business approaches to combating bribery: a study of codes of conduct

ABSTRACT. The question of what firms do inter-nally in the fight against bribery is probably as impor-tant to the successful outcome of that fight as formalanti-bribery law and enforcement. This paper looksat corporate approaches to anti-bribery commitmentand compliance management using an inventory of246 codes of conduct. It suggests that, while briberyis often mentioned in the codes of conduct, there isconsiderable diversity in the language and conceptsadopted in anti-bribery commitments. This diversityis a feature of the language used in describing partiesto bribery and in defining which activities are pro-hibited (e.g. promising bribes versus actually givingthem, gifts and entertainment, and solicitation. Thisdiversity of language and concepts suggests that itmight be useful to extend and deepen efforts inbusiness associations and international organisations tobuild consensus on the meaning of bribery and cor-ruption. In contrast, the bribery codes show evidenceof an emerging consensus on managerial approachesto combating bribery. This involves the deploymentof a distinctive mix of management tools, includingfinancial record keeping, statements by executiveofficers, internal monitoring, whistle-blowing facili-ties, creation of compliance offices and threats of dis-ciplinary action.

KEY WORDS: bribery, codes of conduct, compli-ance systems, corruption, extortion, facilitationpayments, management systems, whistleblowing

Bribery and corruption are now a major publicconcern in many countries, partly as a result ofpress coverage of corruption involving publicofficials. Many countries adhering to the BriberyConvention of the Organisation for EconomicCo-operation and Development (OECD) haveenacted legislation prohibiting bribery of foreignpublic officials. Mainstream economists have also,somewhat belatedly, begun to focus on the issue.Bribery and corruption are now recognised byeconomists to be a major impediment to devel-opment and a subject worthy of both academicscrutiny and policy redress.1 Both the WorldBank and the International Monetary Fund havemade high-profile commitments to rooting outcorrupt practices in their lending operations andin the transactions that follow from these oper-ations. This paper looks at another group ofactors – international businesses – to ascertainhow they have formulated anti-bribery commit-ments and compliance programmes in responseto these “broad shifts in moral consensus”(Donaldson and Dunfee, 1999).

Although the international business commu-nity cannot fight bribery and corruption on itsown, it nevertheless has a crucial role to play.Indeed, some would argue that the managementtools that businesses use in the fight againstbribery are as important to the successfuloutcome of that fight as formal law and publicenforcement. Many firms have responded to thechallenges of legal and ethical compliance in thisarea by using management control techniquesthat have emerged over the last twenty years.These compliance efforts often begin withwritten commitments in areas of business ethicsthat are relevant to the firm’s activities – this issometimes called a “code of corporate conduct”.

Business Approaches to Combating Bribery: A Study of Codes of Conduct

*

Journal of Business Ethics

34: 161–173, 2001.© 2001 Kluwer Academic Publishers. Printed in the Netherlands.

Kathryn GordonMaiko Miyake

Kathryn Gordon is Senior Economist at the Division ofInternational Investment of the Organisation forEconomic Co-operation and Development (OECD).Her recent research covers corporate responsibility andpublic economics.

Maiko Miyake completed this work while at the OECD,but she now works at the International FinanceCorporation. Her recent research interests include anti-corruption initiatives.

Such codes are voluntary expressions of com-mitment, made to influence or control businessbehaviour for the benefit of the firm itself (e.g.to enhance company reputation or to minimiserisk of criminal or civil sanctions) and of thecommunities in which it operates. Often thecodes describe how the firm intends to imple-ment its commitments. Issuance of these codesis usually accompanied by the adoption of specialmanagement systems designed to help firmshonour their commitments in their day-to-dayoperations. The codes are often addressed toemployees, as much as to the general public.They seek to heighten employees’ awareness ofcorporate policy and enlist their support in thefight against bribery. This paper looks at a largeset of corporate codes and analyses how compa-nies frame their anti-bribery commitments andhow they implement them.

Two factors have complicated firms’ efforts toclarify and communicate corporate policy in thisarea. First, it is not easy to define exactly whatconstitutes bribery and other corrupt practices.Clear-cut cases do exist, but greyer areas arise inconnection with facilitation payments, gifts andhospitality, conflicts of interest and use of inter-mediaries. The assessment of what constitutesacceptable practice may also be coloured by localcircumstances; but cultural diversity and varyinglocal conditions can also be used as excuses forinappropriate business conduct. Furthermore,some members of the international business com-munity may be justified in claiming they oftenare victims of the crime of extortion and notperpetrators of the crime of bribery. Trying toformulate reasonable guidelines for businessbehaviour in these contexts can present problems.

