Multilateral development banks and institutional investors have launched separate initiatives designed to increase pressure on companies to combat transnational bribery and corruption.

In what they called “an unprecedented step in the global fight against corruption” the World Bank and four other regional multilateral development banks (MDBs) agreed to cross-debar firms and individuals found to have engaged in wrongdoing in MDB-financed development projects.

Under the agreement, the banks said, entities debarred by one development bank may be sanctioned for the same misconduct by the other participating banks, in effect closing a loophole that had previously allowed a firm that had been debarred by one MDB to continue obtaining contracts financed by other MDBs.

The new agreement includes the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank Group and the World Bank Group.

The banks said that a result of investigations by the World Bank, 399 firms, individuals and non-governmental organizations (NGOs) had been deemed ineligible to participate in World Bank-financed projects.

Among those cited by the the World Bank was Macmillan Limited, the U.K. publishing company, which was debarred and declared ineligible to be awarded Bank-financed contracts for a period of six years in the wake of the company’s admission of bribery payments relating to a Trust Fund-supported education project in Southern Sudan.  The debarment can be reduced to three years subject to continued cooperation. 

Deterrent Effect?

Transparency International-USA, a non-governmental organization heavily involved in anti-corruption efforts, said it “welcomed” the agreement among the development banks.  “Debarment, and particularly cross-debarment, should serve as a powerful deterrent to bribery and other corrupt practices in international development,” Transparency International said. “The agreement’s coverage of individuals as well as firms debarred for more than one year is very important, given that agents or individual consultants facilitate many corruption schemes.”

Some experts cautioned that it’s unclear how effective the debarment provisions might be.  Mike Koehler, a law professor at Butler University and an expert on anti-corruption programs, notes that United States and European Union law currently allows government contract agencies to debar companies convicted of bribery and corruption offenses from receiving government contracts.

However, these debarment provisions are often “toothless tigers” because the charges prosecuted are often “chosen to avoid application of the debarment provisions,” Mr. Koehler said.  He cited a number of recent high-profile corruption cases - involving Siemens, BAE and Daimler - where each company settled charges related to the U.S. Foreign Corrupt Practices Act but none were ultimately debarred from government contracts.

That could also prove true in cases requiring debarment by the development banks.  “What good are the debarment provisions, how effective can they be, if the parties negotiate around their application?” Mr. Koehler asked.

Investor Letter

Separately, an investor coalition representing 20 asset management companies and large pension funds with a combined total of $1.7 trillion in assets under management recently sent a letter to 21 major companies in 14 countries asking them to improve their disclosure of bribery and corruption risks and avoidance measures.

“As investors, we believe that a robust programme of managing anti-corruption risk at your firm can positively impact long-term performance, and that the absence of such a programme, or even its disclosure, has the potential to create financial, operational and reputational risks,” the investors wrote.

The investors asked companies from eight sectors, including defense, construction and capital goods, to explain whether their anti‐corruption management systems adhere to international reporting frameworks developed by the International Corporate Governance Network (ICGN) and UN Global Compact.

George Dallas, director of corporate governance at F&C Management, one of the firms in the investor coalition, said the group aimed to focus attention on the involvement of corporate boards on anti-corruption policies and practices. “To the extent we see companies dragging their feet, this may be something we can use to follow-up on a one-off basis with individual companies,” Mr. Dallas said.  “And if we find this to be a successful program, there’s scope to broaden this to other companies.”

The investors asked the 21 companies receiving the letter to respond by July; the identities of the targeted firms were not disclosed. “We have no reason to believe that these companies are engaging in corrupt activity,” Mr. Dallas said.  Publicizing the names of those on the list “could potentially be misunderstood and misread…and perhaps not be constructively received by the companies,” he added.

