28% Indian executives OK with bribery: Study

Corporate India tops the global league when it comes to bribing and financial frauds, with 28 per cent of top executives being keen on making cash payments to win new businesses or retain existing clients, says a survey by leading global consultancy Ernst & Young (E&Y).

The top executives are also not bothered about the consequences of future prosecution for their fraudulent acts, as they are under tremendous board pressure to perform, says the survey.

The findings are interesting as they come at a time when India Inc as well as the public have been for long painting the entire political class "corrupt".

"An alarming 28 per cent of top executives from corporate India (against a global average of 15 per cent, which is up from 9 per cent in 2010) polled are willing to make cash payments to win or retain business," the survey says.

The survey findings add that "as much as 16 per cent of respondents from the country, against a global average of five per cent, feel that it is justified to mis-state financial performance to help their business survive."

Given the extensive media coverage, it is not surprising that fraud, bribery and corruption are seen as significant risks here, with 70 per cent of respondents (against global average of 39 per cent) opining that bribery and corruption are widespread in the country.

Releasing the survey finding, E&Y India partner and national director for fraud investigation & dispute services, Arpinder Singh said: "Although the country still remains a favoured investment destination, the survey reveals that the market still faces the challenge of compromised ethical behaviour justified by the offenders as survival in a highly competitive and fast growing market.

"As domestic enforcement activity is building strength, increased focus on mitigating frauds, bribery and corruption risk has been matched by growing regulatory activity, enhanced media activism and more severe penalties."

The survey further says as the market continues extensive use of cash to make payments, organisations must ensure that governance processes are embedded at the local level.

"With fraud, bribery and corruption risk so high on the domestic and international agenda, it is essential that companies with a presence in India actively address these risks," Singh said.

For a growing number of executives, the pressure to meet revenue growth targets is undermining their commitment to comply with policies and the law. The competitive landscape continues to be distorted by unethical conduct.

Over a third of the respondents believe corruption is widespread and this is perceived to be significantly higher in rapid-growth markets (in Brazil it is 84 per cent, in India 70 per cent, Indonesia 72 per cent).

Financial statement frauds remain an important risk across many jurisdictions. Indeed, 15 per cent of respondents in far-east Asia think that financial performance mis-statement can be justified.

Attributing the boards pressure to perform on top executives as one of the reasons for this scandalous behaviour, Singh said: "As against a global average of 50 per cent, in the country over 70 per cent respondents think that the board needs a more detailed understanding of the business to function as an effective safeguard against fraud, bribery and corruption risks."

Noting that mixed messages are being given by the management with the 'tone at the top' diluted by the failure to penalise misconduct, the report says "globally, boards are held responsible by regulators and shareholders for addressing these challenges and are under intense pressure."

E&Y global leader for fraud investigation & disputes service practices, David Stulb said: "Growth and ethical business conduct in today's markets can appear to be competing priorities. Our findings show that as businesses continue to pursue opportunities in new markets, many executives are underestimating the risks.

"Boards need to put pressure on their managements to conduct more frequent and robust anti-bribery/ anti-bribe risk assessments and they need more tailored reporting to drive improved compliance," Stulb said.

Noting that companies pursuing opportunities in rapid-growth markets face specific risks that are not always being managed effectively, the survey said domestic companies have limited awareness about the possible liability for the actions of their third-party agents.

Twenty four per cent respondents in the country said that third-party alone is liable for its own action against a global average of 14 per cent.

However, in comparison to global average, more domestic companies have adopted systems or processes to manage and monitor third-party relationships.

Globally, only 22 per cent respondents are in favour of whistleblower bounty schemes, while a surprisingly 44 per cent respondents in the country are in favour of such schemes.

"Growth and ethical business conduct need to come hand-in-hand. Setting the expectation of conduct to be exhibited by employees and third-parties helps in deterring the unethical behaviour, but it's essential to communicate this expectation clearly and repeatedly to bring about any positive change.

"The tone at the top is important, but it's critical to follow intent with honest action," Singh added.