POLICY PAPER: Collective Action Project Business Case for Public-Private Dialogue on Anti-corruption and Green Economy

1. POLICY PAPER
Collective Action Project Business Case for
Public-Private Dialogue on Anti-corruption
and Green Economy

2. The UN Global Compact is the largest voluntary corporate citizenship initiative in the
worldandoffersauniqueplatformtoengagecompaniesinresponsiblebusinessbehavior
in the world, through the Ten Principles in the areas of human rights, labour standards,
the environment and anti-corruption. It provides access to the United Nations’ broad
knowledge base in development issues as well as in mobilizing government, business,
civil society, labour organizations and academic institutions to take collective action.
Today there are more than 90 Global Compact Local Networks in key markets across
the world. The Networks provide an opportunity for members to share experiences,
innovative practices and to collaborate for furtherance of responsible business values
within country specific contexts.
The Global Compact Network (GCN), India, was formed in November 2003 and
registered as non-profit society to function as the Indian Local Network of the UN
Global Compact. GCN India is the first Local Network in the world, established with a
pan-Indian membership base. GCNI provides an extremely relevant vehicle for Indian
business, academic institutions and civil society organisations to join hands towards
strengthening Responsible Business Initiatives in India and Internationally.
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Policy Paper - Collective Action Project

3. Preamble
The 10th UNGC principal states that “Businesses should work against all forms of
corruption including bribery and extortion” .
In pursuance of this principal, in December 2010, United Nations Global Compact
(UNGC) launched the Anti-Corruption Collective Action Project in five countries –
Brazil, Egypt, India, Nigeria and South Africa – with support from Siemens Integrity
Initiative Fund.
The aim of the project is to foster a high-impact collective action platform on anti-
corruption by facilitating on-going dialogue between private and public sector. The
project offers an opportunity for a wide range of stakeholders to explore how collective
action can create incentives for ethical business performance.
This policy paper endeavours to holistically find ways and means to explore and
address specific issues related to corruption that businesses face in this globalized
world. It also attempts to strengthen the efforts of collective action by reaching out to
various stakeholders comprising of public and private enterprises, business federations,
academic institutions and civil society organizations – so as to address the issue of
corruption in all its manifestations.
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4. List of abbreviations
ASSOCHAM The Associated Chambers of Commerce and Industry in India
CAG Comptroller and Auditor General
CAP Collective Action Project
CBI Central Bureau of Investigation
CEO Chief Executive Officer
CII Confederation of Indian Industry
CWG Common Wealth Games
FDI Foreign Direct Investment
FICCI Federation of Indian Chamber of Commerce and Industry
GCN Global Compact Network
GDP Gross Domestic Product
IBLF International Business Leaders Forum
ICC International Chamber of Commerce
IP Integrity Pact
NGO Non-Governmental Organization
PACI Partnering Against Corruption Initiative
SGS SociétéGénérale de Surveillance
SIIF Siemens Integrity Initiative Fund
SME Small and Medium Enterprises
TI Transparency International
UNCAC United Nations Convention against Corruption
UNGC United Nations Global Compact
WEF World Economic Forum
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Policy Paper - Collective Action Project

5. Context 6
Corruption in India 7
Collective Action Project Business Case 9
For Public – Private Dialogue on
Anti-Corruption And Green Economy
Conclusion 9
References 14
Contents
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6. Abstract
Corruption is not a peripheral social concern any longer that public and
private businesses can ignore or passively address. In rapidly evolving markets,
like India, it is a bottom-line business issue that directly affects companies’
ability to compete. This policy paper sets out opportunities for collective
action and highlights a concerted approach for successfully mitigating the
multiple risks associated with corruption. The ultimate goal of the Project is
presenting a business case for anti-corruption and green economy.
Context
An analysis of social process needs to be studied in the context of paradigms or
theoretical frameworks that try to seek patterns and uniformities in social dynamics.
An ethical dilemma occurs in business when the most profitable consequence of an
activity necessitates a process that is detrimental to the overall well-being of the society.
Many a times, it is found that companies are not willing to take the risk of looking for
an ‘alternative way’ as it would mean lessening the profits of the company and in all
probability increasing the added responsibility of major restructuring and additional
costs on the company.