The investor coalition includes APG Asset Management, BC Investment Management Corporation, Boston Common Asset Management, California State Teachers' Retirement System (CalSTRS), Ethos Foundation, F&C Asset Management, Henderson Global Investors, Hermes EOS, Mn Services N.V., New Zealand Superannuation Fund, Rathbone Brothers Plc, Robeco, Skandinaviska Enskilda Banken (SEB) AB, Syntrus Achmea Asset Management, Victorian Funds Management Corporation, and large funds in Australia (represented by The Australian Council of Superannuation Investors) and Sweden (AP 1-4).

When the Environmental Defense Fund (EDF) first fought for a ban on the pesticide DDT more than 40 years ago, the  non-profit organization went to court and fought hard.  Back then, says Fred Krupp, the organization’s president, “the motto was ‘Sue the Bastards.’”

Times have changed.  In its drive to combat climate change, EDF now assigns staff members to a place like Bentonville, Arkansas, corporate headquarters of WalMart, the world’s largest retailer.  “I think we are the only national environmental group that has a staff stationed full-time in Bentonville,” says Krupp. “We walk in and out of the WalMart offices going to whatever meetings we want, really, to advise them on how to take their immense supply chain and get them to be greener.”

While the tactical makeover did not happen overnight, the environmental group still frequently has to defend this new business model for a non-governmental organization (NGO). “The whole idea is to change the world,” says Krupp. “If you want to change the world, it’s important to work with some of the big forces in the world.”

Impact on Supply Chain

Speaking at the The Economist Corporate Citizenship 2010 conference in New York, Krupp described how former WalMart CEO Lee Scott, concerned several years ago about the retailer’s image on labor issues, “recognized that the environment was a big issue and wanted to get ahead of it.”

To help educate Scott on climate change, Krupp says, he and Scott took a trip to the White Mountains of New Hampshire “to learn about global warming and how it was affecting maple trees up there,” as well as a separate trip to Kansas to visit with farmers.  Along the way, according to Krupp, Scott “had this epiphany that getting ahead of these issues actually could be a good offensive strategy, and good for business.”

WalMart’s current sustainability initiatives are having a major impact on the retailer’s suppliers, according to Krupp. Flat-screen televisions are still sold at WalMart, for example, but now they are energy efficient. “WalMart has something very precious that these vendors want, which is shelf space,” Krupp says.  WalMart and EDF are being “inundated” with phone calls from suppliers who say that if the new standards determine "whether or not we get shelf space, we want to know what we can do to meet or exceed expectations.”

EDF generated headlines in 2007 when it endorsed the purchase of TXU, the giant Texas utility company, by private equity firms Kohlberg, Kravis, Roberts & Co. and Texas Pacific Group for $45 billion.  In return for that endorsement, KKR and TPG agreed to several conditions, including reducing the number of new highly-emitting coal-driven power plants to be built by TXU from eleven to three, as had been planned by TXU’s previous management.   EDF’s relationship with KKR and TPG has grown since then, Krupp says, to involve other companies in the private equity firms’ portfolios.

McDonald’s and FedEx have also worked closely with EDF.  The McDonald’s engagement first involved reduction of packaging but later addressed the issue of antibiotics in chickens used by the fast food chain in its sandwiches.  Working with their suppliers and the pharmaceutical industry, McDonald’s was able to cut the volume of antibiotics it used by 90 percent, according to Krupp.  FedEx worked with EDF to find ways to reduce emissions from its worldwide fleet of delivery trucks, resulting in 96% less soot and 50% more fuel efficient vehicles, Krupp says.

Free Advice

While EDF believes NGO-corporate partnerships can be productive long-term, they don’t always work out.  An attempt to work with General Motors over a decade ago on environmental impact fell apart  fell apart because “they weren’t ready at that time,” according to Krupp.

In the case of McDonald’s and antibiotics, Krupp says, “the beauty of it is that we didn’t have to go to Congress, we didn’t have to beg a politician to help us…When we have a huge outscale impact by working directly with a company, that’s the way to be truest to the people who donate money to us because we’re getting results without the vagaries that have been known to happen sometimes in Washington.”

EDF does not accept money from any of its corporate partners.  “We thought it would be better for us, and better for the companies we work with, to keep our good name and reputation, and to be above reproach,” Krupp says. At McDonald’s, “we wouldn’t even accept a free hamburger in their restaurants.”

