Market Consultation on Countering Bribery & Corruption Criteria for the FTSE4Good Index Series

Transcription

1 Market Consultation on Countering Bribery & Corruption Criteria for the FTSE4Good Index Series 1 BACKGROUND TO THE CONSULTATION It is the intention of the FTSE4Good Policy Committee to add criteria regarding Countering Bribery & Corruption The objective of this consultation is to ensure that the criteria reflect the consensus of opinion within the investment and corporate responsibility communities on what constitutes good corporate practice in this area This consultation will be an essential element in determining the final criteria for Countering Bribery and Corruption for the FTSE4Good indices Bribery and corruption continue to pose key challenges for the corporate sector Global investors are increasingly concerned about the potential reputation and litigation risks that a company exposes itself to by having insufficient systems to address and avoid instances of bribery and corruption within their operations In addition the social and environmental harm caused by bribery and corrupt practices can be significant, particularly when large governmental projects are involved According to the World Bank, bribes cost the global economy over US$ 1 trillion every year They may, therefore, often involve misappropriation of public funds that could otherwise be better spent on enhancing the quality of life of the country's people, and are anti-competitive in nature This consultative paper, outlining the proposed new criteria, has been drafted with the help of Transparency International and a range of stakeholders including companies, investors, relevant NGOs, and other experts in the area Criteria Objectives The FTSE4Good criteria for Countering Bribery & Corruption are intended to set a standard for companies that is challenging but achievable The objectives of the criteria are to encourage the vast majority of highimpact companies who have not yet achieved best practice standards in the management of bribery and corruption, to take action and put into place quality management systems to address these issues Once applied, the new criteria will therefore ensure that all FTSE4Good constituent companies that are assessed as having a higher potential risk of exposure to bribery and corrupt practices, are managing these risks appropriately 2 SCOPE AND INTERPRETATION There is widespread and interchangeable use of the terms bribery & corruption and these can include such as domestic and foreign bribery; embezzlement; trading in influence 1 ; illicit enrichment; fraud; defalcation and concealment of property 2 Money laundering often accompanies corruption in disposing funds and assets obtained corruptly So the FTSE4Good Criteria will initially focus on bribery in order to be practically implemented by companies These criteria will therefore include all the main topics that are recognised as the wider corporate agenda for countering bribery, with the exception of money laundering and fraud However, FTSE recognises that the bribery criteria will probably need to extend to include other issues at some point in the future 1 The UN Convention against Corruption 2 The Organisation of American States (OAS) Inter-American Convention Against Corruption Page 1

2 Definition of bribery for the FTSE4Good criteria Bribery is an offer or receipt of any gift, loan, fee, gift, reward or other advantage to or from any person as an inducement to do something which is dishonest, illegal or a breach of trust in the conduct of the enterprise's business 3 3 CURRENT STANDARDS IN COUNTERING BRIBERY & CORRUPTION There are many organisations and associations currently working on countering bribery and corruption FTSE notes the following multistakeholder initiatives and international standards to support business in prohibiting and countering these issues The approaches of these initiatives and standards have been used to develop the proposed criteria in this document: UN Global Compact: Principle 10 - The promotion and adoption of initiatives to counter all forms of corruption, including extortion and bribery UN Convention against Corruption: To promote and strengthen measures to prevent and combat corruption more efficiently and effectively OECD Convention on Combating Bribery of Foreign Public Officials: Relating to international business transactions Global Sullivan Principles: Promote fair competition including respect for intellectual and other property rights, and not offer, pay or accept bribes International Chamber of Commerce: Rules of Conduct to Combat Extortion and Bribery The Transparency International Business Principles for Countering Bribery is an international multistakeholder business initiative designed to complement the UN and OECD conventions, developing them into practical principles that companies can implement and monitor The proposed FTSE4Good criteria take the Transparency International Business Principles for Countering Bribery as a starting point 4 THE PROPOSED FTSE4GOOD CRITERIA FOR COUNTERING BRIBERY & CORRUPTION All companies face the potential risk of being drawn into bribery to some degree, and regardless of the context evidence of significant bribery could constitute a sufficient reason for removing any company from the FTSE4Good index Nonetheless the need to adopt special preventative measures is a function of the level of risk of engaging in bribery, and that risk varies widely in certain locations and contexts Therefore FTSE proposes that the most stringent criteria below initially apply only to companies that are at the highest risk, and those that are medium risk be required at a minimum to recognise and address the issue High and Medium Risk Companies: The FTSE4Good criteria for Countering Bribery & Corruption are intended to be challenging for companies but achievable The objectives of the criteria are to encourage the vast majority of high risk companies which have not yet achieved good practice standards in the countering of bribery, to take action and put into place quality policies and management systems to address these issues Once applied, the new criteria will therefore ensure that all FTSE4Good constituent companies, that are assessed as having a higher potential risk of exposure to bribery, are managing these risks appropriately For High Risk companies see the next section, and for Medium Risk see the last section 3 Source: Transparency International Guidance to Business Principles for Countering Bribery 3 Page 2

