Can businesses operate ethically in the Middle East?

A group of senior figures from a cross-section of multinational organisations joined GoodCorporation for the Autumn Business Ethics Debate at the House of Lords.

With the Middle East rarely off the front pages, we posed the question, “Can businesses operate ethically in the Middle East?”

With five countries in the region (Somalia, Sudan, Libya, Iraq and Syria) currently in the bottom ten worldwide for corruption, according to the latest Transparency International Corrupt Practices Index, this can be a problematic part of the world in which to operate.

The debate examined the many challenges that businesses face (many of which are also issues elsewhere in the world) and discussed the different possible solutions.

Challenges

Corruption:

Traditional methods of doing business in the Middle East can cause legislative problems for companies based in the US and Europe. Businesses need to be aware of the types of payments that are often made in order to win or facilitate business and ensure that policies and procedures are in place to ensure compliance with international anti-corruption legislation. Three high-risk areas were identified:

• Agents and Intermediaries: As in many other parts of the world, agents are often used to act on an organisation’s behalf. While this was once extremely widespread, with agents often selected following a chance meeting with little or no screening, practice is now changing. Many organisations are cutting back  on the number of agents they use substantially, in some cases from 100s to 10s. Some companies only use agents in countries where they are legally obliged to have them. Elsewhere, their own sales force is used to negotiate contracts, licences and permits.

Where agents are used, thorough due diligence checks should be carried out to ensure organisations know whom they are dealing with. GoodCorporation recommends that a risk-based approach is taken, with decision trees used to facilitate this process.

Where possible audit rights should form part of the agreement with anti-corruption clauses included in the contract. Agents should receive the organisation’s anti-corruption policy and be clear of the zero-tolerance approach to bribery.

Payment structures should also be simplified to offer flat fees or salaries as opposed to percentage commissions, which can incentivise malpractice.

• Gifts and Hospitality: These are routinely offered and expected and if excessive, can place companies in a vulnerable position. Most large organisations have a Gifts and Hospitality Policy and this should be followed even in the Middle East. Care should be taken to ensure that this is done diplomatically and respectfully to avoid causing offence. Offering to auction a high-value item and donating the money raised to a charity of the giver’s choice was suggested as a possible route. Gifts can also be displayed in a prominent position at the company premises as an acceptable alternative to returning something, which could cause offence. When offering gifts, branded items could be offered as an alternative to high value luxury goods.
• Facilitation Payments: Although facilitation payments have never been legal under UK law, they are still permitted under the FCPA and in areas such as the Middle East, they are often demanded. Low-wages for many in the region contributes to the problem, with poorly paid government officials demanding payment to subsidise their income. The terminology itself was criticised for sanitising what is plainly a bribe.

Logistics companies are put under pressure by clients: on the one hand they are expected to comply with anti-bribery legislation and refuse to make facilitation payments, on the other, they are criticised when goods move more slowly as a result of non-payment.

Large organisations are often in an advantageous position when it comes to a refusal to make such payments as they have the financial resources to wait and stay on the right side of the law. Smaller organisations, may feel the pressure far more acutely and, it was recognised, could feel at a commercial disadvantage.

Treatment of the Workforce

Businesses working in the region need to look at labour practices carefully. Workforce conditions often fall short of expected standards and as we saw in Qatar, this lead to the deaths of many migrant workers. Racism can be a significant problem particularly as regards migrant workers and the treatment of women can also be a potential barrier to operating ethically.

The treatment of women varies significantly from country to country. In Saudi, for example, women remain in a significantly disadvantaged position in business. However there are increasing examples where women are seen in government jobs and running businesses. In other countries affected by the Arab Spring, there are in many cases more restrictions on women than previously. As part of their ethical compliance checks, organisations were urged to consider how their local trading partners and local representatives regard women.

Organisations should also be sure they have examined workers’ rights carefully, in particular to ensure that migrant workers are not prevented from leaving the workplace or the country. Discrimination on the grounds of age and religion can also be a problem and clear guidelines should be in place to mitigate this.

Culture and Training

Imposing a Western view of ethical culture and training can be problematic. Businesses need to take great care to get this right. Compliance and ethics issues need to be raised as regularly as health and safety concerns.

While ensuring that the right messages come from senior management at all times, it is essential to embed the right ethical culture throughout the organisation. Authority, accountability and responsibility were seen as crucial to success here. A company’s commitment to ethical values should emanate from the top.  When compliance officers know that the CEO is determined to build an ethical culture, it reinforces their own authority to enforce the policy most effectively. However, senior management cannot do this alone, core values need to be embedded throughout the organisation to make it clear that all employees are responsible for ensuring good ethical conduct.

Businesses need to monitor this and look to establishing a speak-up culture that encourages key concerns to be raised. Organisations felt strongly that having issues to deal with was a sign that a healthy speak-up system was in operation. This is particularly important to establish for organisations headquartered remotely as without a trusted speak-up system, it can be much more difficult to know what is really going on.

High levels of illiteracy among workers can be a problem for training and speak-up programmes, so companies also need to consider carefully how best to communicate values, policies and systems.

Sanctions

Policies and procedures alone cannot stop unethical conduct. Organisations also need a consistent approach to transgressions. This will lead to codes and policies being adopted more successfully. There were no sanctions in place, for example, to enforce the required accommodation standards for migrant workers on the Qatari World Cup stadia.

Conclusion

Businesses need a clear understanding of the diverse ethical challenges faced when doing business in the Middle East.  The majority of organisations attending the debate had systems in place to mitigate ethical risks, but many felt that more could be done to reduce the risks still further. Key to success is the commitment from the top and the ability to embed an ethical culture throughout the organisation. Systems and policies should make the requirements clear with sanctions enforced firmly for transgressions. Above all, it is vital to really know third parties and partner organisations and to ensure that a common understanding of ethical practice can be reached. Careful monitoring, through the use of internal and/or external auditors, should be used to check that poor labour standards, discrimination and corrupt payments are not permitted.

GoodCorporation Business Ethics Debate: House of Lords October 2014