The second factor is the relative scarcity ofwidely accepted international principles uponwhich firms might draw in formulating theircommitments. The international policy frame-work for bribery is less developed than in otherareas such as labour, human rights and environ-ment. Corporate commitments in human rightsand labour relations can take inspiration from anextensive body of international declarations (e.g.the Universal Declaration of Human Rights andvarious declarations of the International LabourOffice (ILO)) and institutional expertise (like that

in the ILO). More recently, the Rio Declarationand Agenda 21 have contributed to clarifyingcorporate environmental responsibilities. Even ifcompanies do not explicitly acknowledge suchsources, the concepts and definitions used in thecodes reflect their influence. Although severalprominent non-governmental organisations(NGOs), business groups, the OECD and otherinter-governmental organisations work tostrengthen the international framework forbribery, no equivalent, formal expressions ofinternational consensus on business rights andresponsibilities exist for bribery and corruption.This is reflected in the heterogeneity of thelanguage and concepts the codes use to describetheir anti-bribery commitments.

This paper looks at business approaches tocommitment and implementation in the fightagainst bribery by examining the texts of 246codes of corporate conduct issued by individualfirms, business associations, non-governmentalorganisations and international organisations. Thecodes emanate mainly from businesses andbusiness associations2 from 24 OECD countriesand cover the entire range of economic activity(primary production, manufacturing andindustry, services).3 Annex 1 describes how thisinventory was accumulated and the limitations ofthe analysis.

The first section of the paper looks at how the246 codes treat bribery and corruption, partic-ularly the scope of commitments and the defin-itions used. It shows that bribery and corruptionare among the most commonly cited issues, andthat the definitions used and scope of commit-ments vary among the codes. The secondsection, on implementation, shows that briberycodes are much more likely to deal with imple-mentation than non-bribery codes. This sectionis based on the 118 codes in the 246-code inven-tory that have been issued by individual firms.

The results of this research can be summarisedas follows. The texts of the bribery codes givelittle evidence of agreement or convergence inthe scope of, or definitions used in, firms’ anti-bribery commitments. Diversity of definitionsand concepts is a key feature of the anti-briberycommitments in the inventory. This suggeststhat the international business community is still

162 Kathryn Gordon and Maiko Miyake

struggling to come to grips with the complexethical questions that arise in defining appropriatebusiness conduct in this area. In contrast, theevidence from the codes suggests that firmsbroadly agree on implementation procedures.The codes that mention bribery are much morelikely to deal with implementation issues thanthose that do not. The bribery codes also containmore elaborate language on implementation pro-cedures than the non-bribery codes. The proce-dures noted in the bribery codes cluster heavilyaround record-keeping/reporting and a numberof internal mechanisms, such as signing by exec-utive officers, creation of compliance commit-tees, internal auditing and whistle-blowingfacilities.

Anti-bribery commitments

The difficulty of framing anti-bribery commit-ments resides mainly in identifying anddescribing the transactions that should be pro-scribed. It is clear from the words – bribery andcorruption – that they refer to transfers ofresources that are in some sense “bad”. However,this section will show that organisations arehaving difficulty moving from this general char-acterisation to a more operational description ofbribery and corruption. The economics litera-ture is just beginning to grapple with theproblem of definition. Three particular difficul-ties – visible in this study of codes, in publicdebate and in the economics literature – are:

• Drawing the line between acceptable relationship-building and corrupt practices or bribery. Someanalysts point out that social attributes of aneconomic transaction – for example, theexistence of such intangible assets as trustand reputation among the parties to thetransaction – can be important determinantsof transactions costs in any type ofeconomic system, be it an advanced capi-talist economy or a group of hunter gath-erers (North, 1990; Rose-Ackerman, 1998).The codes themselves show an acute aware-ness of this need to draw a distinctionbetween the acceptable quid quo pro and net-

working that are necessary to developbusiness relationships and undue influenceor corrupt practices.

• Extortion and facilitation payments. Thebusiness community has pointed out onnumerous occasions that many paymentsthat might fall under the heading ofcorruption are actually payments madein response to extortion by private orpublic actors. The problem of “facilitationpayments” – that is payments to civilservants for routine administrative servicesto which the enterprise is clearly entitled –also poses certain difficulties, both for theprivate companies trying to formulateguidelines for employees and for lawmakers. For both, the problem lies infinding a formulation that recognises thedifficult situations that enterprises may facein certain business environments withoutcreating a huge loophole in the anti-cor-ruption guidelines.

• Tolerance of different practices in different culturesas an excuse for bribery and corrupt practices.The codes deal, explicitly or implicitly, withculturally- and politically-based divergencesof view; people are often confident thatthey will know bribery when they see it,but they do not agree on what the termmeans when faced with concrete situations.This divergence of view, some of which isgrounded in cultural differences, is oftendiscussed in the bribery literature (e.g.Elliot, 1997). Gift giving and entertainmentare culturally specific forms of economictransaction and the codes show littleevidence of consensus on how to deal withthis diversity of acceptable practice. Inaddition, the problems posed by what mightbe called the “endemic bribery” that existsin many countries are also mentioned inmany codes. Many of the codes mentiondifferent cultural perceptions of corruptionand the problem of endemic bribery.

