Only half of British businesses vet their suppliers for corruption, says a new report
With complex supply chains it is always difficult to keep tabs on every root and every branch. But recent research from Ernst & Young shows that nearly half of British companies are failing to vet their suppliers for compliance with the UK’s Bribery Act, and that only 6% would retender if they discovered their suppliers weren’t compliant. Worryingly, 12% of companies would “do nothing” if they found out that their suppliers failed to comply.
Jonathan Middup, a partner in Ernst & Young’s fraud investigation and disputes services team, believes the supply chain tends to be neglected because addressing its risk is both difficult and expensive.
Robert Barrington, executive director of Transparency International, agrees. “Historically, bribery risk has been ignored or written off as being too complex to manage or not the company's responsibility,” he says.
TI’s latest Bribe Payers Survey found that the perceived frequency of bribery varies across sectors, with agriculture coming off best in the rankings, and utilities and public works contracts languishing at the bottom.
“Some sectors have higher-risk business models, such as extended supply chains over which they have little knowledge or control, or extensive use of intermediaries,” Barrington says.
Regardless of sector, UK businesses seem to be underestimating the reach of the Bribery Act, which came into force in July 2011. The UK legislation covers “associated persons”, which is important. “It’s a vague term, but certainly encompasses supply chains,” Barrington says. “The question for companies is how far down the supply chain they are prepared to go.”
So what needs to be done? “Companies should adopt similar risk procedures for third parties and suppliers that they would routinely enforce in other parts of their business. The first step is to categorise suppliers by risk and decide on appropriate measures for each categorisation,” says Middup.
Barrington says dealing with these issues is essential, but not easy. “Be prepared to work with [suppliers] to eradicate bribery, even when it seems hard. Be ruthless in dropping suppliers who put you at risk.”
Under bribery and corruption legislation, firms have no defence unless they have put in place adequate measures, explains Middup. But firms are not carrying out basic checks.
“It's tough for smaller companies to know what to do or how to do it,” says Barrington. “They may have complex supply chains and little understanding of the risks and how to manage them. But they still have a legal and ethical responsibility to get it right. Larger companies have no real excuse.”
Barrington identifies a number of risks, “…depending on where in the supply chain you are looking. For an extractive company using a sub-contractor on its own site, it’s a straightforward legal liability. As it moves further down the chain out of a company's ability to control or influence, it becomes more about reputational impact and security of supply.”
Whether apathetic, miserly or plain ignorant, guilty firms need a wake-up call. “Many directors are still unaware that they can be held personally accountable,” the Ernst & Young report says. Senior managers and directors risk significant prison terms and large fines for non-compliance in which they are personally involved, even if the breach is caused by the actions of a third-party supplier. A large number of directors should take note.Claire Manuel corruption supplier supply chains