Corporate Corruption

New Zealand has an almost ‘corruption free’ global business and political reputation. Transparency International (TI), the world’s leading watchdog of corrupt practices, ranks us second only to Denmark as the least corrupt country in the world. But do our corporate directors and boards in particular, deserve this top ranking? Are perceptions and practices in fact aligned? And are our companies becoming increasingly vulnerable to corrupt business practices as we ramp up our dealings with significantly lower ranked, and rather more corrupt international markets? TI has established New Zealand chapter, in part because it wants to ensure it has the good oil on our standard of governance and, because it wants to help our boards keep ahead of the game. Suzanne Snively, Wellington-based economist, company director, Fulbright Scholar and former PricewaterhouseCoopers partner, was appointed its chair last year. She talked to The Director’s editor Reg Birchfield about global corruption, our global governance reputation and the plans TI has for lifting the organisation’s best practice profile in New Zealand.

Should New Zealand companies take more notice of corporate and political corruption?
The ongoing global financial crisis (GFC) means investors, customers, suppliers and distributors are being more specific about who they choose to deal with – according to Ethisphere, United States-based organisation that each year selects 100 or so of the world’s most ethical companies; enterprises that demonstrate high standards of ethics are preferred over those that don’t. This “preference” results in better share prices and better deals with suppliers and distributors, thus improving profitability, which is fundamental director responsibility.
New Zealand has strong reputation for having low levels of political and public sector corruption. That is backed up with good [public sector governance] standards, policies and practices. Regretfully, our private sector rides on this reputation with few companies enforcing the policies needed to ensure that they have framework in place to support similar best practices.

Are there indications that New Zealand’s strong global rating on low corruption levels is about to change?
Global corruption measures are based on the international community’s perceptions of how NZ business interacts with the public sector. It’s unclear what actions our companies have taken to promote best practice corporate ethics. There are in fact two “flies in the ointment”. Almost all our listed companies lack specific, simple, published and implemented anti-corruption policies. And second, these largely unprepared New Zealand companies are increasingly exposed to global business where there is corruption. Their employees are exposed to transactions that breach New Zealand law.
New Zealand society is growing and changing. Different standards and ethics will accompany those changes. It is even more important, therefore, to set and monitor clear standards in corporates and government departments with large staff numbers and high volumes of transactions. The IRD, Department of Labour, ACC and Otago/Southland District Health Board have all identified fraud and corruption issues. Private sector businesses are either not looking, or hiding what they find.

What makes you think things are changing, or are likely to change at board level here?
Despite legislative change in other jurisdictions, such as the UK, that will impact New Zealand companies, little seems to change on our boards. Some impetus for change might result from the listing of the three Australian banks – ANZ, NAB and Westpac – on the world’s 110 most ethical companies. They are exemplars for our corporate boards and other local trading banks.
And banks play an important role in regard to money laundering. Given its reputation for low corruption, New Zealand is target for this activity. In the past five years the trading banks have taken this risk in hand and sought advice from the Ministry of Economic Development and the Police about how to manage it.

Are we becoming apathetic about our existing good reputation?
It is debatable whether we are becoming apathetic or whether we have always been.
Our listed companies have been reviewed several times and the results continue to be the same. But, our business policies and procedures are not as good as they are internationally perceived to be. New Zealand businesses think the perception itself will protect them. If companies fail to put training in place to prepare their staff, there is every probability that employees somewhere are breaking the law. This reality is now priority for the Serious Fraud Office (SFO). This year it will look more closely at some of our well-known companies and individuals.

Is New Zealand business more vulnerable (to corruption) than our political scene – or vice versa?
Our politicians work within public sector that is less vulnerable than business because the public sector has focused on reducing fraud and corruption through the Auditor General’s Office (OAG). The OAG has had zero tolerance approach to public sector fraud for more than 10 years. In 2011 it contracted [global accounting firm] PricewaterhouseCoopers to carry out an extensive survey focused on fraud awareness.
The OAG launched publication of insights based on the survey and, as result, there is growing public sector awareness about fraud. The next key step is to improve resilience in the public sector and increase staff awareness through training, especially around procurement where products and services are sourced from offshore.

What is your strategy for taking the Transparency International message to company directors?
We need to engage directors by demonstrating that TI can help improve their business outcomes. Our approach is consistent with the Institute of Directors’ motto of “Integrity and Enterprise”. The motto reflects directors’ desire to be committed to the principle that business performance, brand sustainability and delivery of shareholder value is underpinned and driven by good governance, and is necessary to create and support trust in their organisations. It means there is positive ethical culture that rejects corruption, bribery and cynical practice.
The IoD is collaborating with TI New Zealand and others to show that ethical decision-making confers comparative business advantage. High [ethical] governance standards are core to building sustainable enterprise. IoD, TI-NZ, the Institute of Business Ethics [based in London], SFO, Financial Markets Authority (FMA) and New Zealand Police have initiated interactive programmes to support good business and governance.

Can New Zealand companies use the country’s ‘corruption free’ reputation to even greater advantage?
Yes – even though we know they are not as good as they are perceived. Because the rest of the world thinks otherwise, they can expect to do deals faster when selling or procuring from overseas. They might often be able to negotiate better terms – lower interest rates, better payment conditions, longer repayment times – and may be given preference over other suppliers. New Zealand companies enjoy privileges without knowing how lucky they are.

Is there any indication that local boards and directors are, or will be, interested in the TI message?
There seems to be considerable apathy amongst [our] listed companies. We don’t understand why directors are so disinterested in corruption management and good governance policies. Their low level of engagement may be due to lack of understanding of the risks around not having protections in place. By contrast, several law firms and the big four professional services firms [Deloitte, Ernst &Young, KPMG and PwC] have shown considerable interest in TI’s messages on good governance.

Who will TI work with to deliver regular [corruption] awareness

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