11.02.2019

Corruption can have serious destructive legal, financial and credibility consequences for a company.

In 2008, as a result of a high-profile trial on corruption, Siemens, the largest machine manufacturer in Europe, paid $ 814 million of criminal and civil fines in Germany and another $ 800 million in the United States, because the company had spent about $ 1.36 billion in foreign countries on bribes for unreliable accounting. To regain its credibility, the company requires years of compliance and comprehensive support for global anti-corruption initiatives. Therefore, understanding such risks is not theoretical exercise, but rather the key to the responsibility of the board of directors or the equivalent governing body.

In the case of Siemens Company, as well as in many other cases, consensus on bribery has come from the top which indicates serious mistakes and shortcomings in corporate governance. When a corruption scandal broke out in 2007, the company changed half of its top managers, and also optimized the decision-making process and board membership, and entrusting the Audit Committee with the authority to effectively address compliance issues.

On this basis, ensuring ethical behavior of the company is a matter of the board of directors and in the case of closed companies it is the matter of the owner. Ultimately, the responsibility lies on them, and they bare personal responsible for the risk of their inaction. The supreme governing body (board of directors) must require that the company’s management, the heads of functional sub-divisions regularly submit reports on the risk assessment of anti-corruption compliance. The board then weighs these risks in order to reduce them where it is possible and make informed decisions about the future of the company. Within the framework of the board of directors or equivalent governing body, it is possible to consider the formation of a risk management committee to assess and manage the risks.

G20 / Corporate Governance Principles of the Organization for Economic Cooperation and Development as the key function of the board of directors provide guidance and review of the risk management policy.

The company’s board of directors or the governing body and the general manager play an extremely important role in giving “direction” from the top, emphasizing the importance of business ethics and professional integrity for the company, by providing proper attention and resources to anti-corruption compliance. They must be the driving force of the company and the advocates of ethical culture, should lead by personal example. Violations of the code of conduct of their company, which they will make allows other persons to act in such way as well.

To ensure compliance in order to perform this, as well as other key management functions, the board of directors or other equivalent governing body and CEO must follow the best corporate governance principles.

G20 / OECD Principles of Corporate Governance

I) Ensuring the basis for an effective corporate governance framework;

II) The rights and equitable treatment of shareholders and key ownership functions;

III) Institutional investors, stock markets, and other intermediaries;

IV) The role of stakeholders;

V) Disclosure and transparency;

VI) The responsibilities of the board.

Source: https://www.oecd.org/daf/ca/Corporate-Governance-Principles-ENG.pdf

 

It is important to know that these principles are exclusively used not only exclusively by large companies listed on stock exchanges. Corporate governance principles and advanced practices apply to different types of companies, including medium-sized enterprises. It may be necessary to match them with different forms of ownership, given their special risks.

Source: Center for International Private Enterprise

This material has been prepared in the scope of the “Armenia: Promoting Anti-Corruption Conduct and Reforms” Project implemented by the “Center for International Private Enterprise”, the “Armenian Lawyers’ Association” NGO, the “Corporate Governance Center” NGO and the “Yerevan Chamber of Commerce and Industry” with financial support of the National Endowment for Democracy. The project is implemented as a co-financing to the “Commitment to Constructive Dialogue” action implemented with the financial support of the European Union by a Consortium comprising the “Armenian Lawyers’ Association” NGO, the “Armenian Center for Democratic Education-CIVITAS” NGO, the “International Center for Human Development” NGO, the “SME Cooperation Association” NGO, the Union of Communities of Armenia, as well as “Agora Central Europe” NGO (Czech Republic). The contents of this material are the sole responsibility of the “Armenian Lawyers’ Association” NGO and can in no way be taken to reflect the views of the National Endowment for Democracy and the European Union.