Despite the definitional problems, a largenumber of businesses have made public commit-ments in this area and other organisations, suchas NGOs and business associations, have issued

Business Approaches to Combating Bribery 163

codes of conduct that mention bribery. Inanalysis of the texts, a code is scored as a briberycode if it mentions money transactions, politicalcontributions, gift giving, or entertainment.Twenty-three per cent of the codes in the OECDinventory of codes – 56 of them – deal withbribery and corruption (Table I). This makesbribery the fourth most commonly cited issuearea in the code inventory. The three othercommonly mentioned issue areas are labour rela-tions (60 per cent), environment (60 per cent)and consumer protection (48 per cent).

The 56 codes vary widely in their definitionsand approaches to commitment. Because of fun-damental differences in firms’ circumstances,complete homogeneity of the codes’ coverageand commitments is neither expected nor desir-able. Taken as a whole, however, the bribery

codes attest to a lack of consensus on the scopeof bribery commitments and on the basic vocab-ulary and concepts used in making these com-mitments.5 The codes encompass a broad rangeof approaches to bribery, corruption, politicalcontributions and gift giving. Thirty-six per centof the bribery codes contain only general state-ments (e.g. “to reject bribery in all its forms”).Others offer detailed texts on bribery, corruptionand influence. Codes address corrupt practicesvis-à-vis both private and public persons, some-times dealing with one or the other and some-times with both. In relation to private bribery,the texts deal variously with customers, suppliers,employees and competitors. Many of the codescontain language prohibiting employees (andsometimes their friends and families as well) fromaccepting gifts or bribes.


TABLE IThe attributes of 56 bribery codes

Attributes Percentage of bribery codes*

Parties to bribery:– Bribery of public officials 63– Bribery of private actors 64– Both 38

Proscribed activities: Vis-à-vis public officials:– Giving bribes only 18– Employees offering bribes 41– Political contributions 32

Vis-à-vis private actors:– Giving bribes only 23– Employees offering bribes 59– Receiving bribes by firm’s employees 23– Solicitation of bribes by employees 54

Conditions under which entertainment and gift giving is prohibited:– Excessive entertainment and gift giving 39– Seen as inducement to business 39– Exceeds business practices 30– Violation of laws 20– Damaging corporate image 18– Requirements for internal reporting of gifts 34

* These are calculated as: 100 * [the number of codes mentioning attribute]

÷ [the number of codes citingbribery].Source: OECD.

Thus, the codes show a variety of approachesto prohibition: many do not attempt to define“bribery” and “corruption” while others givedetailed guidance on the activities that couldconstitute them. Three dimensions along whichthe codes differ are:

– Parties to bribery. The codes focus on privatebribery and corruption (64 per cent of thebribery codes) about as often as corruptionof public officials (63 per cent). Thirty eightper cent mention both.

– Active versus passive. The codes deal withboth active bribery (giving bribes) and thepassive version (receiving them). For privatebribery, 59 per cent of the codes prohibitoffering or giving bribes, while 54 per centprohibit attempts at solicitation.

– Promising bribes versus actual bribery. Mostbribery codes go beyond prohibition ofactual bribery to banning even the promiseof a bribe (regardless of whether a briber isactually paid). For bribery involving publicofficials, 41 per cent of the codes proscribeoffering bribes while only 19 per centlimit the definition to completed ones, and23 per cent prohibit employees fromreceiving bribes, while 54 per cent prohibitsolicitation.

It is somewhat surprising, given the attentionpaid to the issue by the business community, thatextortion is mentioned only rarely in the briberycodes. None of the individual business codesmention the word “extortion” explicitly. Veryoccasionally, texts that might be interpreted asoblique references can be found; for example,“[group companies] insist on honesty, integrityand fairness in all aspects of their business andexpect the same in their relationships with allthose with whom they do business.” Rather thanestablishing general principles for behaviour inrelation to extortion, companies may prefer todeal with it on a case-by-case basis. For example,texts of the following type (in this case in theChairman’s letter endorsing the code) arecommon:

The Statement [i.e. code of conduct] givesguidance on how certain situations should be dealt

with. However, it cannot possibly anticipate everysituation concerning business ethics. There mayalso be times when you are faced with difficultdecisions on aspects which are not covered specif-ically in the Statement. Should such a situationarise, I recommend that you discuss the matterwith your Business Stream Director or CorporateDirector.