3 All other companies: It should be emphasised that for other companies included in the FTSE4Good Indices but not falling in the High Risk or Medium Risk groups, their inclusion in the Index would not reflect any assessment of FTSE4Good Criteria for Countering Bribery & Corruption in this proposal Such companies still face risks of becoming involved in bribery, and they are encouraged to consider implementing appropriate practices to counter bribery Although these proposed criteria focus on higher risk companies for index management reasons it is FTSE s declared intention to require all companies to address bribery at some point in the future This would be considered and introduced at the discretion of the FTSE4Good Committee 41 Identifying High Risk Companies FTSE proposes that the most demanding criteria to counter bribery initially only apply to companies that are at the highest risk of exposure to bribery and corruption Various means of identifying high risk companies need to be assessed Possible ways of differentiating the highest risk companies may be through the nature of their work, and the countries in which they operate 4 42 High Risk Countries Although bribery can occur in any country, there are a number of high-risk countries where bribery is considered widespread There are two widely recognised indicators of high-risk countries that these criteria propose to use; the Transparency International Corruption Perceptions Index, and the World Bank Governance Indicators Transparency International Corruption Perceptions Index The TI Corruption Perceptions Index (CPI) ranks countries in terms of experts' perception of corruption There are 146 Countries in this index that are allocated a score from 97 (good) to 15 (worse) This index is researched and issued annually For more information, visit the TI web pages at wwwtransparencyorg World Bank Governance Matters IV: Governance Indicators for This includes a ranking of countries by degree of control over corruption Scores are applied to 195 countries, with scores normally distributed around zero, wit h 99% of scores distributed between 25 and 25, the higher the better, and the lower (or more negative) the worse This is revised regularly For more information please visit Sudan, Swaziland, Syria, Tajikistan, Tanzania, Thailand, East Timor, Togo Tonga, Trinidad and Tobago, Turkey, Turkmenistan, Uganda, Ukraine, Uzbekistan, Vanuatu, Venezuela, Vietnam, West Bank/Gaza, Yemen, Yugoslavia, Zambia, Zimbabwe 4 The FTSE4Good Policy Committee may decide to apply the criteria to all companies at some point in the future, depending on market sentiment Page 3

