Entering High-Risk Corruption Markets

The fear of corruption can sometimes be overblown.  If corruption fears drive business decisions, the fear is winning and business loses.

Global businesses sometimes decide not to enter a new market because of corruption concerns.  Such a decision is usually short-sighted.  It also reflects a fundamental governance failure – you can rest assured that the business failed to include compliance professionals in such a determination.  I would guess, in this situation, that the Chief Compliance Officer does not sit in the Executive-C Suite and is not regularly consulted on major business decisions.

Global companies which identify potential new markets should make the decision whether to enter the market or not through a business evaluation which includes the compliance component from the beginning. 

If the business is forward thinking and elevates the CCO to the business level, compliance requirements will be defined and considered as part of the overall question: Are the benefits of entering a new market greater than the increased costs and risks?

For global consumer product companies, Russia is an attractive market.  Over the next ten years consumer spending in Russia is predicted to increase more than any other country.  A global company should determine the business case for such expansion.  Compliance should be a part of this inquiry.  Compliance should never be a flat “no,” but should be focused on the cost of designing and implementing a compliance program commensurate with the risks. 

Given that the risk of corruption is high, the costs of compliance should be high.  That cost needs to be considered as a part of the overall business analysis and evaluation.  If the overall business decision is not to enter the market, the decision cannot be blamed on compliance. 

This is the way the process should work.  However, in the real world, business decisions are usually made without adequate consultation and involvement of compliance professionals.  That is a serious mistake. 

Business leaders sometimes reach “off-the-cuff” conclusions about corruption conditions, relying on generalizations, consultants who are paid to regurgitate tentative conclusions.  Compliance professionals may be consulted in the process but they often do not have a seat at the table where such decisions are made. 

I have repeated myself on numerous occasions – forward-leaning companies have elevated CCOs to the C-Level for decision making purposes, especially in today’s risky and aggressive enforcement environment.  Businesses that fail to do so are operating with a serious deficiency: a limited picture and consideration of risk and compliance factors. 

In order to maximize profits and new opportunities, businesses need to elevate CCOs to identify risk and compliance costs.  Business decisions can be made which accurately weigh benefits and costs.  In the world of corruption, this is critical for businesses seeking to rise in the global marketplace.

You may also like...

1 Response

  1. October 16, 2012

    […] from the Battle of Hastings into a company’s compliance program. Mike Volkov says that the fear of corruption can sometimes be […]