In other codes, employees are directed to ask theadvice of Legal Counsel or the ComplianceOfficer. In addition, companies presumably dealwith the issue of extortion in any training thatthey might provide in relation to anti-corruptionefforts. Of course, in more collective expressionsof commitment in anti-bribery statements by thebusiness community, the issue of extortion figuresprominently. For example, the InternationalChamber of Commerce not only discusses“extortion” in its very influential anti-briberycode, but also includes the word in its title.

Another prominent issue – facilitationpayments (defined as paying for routine servicesthat the company normally is entitled to receive)– is mentioned in seven codes of conduct (13 percent). A typical text from the code inventory is:“in some instances small ‘facilitation payments’or tips are permissible if they are intended tosecure a routine business service such as havinga telephone installed or expediting a shipmentthrough customs.” Another sample text from afinancial services company is: “Although suchpayments are not always illegal [referring to‘grease’ payments], the company stronglydiscourages them and permits them only as ameasure of last resort.” As with extortion, therelative scarcity of discussion of this issue in codesof conduct contrasts sharply with the high profilegiven to this issue in public debate and in effortsto formulate appropriate legislation.

Nearly half of the bribery codes include texton “gifts and entertainment”. Most of thesecodes do not completely prohibit reception orgiving of gifts or entertainment from businesspartners. Here, the border between acceptablebusiness practice and bribery is, perhaps unavoid-ably, fuzzy. The codes use a variety of terms andconcepts to provide guidance to employees onwhat is allowed and what is not. Conceptsmentioned include: gifts or entertainment “not


excessive in value” (appearing in 39 per cent ofthe bribery codes); “within the business norm”(30 per cent); “not seen as an inducement ofbusiness” (39 per cent); “does not violate thelaw” (20 per cent), and “does not damage cor-porate image” (18 per cent). Five per cent definemonetary limits. Five per cent distinguishbetween cash and other items, making gifts andentertainment acceptable under certain condi-tions but prohibiting any transaction involvingcash.

Thirty-two per cent of the bribery codesstate that the firms do not make political con-tributions to persons holding office, candidatesor political parties. A number of other issues alsoappear in some of the codes. Fourteen per centtreat employees and immediate relatives ofemployees in the same manner. Nine per centacknowledge cultural differences among coun-tries as a factor in determining appropriate giftgiving. Among these codes, only one insists onstrict guidelines; the others allow judgements ofwhat is acceptable to be influenced by culturalconsiderations.

Implementing the bribery codes

The codes examined above reflect responses totwo types of pressure. First, they respond to civicand market pressures coming from the public,from employees and from shareholders. Second,they reflect growing compliance pressures ema-nating from a legal environment that is evolvingrapidly, as many countries enact or seek to extendtheir anti-bribery laws. The success of anyattempt to control firms’ behaviour through law,regulation or any other system of social controlinevitably depends on what firms do internallyto comply. In many respects, the effectiveness ofthe organisational arrangements made by firms– e.g. training, hierarchical controls, internal andexternal audits, record keeping – are as impor-tant as laws, enforcement arrangements andsocietal pressures in determining the effectivenessof a system of control of corporate wrongdoing.Firms often have to invest heavily in the acqui-sition of expertise in order to learn how todeploy the different control instruments in

response to different ethical and legal compliancechallenges (controlling bribery poses differentimplementation than eliminating child labour).In this sense, getting the legal and civic envi-ronment right is only half the challenge whentrying to create a workable system for control-ling various types of corporate wrongdoing – theother half concerns managerial, operational andcultural processes within firms.6

This section describes what firms say abouthow they implement their anti-bribery commit-ments. The codes often contain implementationlanguage; 45 per cent of the 118 corporate codesin the inventory discuss compliance.7 Businessesface the challenge of implementing their com-mitments in often large, complex, geographicallydispersed operations. Ultimately, whether andhow they do so determine whether the com-mitments have meaning – and these factors, plusthe effectiveness of implementation, becomecentral to public perceptions of the significanceof the codes.

The analysis below examines the texts of the118 company codes8 for their implementationcontent. Of these 118 company codes, 96 areaddressed to the company itself, while 22 areaddressed the company’s suppliers (only 2 of thesupplier codes mention bribery). The analysisseparates out the supplier codes from the others.It also looks at two broad types of implementa-tion tools. First, it keeps track of the codes’ treat-ment of record keeping and reporting (first set ofbars in Figure 1a). These implementation toolsare relevant not only to anti-bribery compliancebut also to such issues as protection of share-holders, asset security and protection againstfraud. Second, the analysis keeps track ofmentions of other general management tools(second set of bars in Figure 1a). Detail is thenprovided as to the specific management toolsmentioned. The more detailed analysis keepstrack of 13 other attributes relating to standardmanagement tools – internal monitoring, mon-itoring suppliers, reports to Boards of Directors,use of compliance manuals, whistle-blowingfacilities, signatures of directors, training,periodic compliance reviews by managers,employee signatures, internal auditing, discipli-nary action and active communication. These



Figure 1a. Implementation in the 96 codes of conduct addressed to the firm itself (percentage of codesmentioning a particular implementation measure).

