Why is it important to manage corruption risks effectively?
Author: Oleksiy Povolotskiy, Director of Corporate Governance and Compliance
According to UN estimates, bribery costs society one trillion dollars per year, as these resources eventually trickle into the world’s shadow economy. Corruption and its related practices impede sustainable development, widen the gap between the rich and the poor, and jeopardize the functioning of democratic institutions.
Any company’s existing and potential partners expect it to be committed to the principles of fair and transparent business. This is unsurprising when one considers the pressure exerted by anti-corruption laws, especially the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA), on international companies to avoid “toxic” business collaborations that increases corruption risks. Notably, both of these laws are extraterritorial in their effect, with their provisions applying not only to the fact, but also to the promise of, payments or transfers.
In addition, the number of responsible investors is constantly growing. ESG corporate ratings are becoming an increasingly important benchmark relied on when making investment decisions. Not only do these ratings enable a business to demonstrate its commitment to the principles of sustainable development, but they also help manage risks effectively.
For example, DTEK demonstrates its commitment to ESG principles by creating organizational mechanisms, drafting and implementing ESG policies and procedures that cover the entire management system – from the Supervisory Board to the leadership at DTEK’s operating companies.
In order to comply with ESG practices and prevent violations of international anti-corruption standards and domestic laws, companies are playing a more active role in creating and applying internal compliance control systems vis-à-vis their business processes, business partners, and customers. Keeping in mind that their anti-corruption effort must be systematic and consistent, many companies have already designed and effectively applied compliance programs; created the new role of compliance officers, who are responsible for introducing and implementing these programs; and continue to monitor anti-corruption practices.
What benefits will companies derive from having anti-corruption systems in place?
Several key advantages can be highlighted:
1) A well-established compliance system enables the company to:
a) feel confident about communicating with partners without any unexpected surprises, such as a refusal to cooperate/failing the KYC procedure;
b) quickly and efficiently respond to requests from government bodies and regulators;
c) exercise effective control within the company, avoiding any violations of existing laws.
2) Effective engagement with clients, investors, and talent: The market is now witnessing a growing number of investors refusing to invest in companies that do not meet minimum ESG requirements. Young people, in turn, strive to work at companies that follow ESG principles.
3) Benefit from a positive assessment of the company’s risk levels: The company gains access to modern methods of financing, lower interest rates on loans, and a higher share price.
4) Cost savings in the company’s day-to-day operations: Compliance control over business processes enables the company to identify and remove downsides, which offers cost savings and prevents an outflow of funds.
Of course, anti-corruption efforts in companies begin at the highest level by ensuring the commitment of management to the fundamental principles of good corporate governance: integrity, fairness, accountability, transparency, and responsibility.
But before the principles of corporate governance and business ethics can truly take effect, they must be ingrained and implemented in the daily routine of employees on all levels.
Like many global companies operating around the world, DTEK finds it especially important for anti-corruption calls from its management to reach all personnel within the business.
In its activities, DTEK follows a strict “zero tolerance” policy with regards to corruption. To promote these principles, DTEK has operated a special division, Compliance, since 2010. The unit is tasked with building an effective internal anti-corruption system and training staff to follow the business ethics adopted by DTEK.
Below is a brief list of key elements from DTEK’s anti-corruption compliance program:
- The Anti-Corruption Program has been developed.
- A system was introduced to assess the company’s exposure to corrupt practices in its partnerships with counterparties.
- A system has been built for the mandatory verification of contracts that have signs of corruption risks.
- Records of business gifts and hospitality are kept.
- A system has been introduced for compliance controls in business processes and performance monitoring of existing compliance controls.
- A conflict of interest management system has been established for monitoring and preventing conflicts of interest.
- A Staff Training Program has been devised and is regularly updated that includes courses, video tutorials, and ongoing counseling.
- A whistleblower hotline has been created to enable employees to report potential violations of the rules and standards of internal corporate ethics.
To conclude, by working in international markets, we understand that we can only be successful if Ukraine is successful. A transparent business environment in the country is the crucial condition for making investing and business development decisions. Every Ukrainian business should actively work to improve the economic appeal of Ukraine to investors. Accordingly, among the top priorities in DTEK’s new strategy – which is based on ESG principles, values, and business responsibility for progress in achieving the UN Sustainable Development Goals – is our determination to combat corruption. We are a transparent company and are willing to cooperate with like-minded partners.