However it has been found that co-operation, collaboration and shifting for an
environment friendly approach reasonably benefit the enterprise. Perhaps the most
fascinating argument for bringing ethics into business is the prisoner’s dilemma. A
prisoner’s dilemma is a situation in which two parties are each faced with a choice
between two options: Either cooperate with the other party or to not cooperate.
If both parties cooperate, they will both gain some benefit. If both choose not to
cooperate, neither gets the benefit. If one cooperates while the other chooses not to
cooperate, the one who cooperates suffers a loss while the one who chooses not to
cooperate gains a benefit. The prisoner’s dilemma demonstrates that cooperation is
more advantageous than continuously trying to take advantage of others, especially in
a playing field wherein the players would meet each other time and again.
According to a survey on bribery and corruption conducted by KPMG , 99% of
respondents opined that the biggest impact of corruption on business is its tendency
to skew the level playing field and attract organizations with lesser capability to execute
projects. This creates inefficiencies in the system and increases the cost of operations.
It also misallocates talent to rent-seeking activities; lowers quality of products and
services; hinders innovation and technological development; hampers development of
a market; and drives away investment .
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7. Corruption in India
India, with its skilled and relatively low cost labour, coupled with a moderately
developed infrastructure, offers an attractive market for foreign investors. According
to A.T. Kearney’s FDI Confidence Index 2007 , India is ranked as the second most
attractive destination for Foreign Direct Investment (FDI) in the world, with FDI
continuing to represent the fastest growing component of GDP. However, corruption
hinders foreign direct investment as investors typically avoid environments in which
corruption increases the cost of business and undermines the rule of law. Mr. N. Vittal,
former Central Vigilance Commissioner states that “If corruption goes down, Indian
GDP will grow by 1.5% and FDI will go up by 12%” .
In a study conducted by Transparency International India the Industries particularly
prone to corruption were mapped. In the graph given below, scores from 0 to 10 reflect
the propensity of companies in different sectors to pay bribes. The score relates to
perceptions of the degree of corruption ranges between 10 (highly clean) and 0 (highly
corrupt) .
Note: The Industries ranking is drawn from Transparency International’s 2011 Bribe Payers Index.
Agriculture/LightM
anufacturing
C
ivilian
Aerospace
Inform
ation
Technology
Banking
and
Finance
Forestry
C
onsum
erServices
Telecom
m
unication
Transportation
and
Storage
Arm
s,D
efence
and
M
ilitary
Fisheries
H
eavy
M
anufacturing
Pharm
aceuticals
and
H
ealthcare
Pow
erG
eneration
/Transm
ission
M
ining
O
iland
G
as
R
ealEstate,property,Business
and....
U
tilities
Public
w
orks/construction
8
7
6
5
4
3
2
1
0
5.3
6.1 6.1 6.2 6.3 6.4 6.4 6.5 6.6 6.6 6.7 6.7 6.8 6.9 6.9 7.0 7.0 7.1
Industries Particularly Prone to Corruption
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8. Corruption is estimated to
cost $2.6 trillion annually, an
amount equal to more than 5
per cent of global GDP. Each
year, over $1 trillion is paid
in bribes . These payments
undermine fair competition
and affect the profitability of
businesses operating globally,
divert crucial public resources
away from their legitimate uses, thereby denying citizens essential public services such
as education, clean water, and health care. The recent 2G Spectrum allocations frauds
in India alone amounts to 1.76 lakh crores (40 billion US dollars). In a 96-page report
tabled in parliament, the Comptroller and Auditor General (CAG) said the presumptive
loss to the exchequer through spectrum allocation to 122 licenses and 35 dual
technology licenses in 2007-08 was Rs.1,76,645 crores. Further, the report observes
that ‘The entire process of spectrum allocation was undertaken in an arbitrary manner,
adding to the losses’. In another scam, the Commonwealth Games Fraud amounts to
60,000 crores (13 billion US dollars) . Most of this money is parked outside the country.
According to Global Financial Integrity report, India lost a total of $462bn in illegal
capital flows between 1948-2008.
