by the U.K. Government’s Business Integrity Hub, which has been established to provide practical support for companies to help prevent bribery and corruption when doing business overseas. The project, run by Business Fights Poverty, has sought to find out how to encourage small and medium-sized enterprises (SMEs) to take business integrity issues more seriously and adopt meaningful anticorruption compliance.   

As part of the project, we conducted an extensive literature review and complemented it with an online survey, 24 interviews, and two business roundtables in which we gathered perspectives from both multinationals and smaller enterprises. This gives us deep insights into how corporate anticorruption efforts need to evolve—and enables us to make a strong case for fresh thinking from large multinationals.

SMEs and Issues of Business Integrity

The schizophrenic state of play in anticorruption efforts is highlighted in the research results: While 90 percent of the small and medium-sized companies with which we spoke consider doing business with integrity important for commercial success, fully 30 percent found that having a strong approach to integrity presents a disadvantage in winning business.

The barriers to a more robust implementation of integrity are considerable. Smaller companies feel that an overall lack of understanding of bribery and corruption issues persists, and that systemic corruption challenges in many markets may offer ‘no choice’. Finally, they cite a lack of direct control over their own agents, distributors, and suppliers. All these challenges, combined with familiar sales and commercial pressures, also confront large multinational corporations. But they are exacerbated in smaller companies by two factors: a lack of dedicated compliance resources, and—compared with large multinationals—a lack of leverage to drive behavioral change in third parties.

Smaller companies feel that an overall lack of understanding of bribery and corruption issues persists, and that systemic corruption challenges in many markets may offer ‘no choice’.

Despite the challenges, there is plenty of room for optimism. Strikingly, smaller companies do not view regulatory pressure as the strongest argument for anticorruption programs, having (rightly) assessed that regulatory resources are far more likely to be aimed at large multinationals. And SMEs understand the argument that integrity helps in winning and retaining customers, accessing finance, and building trust and reputation. Small companies fully understand that if they want to do business with large customers or credible financial institutions, having a basic anticorruption program in place is non-negotiable. Smaller companies also see that integrity risks are shared by businesses in the same value chain, and they are calling loudly for a more collective, collaborative approach to address them.       

The Role of Multinational Companies

The single, overwhelming message from this research? Multinational companies need to take a more active role in influencing supplier integrity via procurement processes enforced across their value chains. This is particularly important because only large companies have the financial resources to hire compliance consultants and the market clout to access regulators as needed. Smaller companies need concrete help from their biggest customers.

Large multinationals could start by applying the thinking they have used to drive sustainability into their supply chains. As we at BSR work with first-tier suppliers to multinationals such as Apple Inc., GlaxoSmithKline Plc, and Walmart Inc., we find that increasingly stringent environmental and social mandates from customers are driving transformative change along the value chain. These large companies have adopted an engaged perspective that gives their suppliers the necessary time and guidance to bring programs up to scratch, while also making it clear that adoption of sustainability standards is a condition for retaining their business over the long term. 

While these supply chain sustainability programs can be very effective, companies generally do not extend them to cover bribery and corruption issues. This is because legal liability is involved. This results in siloed and misaligned approaches to business-partner risk in many companies. When environmental and social ‘red flags’ are identified, a large company is usually prepared to collaborate with a small supplier to drive improvement; the standards in question are voluntary, and regulatory risk is deemed to be manageable. In contrast, a company compliance team conducting due diligence regarding suppliers and distributors under the U.K. Bribery Act will simply terminate relationships in which it identifies ‘red flags’ concerning integrity.

This is a logical response to the legal and reputational pressures facing large companies. It is essential in mounting an ‘adequate procedures’ defence and helps to shield large companies from regulatory risk. However, if the end game is to reduce corruption in modern society (as opposed to helping corporations deflect legal liability), this approach makes little sense. Companies that don’t treat workers properly and violate environmental standards are also highly likely to be paying bribes; these practices characterize a risk-taking, short-term culture. Indeed, such companies may be paying bribes to evade social or environmental regulations.

Multinational companies need to take a more active role in influencing supplier integrity via procurement processes enforced across their value chains.

What’s Next

New laws such as the Modern Slavery Act, combined with investor pressure, are encouraging a more integrated approach to environmental, social, and governance issues. Moreover, the anticorruption field could make far better use of the collaborative tools and approaches to systemic change that have been so effective in tackling such issues as human rights and climate change. The highly successful Maritime Anti-Corruption Network is a model that could be used to good effect in other industries.

Our research shows that U.K. suppliers to large multinationals hunger for more support from their customers, and that customer demand can best incentivize stronger integrity programs. If large companies were to begin advising their suppliers on how to address integrity challenges and navigate regulatory risk, this could help transform the anticorruption environment. Through collective action, we might also start to address some of the entrenched integrity challenges in high-risk markets: repeated facilitation-payment demands accompanied by extortion, for one. This would constitute a more effective, empathetic, and constructive approach than the protective, self-interested mindset that now dominates corporate anticorruption programs. The U.K. government is ready to work with companies to explore and encourage this new thinking.

Let’s talk about how BSR can help you to transform your business and achieve your sustainability goals.

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