1. Page 1 § Business in Partnership Against Corruption Miami, Tuesday, May 20, 2008

2. Page 2 Overview Anti Corruption Solutions Corruption Pressures Corruption Dilemma Government Companies Civil society In high risk environment:  How to ensure that partners and competitors are ethical?  How to change culture of doing business?  How to get competitors and stakeholders on board?  Collective action can help to unlock corruption dilemma and create level playing field.  Collective action creates incentives to avoid corruption. Part III Part II Part I  Corruption has negative impacts on governments, companies, civil societies, economies.  Despite costs, some individuals/groups benefit from corruption.

3. Page 3 Map of corruption According to World Bank Institute estimates, the total volume of bribes paid annually is US$ 1 trillion …… which is nearly twice the gross domestic product (GDP) of Africa. PART I

4. Page 4 Private sector side of corruption Higher costs of doing business Cost of Corruption Resource misallocations Reduced competition, efficiency & Innovation Lower investment Lower employment Loss of reputation Lack of transparency and accountability Weak enforcement of laws and regulations Complex & changing laws & regulations Low public sector wages Mistrust b/w & within sectors Lack of competition Weak enforcement of laws and regulations

5. Page 5 Firms reporting constraints among top three (percent) Source: Current Survey. The question posed to the firm was : “Select Among 14 constraints the five most problematic factor for doing business in your country “Corruption adds as much as 25% to the cost of public procurement" (UNGC) “31% of firms in Latin America have to pay bribes to – get things done -” (WBG) Corruption as a constraint to the private sector

6. Page 6 Private sector NOT just a victim, but also source of corruption Elite Capture, Political Corruption and Inequality of Influence View of the Firm, Percentile Ranks, Higher is better worse best

7. Page 7 Cycle of corruption: companies are both victims and participants Once corruption becomes widespread, it becomes difficult for individual businesses to stand up to the problem. They fear that they cannot win projects on the merits of their bids alone and thus engage in corruption, thereby contributing to its spread. High risk environment PART II

8. Page 8 Corruption dilemma: How can an individual company break the corruption cycle in a high risk environment? In high risk environment:  How to ensure that partners and competitors are ethical?  How to change culture of doing business?  How to get competitors and stakeholders on board? Few incentives to fight corruption Limited resources to counter corruption No credible enforcement Lack of cooperation between stakeholders

9. Page 9 There are three main steps for companies to fight corruption Collective External Internal 1.Assess risks 2.Implement anti- corruption policies and compliance programs 3.Provide guidance to managers 4.Share internal policies, experiences, best practices and success stories 5.Reach out to industry peers, suppliers and other stakeholders via neutral facilitators and initiate joint activities to fight and advocate against corruption Each company individually Business environment free of corruption Collective PART III

10. Page 10 In high risk environments internal and external responses alone may not unlock the corruption dilemma Collective External Internal Business environment free of corruption  How to ensure that partners and competitors are ethical?  How to change culture of doing business?  How to get competitors and stakeholders on board? Companies worry about corrupt competitors and fear being at competitive disadvantage

11. Page 11 Unlocking the corruption dilemma … is a potential solution to the corruption dilemma. It helps to make compliance the norm and to isolate the guilty.  Strengthen corruption commitments between and among different stakeholders.  Create incentives for stakeholders to avoid bribery and corruption in transactions and eliminate cheating on commitments by individual members.  Create incentives to avoid corruption by individuals within companies and governments. Central principles of collective action are to:Collective action...

12. Page 12 Primary stakeholders of Collective Action Key characteristic of Collective Action is to involve various stakeholders – different types of Collective Action exist Different types of Collective Action Integrity pactAnti-corruption declaration  Formal, written contract between customer and bidding companies  Bidding and implementation processes monitored by external monitor  Sanctions may apply in case of infringements  Ethical principles bind signatories to not engage in corruption in the daily business  Public commitment leads to enforcement 'by honor'  All stakeholders are asked to sign declaration on anti-corruption principles  Public commitment leads to enforcement 'by honor'  Compliance-related prerequisites for membership  Adoption of membership requirements checked by external audits  Members get certified or will be excluded Principle-based initiative Certifying business coalition Collective Action XXXX ProjectName MM/YY – FileName.ppt Project / trans- action based agree- ment Long- term- initiative Companies Government Civil society