In addition to tangible business consequences, corruption exacts significant costs on
society. According to Global Financial Integrity report, the illegal flight of capital
through tax evasion, crime and corruption have widened inequality in India. Further, in
societies where bribery persists and corrupt officials are not held accountable, citizens
lose faith in their government. A lack of public trust undermines the rule of law, which
can lead to increased crime, reduced safety, and further, instability. In a survey of urban
middle-class Indians conducted by the Times of India newspaper last year , 83 percent
of the respondents said that corruption was at an all-time high, two-thirds said the
government was not serious about tackling it, and 96 percent said it had tainted the
government’s image.
CWG COSTS
Country Year Costs in Crores
United Kingdom (UK) 2002 2100
Australia (AUS) 2006 5000
India (IND) 2010 60000
United Kingdom (UK) 2014 2200
(estimate)
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9. Background
The United Nations Convention Against Corruption (UNCAC) entered into force in
December 2005 and was ratified by India on May 1, 2011. UNCAC is the first binding
global anti-corruption instrument obliging States to prevent and criminalize different
corrupt practices, promote international cooperation, cooperate for the recovery
of stolen assets and enhance technical assistance and information exchange. As the
sole global legal instrument to prevent and combat corruption, both in public and
private affairs, UNCAC was designated by the United Nations Secretary-General as
the underlying legal instrument of United Nations Global Compact’s (UNGC) 10th
principle. The Collective Action Project aims at devising business integrity measures,
on the basis of the 10th UNGC Principle, to facilitate companies to operate with
UNCAC recommended standards.
The three levels to fight corruption identified by stakeholders globally are:
i. Internal – where a company assesses risks, implements anti-corruption policies
and compliance programs and provides guidance to managers
Collective Action Project Business Case
For Public – Private Dialogue on
Anti-Corruption And Green Economy
ctive Action
Corrupt environment Level playing field
Colle
Collective Action helps to achieve fair competition
Source: Collective Action Project
Collective Action helps to achieve fair competition
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10. ii. External – shares internal policies, experiences, good practices and success stories
with external stakeholders
iii. Collective – Reaches out to industry peers, suppliers and other stakeholders and
initiates joint activities to fight corruption
Statement of Purpose
The Collective Action Project aims to foster a high-impact collective action platform on
anti-corruption by facilitating on-going dialogue between private and public sectors.
The project offers an opportunity for a wide range of stakeholders to explore how
collective action can create incentives for ethical business performance.
Scope of the Policy:
• The policy seeks to scale up existing anti-corruption efforts among stakeholders
by providing knowledge, skills, strategies and resources to promote ethical
practices and transparency in business operations.
• Strives to raise awareness amongst business executives, government officials and
general public about the value of collective action and corporate responsibility in
fighting corruption.
• The policy also seeks to address specific corruption related challenges in the area
of environment sustainability.
Objectives of the Policy:
• Explore a wide range of corruption related issues both in public and private
business houses.
• Explore and critically review the systems, processes and monitoring mechanisms
which are currently existing and established in business houses and among
other stakeholders, so as to ascertain how they meet the challenges of the global
business environment.
• Promote the creation of a strong business case on anti-corruption among
stakeholders.
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Policy Paper - Collective Action Project

11. Organisational & Implementation Strategy
Formulating a strategy for collective action to fight against corruption is not an easy
task in itself. This strategy is devised from three perspectives: i) the nature and scope
of CAP in India; ii) the composition of Stakeholders involved; and iii) the nature of
business dynamics in India.
Collective Action Project (CAP) would attempt to provide an enabling platform at the
country level where multiple stakeholders would address issues related to corruption.
CAP is a forum to share information and experiences and find ways and means to
collectively fight against corruption. As CAP is voluntary in nature, it explores ways to
understand transparency issues of public and private businesses. Stakeholder Mapping
is an important tool in this regard, which involves concerted efforts to reach out to
various stakeholders.
Further focused agendas
would be set based on the
nature of the business, so
that sector specific issues
related to corruption, can
be appropriately explored
and addressed. Meetings
/ Consultations with
business houses would be an
important tool to understand
their stand on certain issues
related to corruption and
how leading business houses
tackle dilemmas relating
to corruption vis-à-vis
environmental sustainability. Organisation of Seminar Series on business ethics, code
of conduct, compliance mechanisms, monitoring mechanisms and business case on
corruption, periodically among the stakeholders, would be another tool in continuance
of collective action against corruption.