Figure 1b. Implementation in the 96 codes of conduct addressed to the firm itself (percentage of codesmentioning a particular implementation measure).

attributes are defined and sample texts are givenin Annex 2.

The bribery codes are much more likely todeal with implementation issues than the non-bribery codes. The first set of bars in Figure 1amakes it clear that bribery codes are twice aslikely as non-bribery codes to make commit-ments relating to the quality of record keepingand reporting (63 per cent versus 33 per centfor the environmental codes). The second set ofbars in Figure 1a, labelled “compliance dis-cussed”, includes any code that mentions any ofthe other compliance measures shown in thefigure (that is, those not related to financialrecord keeping). Again, the bribery codes arealmost twice as likely to discuss implementationas other codes (61 per cent of the bribery codesdo so, versus just over 30 per cent of the envi-ronmental codes).

The bribery codes also show a distinctiveapproach to implementation. This approachattests to the strong relationship that existsbetween the problem of combating bribery and

the more general financial control problems thatfirms routinely face.9 “Financial record keepingand reporting” is the single most importantimplementation measure in the bribery codes,while the non-bribery codes hardly mention it.The bribery codes are much more likely tomention a range of more specific internalmeasures – signing of codes by executive officers(57 per cent of them), internal monitoring (57per cent), whistle-blowing (44 per cent), com-pliance officers or committees (35 per cent), useof compliance manuals (33 per cent) and refer-ence to punitive action and reports to the Boardof Directors (26 per cent). Differences in imple-mentation strategy between bribery and non-bribery codes are less marked for othermanagement tools (e.g. training, signatures byemployees, managerial review and external mon-itoring; see Figure 1b).

Figure 2 shows the implementation proceduresmentioned in the 22 supplier codes. Here thestyle of implementation is very different from thatin evidence among the 96 company-addressed


Figure 2. Implementation and supplier codes.

codes. Nearly two-thirds of the supplier codesmake use of overt threat – reference to punitiveaction. This almost always consists of the threatof terminating the business relationship. Anotherinteresting difference is that external monitoring(third bar in Figure 2) is mentioned in nearly aquarter of these codes, whereas it is the leastcommonly mentioned tool among the company-addressed codes. This refers to monitoring thatis undertaken by an organisation that is “inde-pendent” of both the issuing firm and of thesupplier. Generally, the codes do not state thatsuch monitoring will be done, rather they reservethe right to do so.

This section has shown that firms use differentapproaches to implementation, depending on theethical issues they address – there is no “onesize fits all” for corporate compliance systems.However, firms show considerable agreement asto the “choice of weapons” in the fight againstbribery. This emerging consensus may facilitatethe growth of standardised management systemsfor dealing with bribery and corruption issues.10

If so, developments in this area will parallel trendsin environmental management, where standard-ised management systems (especially ISO 14001)have gained widespread acceptance.

Implications for anti-bribery practitioners

The fight against bribery needs to be conductedon a broad front and to draw on support from awide variety of actors on a wide variety of issues(public and private governance, public sectormanagement, freeing up other conduits of publicaccountability and transparency such as the press).With regard to management processes, the man-agement and control techniques used in this fightare still under development in both the privateand the public sectors. The paper suggests thatfirms deploy a fairly homogeneous set of prac-tices in the fight against bribery and that a de factostandard of practice appears to be emerging. Thisgrowing consensus on management practicemay reflect the fact that the fight against briberydraws on the same expertise and uses the samemanagement practices as many other areas offinancial control and asset protection. Thus,

implementation of compliance programmes inbribery might well have stronger, more directsynergies with existing control processes. Thisdifferentiates anti-bribery compliance effortsfrom those in other areas. For example, the mostinfluential environmental management standard– ISO 14001 – had to be painstakingly negoti-ated over several years, a process that does notappear to have been necessary for bribery.

Despite this de facto consensus on managementcontrol issues in relation to bribery, this analysissuggests that a need persists for internationaldialogue and consensus building on exactly whatkinds of behaviour – especially corporate behav-iour – should be proscribed. In this sense, thisarticle strengthens the contention of numerousanalysts (e.g. Gardiner, 1993; Elliot, 1997;Kaufmann, 1999) that there is a need to delin-eate more sharply the frontier between briberyand acceptable behaviours.