To accommodate the increased workload from the corporate engagements, EDF has grown from about 40 employees twenty-five years ago to more than 400 now.   The current annual budget of about $120 million is funded through private contributions from foundations and more than 700,000 individuals; corporate donations total less than $500,000 annually, according to Krupp.

Asked which companies might be next on EDF’s target list, Krupp declined to be specific.  “If you think about the biggest companies in the world, that have the most impact on climate,” he says, “those are the ones we want to work on…work with, and on.”

Picture World Economic Forum/ Remy Steinegger

As the World Economic Forum (WEF) opens on Wednesday, in the tiny Swiss ski village of Davos, some 2,500 CEOs and senior executives, heads of state, politicians, policy makers and journalists will gather to listen to speeches, attend panel sessions, drink at cocktail parties and dinners, and network like crazy in an effort to justify the time and expense of spending a week in highly comfortable accommodations in the Alps.

It will be interesting to see how many of them wind up taking The Global Business Oath.

Yes, there is one – and you, too, can pledge.

The Global Business Oath is the product of the WEF’s Forum of Young Global Leaders – some 200-300 “extraordinary individuals, drawn from every region of the world” who, the WEF says, “together, form a powerful international community that can dramatically impact the global future.”

At last year’s meetings in Davos, the WEF reports, the young global leaders launched an initiative “based on the idea of an oath for business leaders that would serve as a guide when facing difficult trade-offs and paradoxes.”

Over the past year they drafted a set of principles – the Global Business Oath - and they’ve been testing the content and implementation ever since. And now it’s ready for pledging.

While some might consider the proposal by the young global leaders a bit naïve, the bigger question is how many older, more experienced, business leaders will be signing on.  Will Klaus Schwab, Founder and Executive Chairman of the WEF, attempt to get JP Morgan Chase CEO Jamie Dimon to take the Oath?  How about Deutsche Bank’s Josef Akermann?

More than 200 leaders have already pledged to lead their organizations according to these principles, according to the WEF, and over the course of 2010 “the YGL Oath Task Force will be looking to expand the reach and impact of the oath.”

A quick check of those who have already signed on indicates the list is dominated by representatives of non-profit groups or academics, though a handful of mid-level executives from big firms – such as Nestle, KKR, Ogilvy - have taken the pledge.  Mexico’s Banco Compartamos had 39 of its executives, including the CEO, take the oath.  Representatives of U.S. companies are noticeably absent.

Here’s the complete text of the Oath:

As a business leader I recognize that

• The enterprise I lead must serve the greater good by bringing together people and resources to create value that no single individual can create alone,
• My decisions can have far-reaching consequences that affect the wellbeing of individuals inside and outside my enterprise, today and tomorrow,
• As I reconcile the interests of different constituencies, I will face choices that are not easy for me and others.

So I promise that

1. I will manage my enterprise diligently and in good faith and will not let personal considerations and compensation supersede the long-term interest of my enterprise and society at large,
2. I will understand and uphold, both in letter and spirit, the laws and contracts governing my own conduct and that of my enterprise,
3. I will respect and protect the human rights and dignity of all people who are affected by my enterprise and will oppose all forms of discrimination and exploitation,
4. I will respect and protect the right of future generations to enjoy a clean and resourceful planet,
5. I will not engage in nor tolerate bribery or any other form of corruption,
6. I will represent the performance and risks of my enterprise accurately and honestly to each of the constituencies that are affected by it,
7. I will actively engage in efforts to finding solutions to critical social and environmental issues that are central to my enterprise, and
8. I will invest in my own professional development as well as the development of other managers under my supervision.

In exercising my professional duties according to these principles I recognize that my behavior must set an example of integrity and responsible conduct.

This pledge I make freely and upon my honor.

You can access The Global Business Oath on the web and , if you care to, take the pledge yourself.

Whether or not you sign on, we’d be interested in your comments, which you can post below.