13. Page 13 All stakeholders can benefit from anti-corruption Collective Action Benefits of anti-corruption Collective Action from different stakeholders' perspective Bidding companiesCustomer  Enhanced competition in bidding process – most efficient, not best connected bidder wins bid 1)  Enhanced reputation  Avoid time consuming lawsuits / blocking points after decision on supplier company  Focus of business relationships on quality and reliability of goods and services  Increased chance of fair selection as a supplier and enhanced access to markets  Protection from legal penalties  Saving of finances formerly paid as bribes  Enhanced reputation  Ensure employees and competitors behave ethically and responsibly Government  Incentives to be transparent  Strengthened rule of law, increase credibility and political stability  Higher investment levels from domestic and foreign investors  Improve image of country  Effective governance mechanisms and more effective procurement Civil society and NGOs  Improved access to essential resources, such as health care and education  Increased trust and confidence in business  Consistent and fair enforcement of regulations  Social development if money / taxes are used for social projects instead of bribery  Civil society part of government-business anti- corruption efforts

14. Page 14 Collective Action can be successful! Examples of existing collective action initiatives Integrity pactAnti-corruption declaration Principle-based initiative Certifying business coalition Collective Action Mexico suburban train Frankfurt waste incinerator China business leaders forum Business Ethics Pact Paraguay EMB Bavarian construction industry Berlin airport Project / transaction based agreement Long-term initiative Code of pharmaceutical marketing practices Business pact for Integrity and against corruption Brazil Business coalition Organi- zation A Company C Company A Independent facilitator

15. Page 15 Results of selected collective action initiatives BERLIN AIRPORT PACI IFPMA  Introduction of transparent bidding procedures  Suppliers have to adhere to anti corruption principles  Raising awareness about corruption  Company commitment to be solution to corruption problem  Development of sectoral code of conduct  Introduction of compliant mechanism  Creation of incentives to abstain from corruption  Introduction of certification EMB

16. Page 16 Collective actions are not a panacea for corruption challenges Common challenges of collective action initiative Common Challenges Finding facilitator as neutral party to initiate and implement a Collective Action Building confidence among stakeholders Securing funding for the initiative Getting top-management commitment of participating companies Creating public awareness Agreeing upon enforcement and sanctions mechanism Agree upon clear consequences in case of infringement / non-compliance Collective Action is difficult, it can fail. Common challenges include:

17. Page 17 Demand for guidance and tools  Collective Action Initiatives;  Joint effort of Companies, NGOs and Multi-laterals;  25 case studies, 50 country profiles, 15 industry profiles;  Implementation guidelines. Joint effort of: World Bank Institute; United Nations Global Compact; Center for International Private Enterprise (US); Global Advice Networks (Denmark); Grant Thornton; Siemens; Transparency International USA; and as a supporting partner: InWEnt Capacity Building International (Germany)

18. Page 18 GUIDE: FIGHTING CORRUPTION THROUGH COLLECTIVE ACTION - A practical guide for business -  Classification and definition of Collective Action  Decision trees  Process steps  Highlighted topics and issues to consider (e.g. anti-trust)  Contract templates  Profiles of initiatives  Contact list Basis Find the right approach for your situation Benefit from various real life examples and templates Follow detailed process steps Examples XXXX ProjectName MM/YY – FileName.ppt  Definition of corruption, dangers of corruption  Overview on various ways to fight corruption

19. Page 19 Web Portal: www.fightingcorruption.org Tools for practitioners Lessons learnt Case studies Country and industry profiles Country and Industry Profiles Events and workshops

20. Page 20 Three key questions for panel:  How can the private sector participate in collective actions and governance reforms to create a business environment with reduced risk of corruption?  What are the biggest challenges in achieving and sustaining results through collective actions?  How can key stakeholder, such as government officials, business, NGOs and international organizations, partner to more successfully promote transparency and accountability?

21. Page 21 § Djordjija Petkoski World Bank Institute THANK YOU