A number of private and inter-governmentalorganisations have contributed to the developingconsensus on the definition of bribery.Particularly noteworthy are the activities ofTransparency International, the InternationalChamber of Commerce and the OECD’sWorking Group on Bribery. The OECDGuidelines for Multinational Enterprises containa broad definition of bribery and corruption,covering public officials, private-to-privatebribery, gift giving and political contributions.This research suggests that further focused workwould be useful in clarifying what constitutesappropriate and inappropriate behaviours in thisarea.

Finally, anti-bribery practitioners might drawuseful lessons from recent developments inenforcement of law and regulation in other areas.Many OECD governments have been activelyincorporating private corporate complianceefforts into the public enforcement strategy.Examples of this can be found in the EuropeanUnion (in environmental policy), the UnitedStates (in occupational safety and in the FederalSentencing Guidelines), Switzerland (anti-moneylaundering) and Australia (in competition policy).Under these initiatives, a de facto co-operativearrangement with firms is established. Thisarrangement assigns to firms the bulk of the


responsibility for enforcement, which theyundertake by implementing agreed managementpractices that are taken to show “due diligence”– that is, that the company has taken adequatecare in formulating its anti-bribery efforts.

This kind of co-operative arrangementbetween anti-bribery enforcement authoritiesand corporate anti-bribery compliance effortswould be in the best interests of the businesscommunity. By participating in the debate aboutwhich management approaches constitute “duediligence” in this area, the business communitycan protect itself from arbitrary or poorlydesigned demands. In addition, since the anti-bribery legal environment has become harsher(including stronger criminal sanctions, due inpart to the OECD Convention) and the promi-nence of the issue in civil society has been raised,firms now run higher legal and reputation risksif they engage in misconduct in this area. A co-operative approach, based on “due diligence”guidelines agreed by regulatory officials and thebusiness community, will allow firms to managethese risks more effectively.

Annex 1

Methodology and limitations

Definition of codes of corporate conduct

The definition of code of corporate conduct used inthis study is: The codes of corporate conduct arebroadly defined as commitments voluntarily made bycompanies, associations or other entities, which putforth standards and principles for the conduct ofbusiness activities in the marketplace. This definitionincludes self-obligations and negotiated instruments.It excludes codes of corporate governance.

Collection of codes

The OECD Secretariat (Trade Directorate) contactedOECD Member countries and its business and tradeunion advisory committees for the identification ofcodes to be included in the inventory. A number ofOECD Member countries provided contact namesand in some cases also code titles and texts. Followingthe initial communication, the Secretariat sent lettersto 77 prospective respondents across the OECDbetween April and October, 1998. The letters asked

recipients to identify up to 20 codes that they thoughtwere significant in their country or elsewhere in theOECD area.

The process resulted in an initial collection of over200 codes of corporate conduct. Some were excludedfrom the inventory because they were codes of cor-porate governance, company credos or incompletedocuments. 246 codes were eventually collected. Theitems in the inventory are coded as individual codes.Hence if a firm has several codes of conduct – e.g. acode on outsourcing and another on the generalbehaviour of employees – the codes were countedseparately.

Limitations

This study has several methodological limitations:

• Because of the way the codes were collected,the set of codes is neither a random nor arepresentative sample of the codes issued by thebusiness communities in various countries.

• There was little consensus on the definition ofcodes of corporate conduct when the requestwas communicated. As a result, the nature ofcodes included in the inventory varies widely,from codes designed to influence employees’conduct to sourcing principles. For some firms,several codes are in the inventory. In other cases,the inventory contains only one code, thoughthe firm may have other codes as well. Someof the texts in the inventory also containtraining material. Scoring was based on thisentire information set and therefore may not befully comparable across code issuers.

• Non-comparability of information availableabout firms in the inventory. Another drawbackarises because the study looks at what may beonly the “tip of the iceberg”, in terms of therange of ways in which firms try to control andcommunicate its standards for business conduct.In addition to codes and closely associatedmaterial, which the analysis does capture, firmsoften produce other written materials and relyon unwritten procedures and practices thataffect the codes’ implementation. Training, pro-duction or operations manuals, record-keepingprocedures, disciplinary practices and so on mayall touch on code compliance. Individual com-panies decide what appears in their codes andwhat appears elsewhere. They do not all drawthese lines in the same place. Some of the codesare long, detailed documents while others arebrief expressions of commitment that may have


ancillary support by materials and practices notincluded in this code analysis. This introducesa certain non-comparability in the treatment ofthe enterprises included in the inventory.Nevertheless, the significance of this problem islikely to be moderated because firms have anincentive to publish the key components of theirimplementation strategy to reinforce the credi-bility of their codes. If an important imple-mentation measure has been adopted, a firm islikely to mention it in its code.

• Aggregation problems. The overall code analysisaggregates over a number of important sectoraland geographical factors. This makes it hard touse the overall aggregates to make inferencesabout key concerns that the economics litera-ture on self-regulation has raised. For example,the overall inventory cannot be used to deter-mine the extent to which the social andeconomic processes driving the corporate-codesmovement have led to uniformity in firms’commitments.

