Almost half of all businesses in MENA do not have anti-corruption or bribery policies in place, and startups are at unique risk if they ignore the basics from the start.
Last week, an Ernst & Young (EY) survey showed that only 52 percent of 400 MENA companies polled had the “basic building blocks” in place to comply with anti-corruption and anti-bribery laws.
Intense pressure to push revenues ever higher and heightened geopolitical risk is making day-to-day business riskier, EY said in a press release. The danger of falling into illegal business practices rises even further as 50 percent of the 3,800 respondents said fudging financial statements is fine and 67 percent believe offering gifts or cash is ok, if they help the business survive.
Startups in the region are not much more attentive.
During interviews with several founders, all of whom wished to remain anonymous due to the sensitivity of the topic, none had specific policies in place to deal with corruption.
One entrepreneur in Egypt said it wasn’t necessary as his business wasn’t in an area that saw corruption, while another in Morocco said illegal dealings were the preserve of an older epoch of businessmen.
“Morocco is changing at an accelerated pace, and when we talk about corruption we are talking about the ways of the older generation,” he told Wamda. “The younger generation… they try to do things clean.”
He believed the way to get around giving “gifts” to smooth business deals – such as when he was asked by a bank manager for an iPhone - was to simply ignore it and create a culture of transparency from the top.
“It all depends on the entrepreneur. Entrepreneurs who want to go faster may make gifts… they are using their social intelligence [because this is an accepted business strategy]. But you don’t have to.”
He questioned how startups should define corruption or bribery, given that big companies around the world find ways to offer something, be it money or goods, for an opportunity.
But this attitude is dangerous, says Rebecca Kelly, a UAE-based partner at law firm Morgan, Lewis & Bockius LLP.
Companies that neglect putting in place strong governance systems at the start will be “continually picking up problems” as they grow.
“My biggest concern about startups and the general approach to corporate governance is that the off-the-shelf-policy means nothing without implementation and training,” she told Wamda.
Kelly said many startups saw anti-corruption or bribery policies as “nice to have” rather than must-have, but this created the possibility of cutting corners in their haste to grow.
Some startups aim high from the beginning to make themselves attractive to high-quality foreign investors. Not maintaining high corporate governance standards could also attract the sharks.
“Where startups go wrong is when they are partnering or looking for investment from companies that are the larger fish, from companies that don’t uphold (high) standards,” Kelly said.
From most corrupt to least
Economist Mohamed El Dahshan says if a startup is working in developing countries, corruption is something they’ll be confronted with sooner or later.
MENA countries range from the most corrupt to the least in Transparency International’s annual Corruption Index, but only the UAE and Qatar fall into the ‘clean’ category.
Transparency International’s 2014 ‘Corruption Index’.
If startups want to expand in the region it’s essential they think about how they might deal with corruption in new markets.
“Many startups report being explicitly asked for bribes during their registration phase, often in non-streamlined environments where the registration process is complex and bureaucratic. At this point, they are faced with the ethical question of engaging in corruption, involuntarily as this may be, or not,” he told Wamda.
“The same has been reported to occur at later stages of the company's work, such as when bidding for contracts. Again, at times they may be asked for bribes, or they may consider offering them.”
Another problem, says Lebanon-based Henri Asseily, is that strong internal rules can be challenged in court if they’re seen to impede business.
Asseily, managing partner of the country’s largest venture capital fund LEAP Ventures, says a judge can strike down ambitious policies and force the company to follow Lebanon’s “antiquated” commercial laws.
How to stay corruption-free
The cure is good corporate governance and a strong chief financial officer (CFO), Asseily says.
“When you have good professional people [in charge] the incidents of corruption, bribery, contracts with family members, go down dramatically.”
Dahshan believes guidelines for startups should be the same as for larger companies, but “less verbose [and] significantly simpler in wording.”
Startups are small so it’s hard to hide dodgy deals and hidden budgets for bribes from auditors. It also means it’s easier for the most junior employee to reach the founder - and easier to report illegal dealings or impose a culture from the top-down.
In Jordan, MENA’s startup powerhouse, there’s no legal requirement to implement the regulators’ anti-corruption code of conduct, says Yousef S. Khalilieh, managing partner at Amman-based Rajai K. W. Dajani & Associates Law.
Businesses are encouraged to have policies that “provide a mechanism for employees to alert management and the board to potential misconduct without fear of retribution”, he told Wamda. That code could cover issues from gift receiving and corruption, all the way through to community relations and discrimination in the workplace.
Feature image via RejuveNationMedia.