4 High Risk Country Filter For the purposes of these criteria, FTSE proposes that countries that have a score of 0 or less (negative) scores on the World Bank Governance Indicators list and countries that score 4 or less on the Transparency International Corruption Perceptions Index will be considered high risk Using this methodology, all the following countries are classified as high risk: Countries in both Transparency International and World Bank lists Albania, Algeria, Angola, Argentina, Armenia, Azerbaijan, Bangladesh, Belarus, Belize, Benin, Bolivia, Bosnia-Herzegovina, Brazil, Cameroon, Chad, China, Colombia, Congo, Congo Dem Rep, Cote D Ivoire, Cuba, Dominican Republic, Ecuador, Egypt, Ethiopia, Gabon, Gambia, Georgia, Ghana, Guatemala, Haiti, Honduras, India, Indonesia, Iran, Iraq, Jamaica, Kazakhstan, Kyrgyz Republic, Kenya, Kyrgyz Republic, Lebanon, Libya, Macedonia, Malawi, Mali, Mexico, Moldova, Mongolia, Morocco, Mozambique, Myanmar, Nepal, Nicaragua, Niger, Nigeria, Palestinian Authority, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Romania, Russia, Senegal, Sierra Leone, Sri Lanka, Sudan, Syria, Tajikistan, Tanzania, Thailand, Turkey, Turkmenistan, Uganda, Ukraine, Uzbekistan, Venezuela, Vietnam, Yemen, Zambia, Zimbabwe Countries in Transparency International list only Croatia, Eritrea, Latvia, Madagascar, Poland, Saudi Arabia, Serbia and Montenegro, Slovakia Countries in World Bank list only Afghanistan, Bulgaria, Burkina Faso, Burundi, Cambodia, Central African Republic, Comoros, Djibouti, El Salvador, Equatorial Guinea, Guinea, Guinea-Bissau, Guyana, Jordan, Kiribati, North Korea, Laos, Lesotho, Liberia, Macao, Marshall Islands, Micronesia, Rwanda, Samoa, Sao Tome and Principe, Solomon Islands, Somalia, Swaziland, East Timor, Togo, Tonga, Trinidad and Tobago, Vanuatu QUESTIONS 1 FTSE proposes that the most demanding criteria to counter bribery initially only apply to companies that are at the highest risk of exposure to bribery and corruption Do you agree that it is appropriate to identify companies as high-risk in part because of the countries in which they operate? (yes/no) 2 If not why? 3 Do you think it is appropriate to make more demanding requirements of companies operating in certain countries? (yes/no) 4 If not why? 5 If a country screen were to be used to identify high-risk companies, do you agree with using the World Bank Governance Indicators combined with the Transparency International Corruptions Perceptions Index as the basis for identifying the highest risk countries for the criteria? (yes/no) 6 If not, what other sources would you use? Please list with reasons 7 Do you agree with the list of high-risk countries? (These are countries that score zero or negatively on the World Bank Governance Indicators list, and score 4 or less on the Transparency International Corruption Perception Index) (yes/no) 8 If not why, and what other countries should be considered high risk? Page 4

5 43 High Risk Industry Sectors Emerging practice suggests that there are a number of industries that are more likely to be exposed to the risk of bribery These sectors are often involved in tendering for large-scale government/public projects, or securing government licenses to operate, and as such also face major public exposure if they (or their subcontractors and agents) are identified as being associated with bribery in order to secure these contracts These are often high-profile global companies, which need to be able to operate in different countries and cultures, each having their own expectations Their profile may mean that they face more public scrutiny on their ethical standards than others so exposed instances of bribery could have a greater negative business impact FTSE intends to apply the FTSE4Good Bribery and Corruption criteria to the following sectors initially, with the intention of extending the criteria to other sectors over time: 431 Proposed Industry Sector Filter 1 Public works/construction and associated engineering sectors: Builder Merchants; Building and Construction Materials; House-Building; Other Construction; Diversified Industrials; Engineering - Contractors, Fabricators, and General; Business Support Services; Environmental Control; Security and Alarm Services; (includes major end components eg turbines) 2 Defence producers and contractors sector: Aerospace and Defence; (including arms and the provision of security services, but not sub-contractors or dual-use product suppliers) 3 Oil and gas: (all aspects related to exploration, production, refining, but not retail sale of petrol) 4 Energy and utilities sectors: Electricity; Gas Distribution; Multi-Utilities; Water; (producers and suppliers of gas, electricity and water) 5 Property development sector: Real Estate Holding and Development; (major commercial and residential property developers) 6 Global hotel chains and major gaming operators: Hotels; Gambling 7 Telecomms sectors: Fixed Line Telecommunications Services; Wireless Telecommunications Services; (licensed operators of mobile and fixed-line telecommunications services, but not equipment producers of phones, instruments and switching equipment etc) 8 IT sectors: Electronic and Electrical Equipment; Computer Hardware; Telecommunications Equipment; Computer Services; (services sector, large contracts/bidding processes) 9 Pharmaceuticals sectors: Biotechnology; Pharmaceuticals; (often large contracts) 10 Steel and Chemicals, Mining and Extractives sectors: Mining; Steel; Non-Ferrous Metals; Chemicals Commodity, Advanced Materials and Speciality; (usually require a licence to operate in the country) QUESTIONS 9 In addition to identifying high risk companies by the countries in which they operate, FTSE proposes that certain sectors are more likely to be exposed to bribery (see 431 for full sector listing) Do you agree that it is appropriate to identify a company as high-risk in part because of the sector in which it operates? 10 If not, why? Page 5