Annex 2

Definition of attributes used in analysis of briberytexts

Record keeping and financial reporting: Codes mentionattempts to set forth quality standards for recordkeeping and reporting. Example:

“. . . employees shall . . . comply with all acceptedaccounting standards, practices rules, regulation andcontrols. . . . Ensure that all entries are promptlyand accurately recorded and properly documented– no entry will intentionally distort or disguise thetrue nature of any transaction.”

Compliance discussed: Codes mention implementationof or compliance with codes of conduct, other thanrecord keeping and financial reporting. Examples:

“[Company’s name] “Ethical Business Conduct”and related procedures constitute company widestandards of conduct. This procedure provides anoverview of the [Company’s name] ethics andbusiness conduct program and employees’ respon-sibilities.”“As a condition of doing business with [Company’sname], each and every factory must comply withthis Code of Vendor Conduct.”

A code of conduct has a section titled“Maintaining Compliance”.

Codes signed by Executive Officers: A code is signed bythe board of directors, the chairman of the board,the president or other top officers. This often takesthe form of a signed message to employees as aforeword to the code text, or it can be a signatureon the code document itself. Codes are not scoredfor this attribute when the code text merely says thatthe chairman or board of directors adopted the code.

Internal monitoring mentioned: Codes mention that thecompany monitors or has a compliance/implementa-tion system for its own company codes of conduct.Codes addressed to suppliers or other businesspartners are not scored for this attribute. Example:

“The structure includes the CorporateResponsibility Committee of the Board ofDirectors and the Leadership Committee, whichhave oversight responsibility; the ComplianceCouncil, whose duties include education, moni-toring and response; and all employees of theCompany.”

Existence of whistle blowing facility: Codes mention thecompany ombudsman, with clear indication of whereto contact this person, e.g. address, telephone numberand EM address. Example:

“Call the [company’s] Human Resources hotlinesat 1-800-xxx-xxxx to report any possible violationsof law or other violations of the Code of BusinessConduct.”

Appointed compliance officer or committee: Codes mentioncompany appointment of compliance officers orcommittees to execute compliance programmes.Example:

“. . . we have established a “Corporate ComplianceCommittee” to oversee our compliance efforts andensure that the Company has necessary policies andsystems in place to train employees in their legalresponsibilities, monitor compliance and correctany deficiencies in compliance programs.”

Use of compliance manuals: Codes mention the exis-tence of compliance manuals, or themselves look likemanuals (give thorough guidance on what to dounder certain circumstances, or have Questions andAnswers). Examples:


“Many of the statements made here are backed upby detailed policies and procedures. These areavailable on the internal policy and procedure web-site at: [internet address given].” “ ‘Handle a Concern’ explains the many ways youcan get a policy question answered, or report aconcern or possible violation. ‘What to Watch OutFor’ lists some of the things that may indicate apolicy problem.”

Reference to disciplinary actions: Codes mention that thecompanies will take disciplinary actions in the caseof non-compliance with the codes. Example:

“Failure to act in compliance with the Code islikely to result in disciplinary action against boththe employee committing the breach and otherswho condone it.”

Report to the Boards of Directors: Codes mention that theBoards of Directors receive reports on complianceactivities. Example:

“The Committee will report annually through theManaging Director to the Board of Directors.”

Training for compliance mentioned: Codes state explic-itly that employees will be trained in code imple-mentation or monitoring. Examples:

“Each operating group and division will establisha training program. The program will be designedto ensure that all employees have an awareness ofthe [Company’s name] Integrity Statement and thestandards of conduct and legal requirements thatare relevant to their wok at a level of detail appro-priate to their job functions.”

Signature by employees: Codes have a section in whichemployees are requested to sign that they have readthe codes and will comply with them. Example:

“This booklet contains an acknowledgement tosign as a statement of your personal commitmentto integrity. It’s a way for each of us to pledge touphold the principles of high ethical standards andto comply with all company policies.”

Monitoring suppliers: Codes mention that the com-panies monitor activities of their suppliers and businesspartners, as opposed to monitoring their own activ-ities (internal monitoring). Example:

“[Company’s name] intends to monitor compliancewith our Partnership Guidelines and to undertakeon-site inspection of partners’ facilities.”

Periodic review by managers: Codes mention that it isthe task of managers to monitor compliance andconduct periodic reviews. Example:

“Management is responsible for instituting regularreviews of compliance. . . .”

