In Latin America, a company’s reputation matters. At least that is what a recent survey [1] concluded after gauging factors that motivate businesses to counter corruption.
The survey, conducted by Germany’s Humboldt-Viadrina School of Governance [2], reached out to business people, government officials, and civil society workers throughout the world to assess how incentives and sanctions affect a company’s willingness to take seriously ethical behavior.
Reputation Matters. In Latin America, more people than in any other region (almost two out of every five respondents) rated reputational considerations as the most important factor to motivate businesses to counter corruption. In contrast, respondents in North America, on average, rated other factors like imprisonment, debarment, and revocation of business licenses to be most important. In the Middle East and Africa, only 22% rated reputational considerations to be most important.
What about peer pressure? While 54% of respondents from North America said that it is at least somewhat of a factor, in Latin America the number was 85%.
The study defined “reputation” as “the standing a business enjoys among the public or a specific target group. Depending on ethical behavior, appropriate economic operation or other factors that are valued by the relevant parties, a business can obtain a positive or negative reputation.” It is not clear from the study how respondents defined the concept of “peer pressure.”
Why Reputation? Why would Latin American businesses be more concerned about reputation than businesses in other parts of the world?
It could flow from the way that the press in many Latin American countries tends to sensationalize corruption events. Anyone who has lived in the region is well aware of the hidden camera, catching companies, business people, and government officials in bribery acts.
Maybe it is because companies and business people in the region have not yet been hit with the same levels of monetary sanctions and imprisonment as in other regions of the world? Latin Americans are not yet constantly reminded of the potential consequences of non-compliance created by enforcement officials. The current investigation of Brazil’s flagship company Embraer for potential FCPA violations might start to change this. If the company happens to reach a settlement with U.S. authorities, the region might begin to see first-hand the high level of possible sanctions. If the United States then takes action against the Embraer executives responsible for wrongdoing, as it has now done against Argentine executives of Germany’s Siemens, impressions might change further. When U.S. enforcement reaches companies based in Mexico, Colombia, Argentina, and elsewhere, the trend might continue.
It could also be that Latin Americans really do place a high importance on reputation as compared to other regions of the world. Do consumers more often make choices based on a company’s level of ethics? Are companies reluctant to partner with other companies that have been tainted? Are financial institutions less willing to lend to companies with questionable reputations in the market?
Sector Anti-Corruption Rankings. The survey noted that reputational incentives or sanctions can result from a case-specific event, like a campaign or an article, and that they can also result from a comparative business analysis, like an anti-corruption ranking. In fact, 92% of Latin Americans felt that public corruption rankings of businesses should be established, while 58% agreed in North American, 69% in Europe, and 86% in the Asia-Pacific. In the Middle East & Africa, the percentage was even higher (93%). One example of such a ranking is the 2011 Report on Oil and Gas Companies [3] produced by Revenue Watch and Transparency International.
But are these rankings really reliable? A company’s own compliance efforts can certainly be assessed against basic enforcement expectations. This is what we do as FCPA lawyers all of the time when conducting risk and compliance assessments. But comparing the efforts among a group of companies in some industries might be tricky. Risk levels and operational structures might differ within certain industries. While risk profiles and anti-corruption programs might be relatively similar in a sector like oil and gas, this is not necessarily the case in sectors like technology and financial services.
Turning Around a Bad Reputation. The survey results suggest that companies might be able to turn around their bad reputations. Eighty-two percent (82%) of Latin Americans felt that consumer behavior is too unpredictable and short-term to have a lasting impact.
The very fact that the survey exists might support this proposition. The survey was funded by Siemens’ $100 million Integrity Initiative [4], set up as part of its settlement with The World Bank for having engaged in corrupt and fraudulent practices. The initiative supports programs designed to fight corruption and fraud through collective action. Since reaching its blockbuster settlements of $800 million with U.S. authorities, $800 million with German authorities, and $100 million with The World Bank, Siemens has dramatically turned around its reputation in the field of anti-corruption compliance. Its program is considered by many to be an example of best practices. It is no longer seen as the unethical actor it once was.
Survey Weaknesses. The survey appears to have some weaknesses. For example, it is odd that survey respondents include not only business people but government officials and civil society members too. Does a government enforcer or watchdog advocate really understand what motivates businesses? Maybe the survey architects assume so because they claim to have sent the survey only to anti-corruption “experts,” presumably with the experience to make such judgment calls. The survey also fails to provide regional breakdown for all the data, which makes many of its findings of limited value.
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