Countering Corruption in State-Owned Companies: OECD Report

In preparing the report, the researchers relied on a survey of 347 senior executives of state-owned companies from 34 countries about their perceptions and personal experiences with corruption, as well as on surveys of existing regulatory mechanisms aimed at preventing corruption in state-owned companies by government officials from 28 countries (the survey covered a total of 37 countries, including non-OECD countries).

According to the survey, 42% of respondents (at least 1 person out of 49% of the companies surveyed) reported that their company had experienced improper practices in the past three years.

The authors of the report note that, in general, corruption risks arising in state-owned companies are also common to private companies; however, state-owned companies have their own specifics, such as the prejudice that such a company is"too public to fail," which arises from the state's ownership of the company, its dominant position in the market, its participation in the implementation of public services and, consequently, the absence of the same threats of bankruptcy or forced takeovers as private companies.

According to the authors of the study, state-owned companies that realize socially important functions may justify corrupt activities by the need to compensate for financial losses or reduce the rate of profit as a result of the need to realize such socially important functions, while state-owned companies that have only commercial goals may justify them by the need to maintain their competitiveness or ability to function.

In general, speaking about the existing corruption risks and corruption violations in the state-owned companies surveyed, the authors of the report note the following:

according to respondents, non-management employees and middle managers are more often involved in illegal activities (69% and 42%, respectively); about one third of respondents noted the presence of violations by the organization's business partners, one quarter of respondents - by top executive management, one in five - by members of the company's management bodies;
the most violations were noted by employees in such areas as oil and gas industry, mining and processing of minerals, energy, transportation and logistics, postal services; these areas are the most exposed to the risk of corruption, as they involve a large amount of regulation by the state, may form natural monopolies and are associated with public procurement in the framework of especially important projects;
members of management bodies and persons responsible for the implementation of compliance, audit, and legal support functions reported more frequent violations than the company's executive management during the survey (when comparing the survey results for one company); this may indicate either an uneven distribution of information about cases of wrongdoing in the company or the reluctance of executive management to report violations; at the same time, respondents who do not know (or do not want to talk about) violations are more likely to report them.
The most common internal corruption risks identified by respondents were 1) violation of data protection and confidentiality regulations, 2) favoritism (nepotism, cronyism, and patronage), and 3) concealment of conflicts of interest.
public companies that perform publicly important functions are more susceptible to corruption risks than companies with only commercial objectives; at the same time, they take fewer measures aimed at preventing corruption and disclose less often information about receiving financial support from the state; at the same time, companies with only commercial objectives are more likely to perceive investments in the development and implementation of anti-corruption measures as an investment or an asset than companies that perform publicly important functions.
State-owned companies are less inclined to take actions to prevent or minimize emerging corruption risks than private companies; according to the researchers, this may be due to the fact that state-owned companies are legally obliged to implement certain activities and, therefore, have fewer opportunities to "refuse" dubious proposals.

Regarding the adoption of specific measures to prevent corruption, the results of the study show the following:

over the past year, 81% of the companies surveyed have collectively spent about 1.5% of their operating budget on anti-corruption measures; almost half of the respondents consider such investments to be an investment or asset, while 27% consider them to be an expense or cost; 40% of respondents believe that insufficient human and material resources are one of the obstacles in building a system of anti-corruption measures in their organization;
about 90% of organizations surveyed conduct corruption risk assessments; those who conduct them annually (79% of respondents) report fewer corruption violations, lower probability of corruption risks and consider their internal control system to be more effective than those who conduct risk assessments less frequently or not at all; at the same time, the report notes that executives often have less information about corruption risks and internal mechanisms.
the main tool for preventing and combating corruption in organizations is the introduction of a system of anti-corruption standards, the most common of which relate to 1) regulation of conflicts of interest, 2) charitable donations and 3) participation in public procurement; only 57% of respondents stated that their company has anti-corruption training for all employees.

When building a system of anti-corruption regulation by the state, the authors of the report call for attention to the need to take into account best practices, including:

Taking measures to counter any possible incentives to conceal corrupt or other abusive practices in the public sector;
Adopting uniform standards of disclosure and accountability for all public companies (both those performing public functions and those with only commercial purposes);
Adequate mechanisms to communicate appropriate anti-corruption measures on the part of the state (inclusion of such provisions in policies governing state participation in such organizations, in relevant initiatives, discussion during regular meetings, training, publication of guidance materials);
promoting the formation of well-informed, objective and autonomous management bodies in state-owned companies;
encouraging comprehensive and annual risk assessments, presenting their results to the governing bodies;
developing uniform procedures for responding to information about observed cases of corruption or conditions for corruption.

Currently, according to the authors of the report, state-owned companies account for one fifth (22%) of the world's largest companies and, as a rule, operate in sectors of strategic importance to the state and society. In this regard, issues related to combating corruption in such organizations are of particular importance, becoming a topic for broad discussion in all international forums. In particular, the G20 drafted the High-Level Principles on Combating Corruption in State-Owned Companies, which are aimed at addressing corruption in state-owned companies.