Note: Over the years, I have written many times on the subject of bribery and corruption risks for Singapore companies doing business overseas. In light of the recent US$422 million fine imposed on Keppel O&M, I have decided to post some of my older articles on this subject here.

First published in Business Times on December 3, 2010

By Mak Yuen Teen

THE report ‘Firms sweat over new UK anti-bribery laws’ (BT, Dec 1) once again highlights the changing landscape our companies face as they do business overseas. The Telegraph in the UK recently reported that British companies are telling their UK suppliers to clamp down on overseas manufacturers which offer bribes. In other words, companies are scrutinising not only agents, distributors, joint-venture partners and suppliers, but are also expecting their suppliers to scrutinise subcontractors, thereby creating a cascading effect throughout the supply chain.

It is not only legislation such as the UK Bribery Act or the US Foreign Corrupt Practices Act that are driving the focus on supply chain risks – although they are undoubtedly important drivers – but the fact that global firms are also concerned about reputation risks when their suppliers and business partners engage in unlawful or unethical business practices that extend beyond bribery and corruption (such as the use of child labour and poor workplace safety).

Corruption-related risks also affect stock prices. In the commentary ‘Apple case throws spotlight on corruption’ (BT, Aug 26) – written in response to the bribery case involving a former employee of a wholly- owned subsidiary of Singapore-listed JLJ and Apple’s global supply manager – I talked about the impact that the case had on the stock price of JLJ. While the charges are against the ex-employee and not against the company, the fact remains that till today, JLJ’s stock price has not recovered; it remains at about 50 per cent of what it was before the news of the charges broke. Companies would do well to heed the lessons from that case.

I also mentioned in that commentary the potential wider ramifications of this and other cases on other companies and that many global companies now require their suppliers and business partners to comply with their codes of conduct and/or have adopted separate codes for their suppliers as part of their supplier selection process.

What is happening in the UK merely reinforces a global trend that has been evident for a while. In fact, the UK Bribery Act is seen by some to be a belated response by the UK to international criticism that its anti-bribery laws are outdated.

Singapore companies should not be merely reactive to the extra-territorial implications of legislation enacted by developed countries. They should be proactive in putting in place the necessary systems and processes to capitalise on (and hopefully maintain) Singapore’s strong reputation for low corruption and high ethical standards.

More importantly, they should make sure that these systems and processes are effective. While consultants may be helpful, companies should ensure that codes of conduct, whistleblowing policies and other policies and procedures are sufficiently customised to their business and are accompanied by education, monitoring, enforcement and a strong commitment from the top. Simple box-ticking just to give the impression of compliance will not do.

As I have argued in the past, the government should invest resources to educate our companies, especially small and medium enterprises, and help them build capacity in this area. Companies which will flourish in the globalised economy are likely to be those that have robust systems and processes for managing their risks (including corruption risk) and have a reputation for being ethical.