An Analysis of Firms’ Self-Reported Anticorruption Efforts”. In this academic paper, the authors looked at the issue of not simply the profitability of companies with more robust anti-corruption compliance programs but also the direct effect on the companies’ return on equity (ROE) in countries that were perceived to have a high incidence of corruption. Not surprisingly, in countries with a low risk for corruption, there was not much difference in the sales growth for companies with robust anti-corruption compliance programs and those businesses in the authors’ ‘cheap talk’ category. However, there was a dramatic difference when it came to growth in countries with a high propensity for corruption. When quantitative types say, “The magnitudes of the estimated coefficients are economically interesting,”; it is a HUGE deal. These findings are equally large and important for the CCO or compliance practitioner. The authors conclude by making several observations. First, companies with more robust compliance programs are from countries with more robust enforcement and monitoring. Second, the more robust your compliance program is, the lower your sales growth may be, but the higher your overall return in a high-risk country will be going forward. Finally, even if a company sustains high sales growth in a high-risk country, if it does not have a robust compliance program, its sales will drop dramatically and lead to negative ROE. This information points to companies on the Ethisphere list of the World’s Most Ethical Companies and their financial performance. They have better than average financial performance because they are better run. They are on this list because they have robust internal financial controls, which include internal compliance controls. To mix metaphors, robust internal controls around compliance do not slow you down but allow you to move faster and safely into high-risk countries. So the next time some business type tries to say that following the law by having a robust FCPA anti-corruption compliance program, you can correct him. Spikes in sales in high-risk countries do not translate into sustained growth, and without an effective compliance program in place, your company may lose money.
Key Takeaways:
- Demonstrating ROI is the Holy Grail of compliance-use it.
- Compliance helps drives sales in high-risk countries.
- Long-term sales and profitability drop off when bribes are paid in high countries.
For more information, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available by clicking here.