Governmentactionisacriticalcomponentincreatingalevelplayingfieldthatcompanies
desire. Therefore, networking with the appropriate authorities of the government, on
behalf of and along with the stakeholders, with regard to policy changes and compliance
mechanisms, that fosters sustainable business, would be an effective tool of the project.
A company’s reputation is its most vulnerable asset once corruption is made public.
Platform
Forming Core Group Media
Risk AssessmentTraining Key PersonnelMonitoring & Compliancy
Seminars/Meetings/Consultations Government Action
Business
Case against
Corruption
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12. The threat of negative coverage can be a powerful incentive for companies to ensure
they have prevention programmes in place. “The exposure in the media is what gets
people’s attention,” says Jean-Pierre Méan, group general counsel for SGS Group, a
global certification company based in Switzerland. “People follow what is happening in
the news and not necessarily in the courts” . Correspondingly positive media coverage
boosts the sales and morale of a company, so, encouraging companies to go public
about their stated policy on anti-corruption would be an effective tool of the CAP.
Further, Collective Action Project encourages stakeholders to take up periodic rigorous
risk assessments to identify corruption related risks. CAP would assist in the design and
implementation of anti-corruption policies and programmes among the stakeholders
and would also attempt to identify and develop responses to weaknesses in programmes
and enhance corruption awareness by training key personnel. Senior management
would especially be targeted as any successful anti-corruption programme must begin
with a clear commitment from the top. In addition, compliance officers, representatives
from business associations, government departments and agencies, NGOs and SMEs
would be invited to the trainings. Also since sales and bids are regarded as areas where
companies are particularly vulnerable to corruption, training would be provided to
employees in these departments. Further, CAP encourages more and more companies
to sign various compliance mechanisms such as Integrity Pacts, Anti-Corruption
Declarations, Principle-Based Initiatives, and Certifying Business Coalitions, for a
transparent ethical business.
CAP also encourages stakeholders to develop their own monitoring mechanisms as
constant monitoring helps companies identify new forms of corruption risks and
adapt their programmes accordingly. At Tata Group in India, the anti-corruption
strategy is ingrained even in the code of conduct, says Dr Irani: “We have set examples
just to drive home the message that anyone who’s found indulging in such practices
is immediately, shall we say, acted upon and removed from the organisation.” Thus,
the ever-changing nature of corruption makes continuous monitoring essential.
Moreover, CAP would strive to promote collective action among major business
schools, institutional investors, regional business associations, by sharing with them
short guidance documents and anti-corruption workshop modules so as to strengthen
their anti-corruption and transparency initiatives.
To enhance periodic monitoring and establish credibility for Collective Action Project,
a Core Group is to be formed with representatives from leading companies, non-
governmental organisations and experts on the issues of code of business ethics,
compliance and transparency. This core group would advise and guide the CAP on
ever evolving strategies and project deliverables.
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Policy Paper - Collective Action Project

13. Siemens: Learning from Costly Mistake
The case of Siemens provides a stark reminder of the high costs corruption can impose
on a multinational company. Between 2001 and 2007, the German conglomerate used
a large slush fund to pay bribes to corrupt government officials in countries across the
globe. These activities involved several of the company’s business units, including a
Siemens subsidiary in Argentina, which paid at least $40 million in bribes to win a $1
billion contract to produce national identity cards and $20 million to senior government
officials to build power plants in Israel. Following investigations by authorities in
multiple countries, including Germany and the U.S., the illegal activities cost the
company significant financial resources, as well as an even greater asset, its reputation.
The Guardian news-paper reported in 2011: “The scandal has cost Siemens, a symbol
of German engineering excellence and corporate probity, not only its reputation and
that of former senior executives, but more than [$2 billion] in costs. The company is
being investigated in scores of countries around the world, two ex-board members are
under criminal investigation, and a senior manager was recently given a suspended two-
year sentence.” In addition to incurring legal, accounting, and re-structuring costs, the
staggering fine paid by Siemens as a result of its accepting a plea bargain is the largest
fine in modern corporate history. Since admitting its transgressions, the company
has invested heavily in strengthening its compliance program. According to Sabine
Zindera, Vice President, Corporate Legal and Compliance, the company has increased
the number of staff working on compliance from 6 to almost 600 and has provided
training to 120,000 of their employees during 2011. The efforts that Siemens has taken
worldwide to have a robust Compliance system in place has paid rich dividends as it has
led to complete turnaround and Siemens has been declared as a leader by Dow Jones
Index in Corporate Governance. Siemens is also working with external stakeholders to
create tools and resources to benefit the anti-corruption efforts of other corporations.
