Companies are joining forces to fight corruption in Brazil

Brazil has just completed its latest round of municipal elections. Public elections mean two things in South America’s largest economy: votes and money. The two, regrettably, often overlap.

After a cash-for-votes scandal overshadowed the presidential elections in 2006, one of Brazil’s foremost corporate responsibility groups launched an ambitious initiative to combat corruption.

Instituto Ethos’ Pact for Integrity and Against Corruption was launched with about 200 signatories. Now the number of participants has jumped to about 550 corporate signatories and almost 100 non-profit and governmental organisations.

“The problem with corruption continues to be very strong in Brazil,” concedes Caio Magri, public policy adviser at Instituto Ethos. Brazil currently lingers alongside Burkina Faso in 80th place on the benchmark Transparency International Corruption Perception Index.But the pact’s signatories are making progress, Magri insists. A working group of 15 member companies is currently developing guidelines for implementing the pact’s commitments. Each signatory is expected to develop internal procedures to guarantee compliance with national laws as well as the “disclosure and enforcement” of internal anti-corruption codes.

Other innovations include new guidelines on government relations during an electoral campaign, published to coincide with the recent municipal elections. Among the document’s recommendations is to avoid making donations to candidates or parties with a history of corruption.

In addition, the pact promoters hosted a three-day conference for legislators in November about potential regulations for the lobby industry.

Magri reserves his greatest enthusiasm for sector initiatives, however, saying: “It is a very interesting approach for companies to try to enter together into dialogue … to build voluntary rules to control their actions.”

To this end, pact leaders are in advanced discussions with the oil and gas industry and the pipeline sector. The example of Colombia, where pipeline manufacturers have agreed a shared code on price transparency in public contracts, provides a model of how the proposed sector initiatives might work.

Management challenges

The pact is just one of a number of anti-corruption initiatives launched in recent years by business associations and government agencies alike.

As a result, more momentum has gathered in the fight against corruption, according to Vander Giordano, chief executive of risk consulting firm Kroll Brazil.

The Foreign Corrupt Practices Act, to which all companies that do business in the US are subject, has added to local pressure, Giordano notes. So too is the export focus of Brazil’s domestic businesses.

Moving forwards, however, requires the integration of anti-corruption processes into internal management. Supermarket chain Wal-Mart has gone further than most. With a procurement budget of 15bn reais (£4.3bn) last year, the US-owned company has provided anti-corruption training to 50,000 of its roughly 70,000 in-store employees over the past 12 months.

“Any anti-corruption programme has to relate to education and awareness. People need to understand the law and be trained to recognise where there is some suspicious behaviour or ‘red flags’,” says Wal-Mart’s chief ethics officer, Rafael Gomes.

Due diligence and continual communication make up the other main pillars of the company’s strategy. Wal-Mart, for instance, undertakes a basic background check on its customs agents, tax experts and other contractors that liaise with government on the company’s behalf.

As for communication, it provides a confidential phone line and email service through which employees can report incidences of unethical conduct. “We make sure that the message about anti-corruption comes from top management,” Gomez says.

Culture change

If compliance represents a first step in the battle against graft, then changing corporate culture marks the second.

“It’s the culture that’s the problem,” says Ricardo Vescari, head of sustainability at Brazilian mining company Samarco. “To change a management system, you have to change the culture of a company. That’s where we’re at now.”

Samarco, which is joint-owned by mining multinationals Vale and BHP Billiton, is currently rolling out a three-year programme designed to shift internal perceptions about transparency within the company.

In addition to internal training, the company is seeking to communicate its code of ethics to as many external stakeholders as possible. All its suppliers and other business partners, for example, are obliged to meet its anti-fraud principles under the terms of their contract. It has requested the dismissal of two contractor employees in the past two years as a result of non-compliance.

Refusing to make financial contributions to political campaigns, despite such payments being legal, adds to the company’s reputation for ethical conduct.

Vescari credits the company’s public position with its recent ability to agree a 400km pipeline through 27 municipalities without a single reported incident of corruption.

As Brazil’s political parties gear up for the 2010 elections, the spotlight will be back on the transparency of corporate-government relations. A recent poll of companies’ political donations by Instituto Ethos shows how far companies have to go. The results were inconclusive. “It’s very difficult,” Magri admits, “because companies just don’t want to talk about this.”


Pact for Integrity and Against Corruption

Signatories commit to the following steps:

· complying with established laws on issues such as active and passive corruption, administrative corruption, collusion in bids and tax crime;

· enforcing internal rules through training, an ombudsman, transparent payments systems and other measures;

· making contributions to political campaigns exclusively within strict legal limits;

· implementing internal mechanisms to verify and prove the reasonability of payments made to representatives and other agents;

· disclosing to suppliers and other business partners the principles expressed in the pact; and

· supporting public investigations of potential irregularity, violation of the law or of the pact’s ethical principles.

www.empresalimpa.org.br