Foreign companies: Coping with corruption

By Tom Warner
Published: June 24 2005 13:52 | Last updated: June 24 2005 13:52

The World Economic Forum’s business conference in Kiev this month heard reassuring messages from Ukraine’s leaders about intentions to tackle what may be the biggest business continuity issue for foreign investors in the former Soviet Union: bureaucratic corruption.

President Viktor Yushchenko said his administration had replaced 18,000 bureaucrats and would sack others who did not live up to his no-bribes standards.

But it might be worth listening to the advice of a specialist in dealing with corruption. “From a company’s point of view, getting personal is a very dangerous game to play. I can’t think of any case where I would advise it,” says John Bray, a consultant at Control Risks Group.

Even when top authorities are committed to tackling corruption, co-operating is not always easy. At the conference, investors attending a panel on corruption delicately broached the subject. “I don’t pay bribes but my wife’s family’s company does,” says one businessman.

Mr Yushchenko’s team “needs a lot of help from the business community”, says Gerald Parfitt, a senior partner at PwCs’ Kiev office, which also offers crisis management consulting. “It is very difficult to cure corruption once it’s in the nature of society.”

There are strategies that help. One of the most important, according to Mr Bray, is patience: “In Ukraine and other parts of the former Soviet Union, you need to be investing for the longer term. If you need something in a hurry, you’re vulnerable.” Mr Bray advises companies to play for time while coming up with “alibis” – reasons why the company is unable to pay. For example, your local office is unable to make spending decisions without approval from the head office. You are obliged to document and explain all payments and record them in the company’s accounts. Laws in your home country prohibit bribing.

Sometimes, a firm response is all that is required. If a bureaucrat is holding up some kind of permission, he may cave in to persistent nagging.

When making the decision to turn to a powerful person for help, one should be aware that one will usually later receive “some kind of bill,” Mr Bray says.

For example, a politician may ask for a job for one of his friends.

Keeping one’s nose clean is particularly crucial if one lands in a dispute with a competitor or former partner. In the former Soviet Union, these tend to involve harassing law suits and planted reports in the media designed to wreck a rival’s reputation, usually with the goal of pressuring the rival into making some kind of deal.

Mr Bray says such problems require individually tailored responses, but companies can join together to address the underlying systemic weaknesses by taking part in business associations and lobbying the government.

The goal is to change the incentive system for bureaucrats and politicians alike, he says.

“One hopes that in the future politicians will gain power by bringing good companies into their constituencies. That’s something nobody would have to be embarrassed about.”