Conclusion
Almost every company, regardless of size, industry, or country of operation, is exposed
to some degree of corruption risk. Some sectors, such as defence, construction and
the extractive industries, identified the danger early and began developing management
strategies. However, others are just waking up to the risk, often because high-profile
enforcement penalties have caught their attention, or because they are seeking
opportunities in unfamiliar markets. Companies are also focusing on corruption
risk to protect their most vital asset—their reputation—and are developing socially
responsible business models expected by investors and other stakeholders.
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14. One of the greatest difficulties for tackling corruption among the businesses, both
public and private, is a heavily-engrained corporate culture. According to Hess and
Ford, if corrupt practices are engrained within a corporation‘s daily activities, simply
adding more controls or increasing monitoring activity has only limited effectiveness,
as it does not address the root of the problem wherein corrupt behaviour and practices
are subconsciously rationalized by employees. There is no fast, easy or sure-proof
method to change the engrained corporate culture of bribery where it exists. Each
business will have to find its own strategy, which has to be monitored continuously.
Thus operating in a complex network of mutually-reinforcing and circular relationships,
promoting a strategy on multi-stakeholder collective action must be holistic in order to
be meaningful and far-reaching, and utilise horizontal and vertical linkages, at the local,
national, regional and global level.
References
www.unglobalcompact.org/docs/.../7.../BACtextcoversmallFINAL.pd...
https://www.in.kpmg.com/.../aci/.../KPMG_Fraud_Survey_2010.pdf
http://www.enterprisesurveys.org
http://www.unodc.org/unodc/en/treaties/CAC/index.html
www.atkearney.com/images/global/pdf/FDICI_2007.pdf
cvc.nic.in/cfcichapter.pdf
https://members.weforum.org/pdf/.../BusinessCaseAgainstCorruption...
www.nagrikchetna.com/corruption.pdf
www.unglobalcompact.org/docs/.../7.../BACtextcoversmallFINAL.pd...
www.deccanherald.com/content/.../cwg-rot-sinks-india-graft.html
m.timesofindia.com/PDATOI/articleshow/7485002.cms
SGS is the world’s leading inspection, verification, testing and certification company
(Switzerland based company)
www.ethics.org/files/u5/Anti-corruptionFINAL.pdf
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Policy Paper - Collective Action Project

15. Global Compact's Principles
HUMAN RIGHTS
Principle 1
Businesses should support and respect the protection of internationally proclaimed
human rights
Principle 2
Businesses should make sure that they are not complicit in human rights abuses
LABOUR
Principle 3
Businesses should uphold the freedom of association and the effective recognition of
the right to collective bargaining
Principle 4
Businesses should uphold the elimination of all forms of forced and compulsory
labour
Principle 5
Businesses should uphold the effective abolition of child labour
Principle 6
Businesses should uphold the elimination of discrimination in respect of
employment and occupation.
ENVIRONMENT
Principle 7
Businesses should support a precautionary approach to environmental challenges
Principle 8
Businesses should undertake initiatives to promote greater environmental
responsibility
Principle 9
Businesses should encourage the development and diffusion of environmentally
friendly technologies
ANTI-CORRUPTION
Principle 10
Businesses should work against all forms of corruption, including extortion and
bribery.
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16. Collective Action Project
Global Compact Network India
Scope Complex, Core 5, 6th Floor
7 Institutional Area, Lodhi Road, New Delhi-110003
Ph No: +91-11-24306486. Telefax: +91-11-24368269
Email: gcn.cap@gmail.com
Website : www.globalcompactindia.org
Opening Event, 13th
February 2012
New Delhi, India
INDIA CEO FORUM ON
BUSINESS AND HUMAN
RIGHTS
The India CEO Forum is a two-year Global
Compact Network India ini�a�ve, kindly
chaired by Mr. N. R. Narayana Murthy
Founder and Chairman Emeritus,
Infosys Limited
GCNI Publications
Policy Paper - Collective Action Project