Notes

* The views expressed in this document are theauthors’ and are not necessarily shared by the OECDor by the International Finance Corporation.1 See Bardhan (1997) for an extensive review of theeconomics literature on corruption.2 Businesses and business groups issued the majorityof codes in the inventory. A few were issued byNGOs, alliances of labour and business, and inter-governmental organisations.3 See Gordon et al. (1999), Deciphering Codes ofCorporate Conduct: A Review of Their Contents, OECDDirectorate for Financial, Fiscal and Enterprise AffairsWorking Papers on International Investment, Number99/2, October, for a more detailed description of theinventory. 4 For example, one US code states that federalregulators may be offered complimentary donuts andcoffee, but that they must pay for their own sand-wiches.5 A number of other analysts have noted that thereis little consensus on what constitutes bribery and cor-ruption. Kaufmann (1999) positions the search for ataxonomy of corruption as a question for further“operationally-oriented” research. Gardiner (1993)also emphasises the need to make progress on buildingagreement on how to define corruption as the basisfor a more concerted and effective anti-corruptioneffort.6 Punch (1996) provides an extensive sociological andmanagerial analysis of the internal workings of cor-porate misbehaviour, with particular attention on anumber of well-known cases. See also Conley andO’Barr (1997) for a discussion of the cultural andmanagerial basis of corporate misconduct and Scholz(1997) for a discussion of how firms’ internal effortscan be integrated into broader enforcement strategies.7 Unlike the previous section (which was based onthe full inventory of 246 codes), this one looks onlyat the 118 codes in the inventory that are issued


by individual firms. The other main issuers – non-governmental organisations and business associations– may not have the same perspective on implemen-tation as individual firms.8 The firms issuing bribery codes tend to be verylarge, extractive-industry firms or capital-intensivemanufacturers (often of branded durables or productswith an important public-sector clientele). Somefinancial services and telecommunications firms andvery large conglomerates are also represented. Theissuers of the non-bribery codes tend to be muchsmaller. Their activities are more likely to be inbranded apparel, toy or sporting goods manufacturingor mass retailing. For many of these firms, the codestend to concentrate on other sets of commitments,especially those relating to core labour standards inthe supply chain. 9 As noted in the text, the non-bribery codes’coverage of implementation issues is relatively cursory.Their distinctive implementation feature (i.e. thefeature stronger in them than in the bribery codes)seems to be a comparatively strong orientation tosupply-chain issues (see second to last pair of bars inthe graph). 10 A number of standardised management systemsalready have been proposed in this area (e.g. ECS2000 in Japan, AA 1000 in the United Kingdom andAS 3806 in Australia).

References

Bardhan, P.: 1997, ‘Corruption and Development: AReview of Issues’, Journal of Economic Literature 35,1320–1346.

Ben-Ner, A. and L. Putterman (eds.): 1998, Economics,Values, and Organization (Cambridge UniversityPress, Cambridge).

Conley, J. and W. O’Barr: 1997, ‘Crime and Customin Corporate Society: A Cultural Perspective onCorporate Misconduct’, Law and ContemporaryProblems 60, 5–22.

Della Porta, D. and A. Vannucci: 1999, CorruptExchanges (Aldine de Gruyter, New York).

Donaldson, T. and T. Dunfee: 1999, Ties that Bind(Harvard Business School Press, Boston).

Elliott, K. A.: 1997, Corruption and the Global Economy(Institute for International Economics, WashingtonDC).

Gardiner, J.: 1993, ‘Defining Corruption’, Corruptionand Reform 7, 111–124.

Kaufmann, D.: 1999, ‘Research on Corruption:Critical Empirical Issues’, in A. Jain (ed.), Economicsof Corruption (Kluwer Academic Publishers,Dordrecht), pp. 129–176.

Miceli, M. P. and J. P. Near: 1992, Blowing the Whistle:The Organizational and Legal Implications forCompanies and Employees (Lexington Books, NewYork).

Miethe, T.: 1999, Whistle-blowing at Work: ToughChoices in Exposing Fraud, Waste and Abuse on theJob (Westview Press, Boulder).

North, D.: 1990, Institutions, Institutional Change andEconomic Performance (Cambridge University Press,Cambridge).

Punch, M.: 1996, Dirty Business: Exploring CorporateMisconduct (Sage, London).

Rose-Ackerman, S.: 1998, ‘Bribes and Gifts’, in A.Ben-Ner and L. Putterman (eds.), Economics, Values,and Organization (Cambridge University Press,Cambridge), pp. 296–328.

Scholz, J.: 1997, ‘Enforcement Policy and CorporateMisconduct: The Changing Perspective ofDeterrence Theory’, Law and ContemporaryProblems 60, 253–266.

Kathryn GordonDirectorate for Financial, Fiscal and

Enterprise Affairs,OECD,

2 rue André Pascal,Paris, 75016 France.

E-mail: [email protected]

Maiko MiyakeInternational Finance Corporation,

France.


business approaches to combating bribery: a study of codes of conduct

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