Corrpution and procurement practices

by Peter Smith on March 28, 2010

Corruption has been in the news this week as Supply Management reported;

“Three UK directors of French transport and infrastructure company Alstom were arrested in England yesterday on suspicion of using bribes to win business abroad. It follows an investigation by the Serious Fraud Office (SFO) – codenamed Operation Ruthenium – into the suspected bribe payments and money laundering by companies within the Alstom group in the UK to win contracts overseas.”

And the African Development Indicators report, based on World bank research,  and also featured in SM, says that many southern African companies “expect” to pay bribes to government officials to win contracts.

It is easy to be cynical and accepting and get sucked into thinking this sort of thing just goes on in certain countries, and is inevitable; and that companies have to play the game – what’s a few bribes just to oil the wheels anyway?  But we mustn’t stop being shocked and angry about this.

I’ve done a little work in the past with an excellent organisation called Transparency International (TI).  They campaign globally for ethical government and against corruption. In some parts of the world, their staff are in physical danger; in others, it is all about influencing governments, large corporations and international organisations to take the issues seriously and take appropriate action when issues come to light. As TI say:

“Corruption is the abuse of entrusted power for private gain. It hurts everyone whose life, livelihood or happiness depends on the integrity of people in a position of authority”.

Working with them made me realise the hugely damaging effects of corruption in supply chains. There is an obvious cost to the organisation buying (and being bribed); in a public organisation, it is the taxpayer in that country who bears the additional cost of the purchase that is inevitable to  cover and fund the bribe.  So there is a transfer of wealth from the  economically active (but probably poor) local taxpayers to a corrupt and criminal class (the middle-men and receivers of the bribes), who then get richer and stronger, which gives them opportunities to get more power and exercise more corruption.  The logical conclusion of all this, taken to extremes, can be “failed states”.

And think about this.  If you are a supplier bidding for contracts, and you know you can be beaten by a competitor with a worse product and poorer value for money, but who pays bigger bribes, why would you bother?  Why go through a fake competitive process?  Or what is the point of striving to make your product or service better? You might as well give up, or ‘invest’ in bigger bribes yourself rather than the value of the product. So the organisation purchasing may receive over time worse and worse actual value and performance from what it is buying, as the bribes get bigger and bigger.

So next time someone says, “well, a few bribes don’t really hurt anyone, it’s just the way they do business in country X”, remember the corrosive, evil and poverty-creating effects of endemic corruption.  I’d love to see organisations like CIPS doing more in this field, and to everyone reading this in countries where this isn’t a problem, be grateful, but be vigilant.

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