6 11 12 Do you agree that the above sectors are exposed to the highest risk of involvement in bribery? (yes/no) If not, what other sectors would you add to, or remove from this? Please list with reasons 44 High-Risk Business Activities There are certain business activities within the high-risk sectors that are more likely to be subject to the potential for bribery These are considered very high-risk activities which generally have a direct interface with government activities (for example construction projects, hospitals, schools etc where large tenders are involved) For the purposes of these criteria, any companies that are involved in any way with government/ public contracts, or must have a government license to operate their business (for example a gaming license or mining exploration), are considered high risk to the potential for involvement in bribery Proposed Business Activity Filter For the purposes of these criteria, companies that are involved in any way with government/ public contracts, or where a government licence is critical to the operation of their business, are considered highest risk to the potential for involvement in bribery QUESTIONS FTSE also proposes that there are certain business activities within the high risk sectors that are more likely to be subject to the potential for bribery Do you agree that companies that are involved in any way with Government/public national projects, or where a Government licence is critical to the operation their business, are at highest risk to the potential for involvement in bribery? (yes/no) If not, what other business activity would you use? Please list with reasons Page 6

7 5 PROPOSED FTSE4GOOD CRITERIA FOR HIGH RISK COMPANIES 51 POLICY REQUIREMENTS FOR HIGH RISK COMPANIES FTSE recognises that a policy is a statement of intent, and that it can take some time to implement in full, particularly as many of the issues are sensitive and at present there is not unanimity in their definition and status regarding bribery (for example facilitation payments) FTSE proposes that the key recommendations in The Business Principles for Countering Bribery (Transparency International) are a policy requirement, as these strike the balance between being challenging, but also achievable and represent good practice in this area Proposed Policy Requirements Criteria In order to be included in the FTSE4Good Indices, companies in the high impact sectors, operating in high risk countries, involved in government contracts/licensing would be required to demonstrate and provide evidence that their company-wide policy on countering bribery is publicly available and meets the following criteria indicator requirements: 1 Prohibits giving and receiving bribes (companies publicly committed to the Global Sullivan Principles or the UN Global Compact may be considered committed to this criteria indicator) 2 Obeying all relevant laws 3 Board level commitment 4 Transparency of any political donations, and an approvals and disclosure process for such donations 5 Restricts and controls facilitation payments 6 Restricts giving and receiving gifts 7 Policy applies to agents (including partners and contractors) 8 Policy is publicly available See Appendix 1 for details QUESTIONS Do you think it is realistic for companies to meet all of the proposed policy requirements criteria? (yes/no) Please identify any indicators that you think are not realistic (ie are too challenging to be adhered to on a practical basis), the indicators you think are the least essential, and the indicators you think are the most essential Please note any comments that you have on the proposed policy requirement criteria Do you agree that companies publicly committed to the Global Sullivan Principles or the UN Global Compact should be considered as being committed to prohibiting and receiving bribes? (yes/no) If not, why, and are there any other indicators you consider should be included? If so, please detail Page 7

8 6 MANAGEMENT SYSTEMS REQUIREMENTS FOR HIGH RISK COMPANIES An effective policy is one that is implemented via a management system FTSE recognises that the Transparency International Business Principles for Countering Bribery has identified the following minimum elements of a management system to address bribery, without which the risks of potential bribery issues are not controlled or managed Proposed Management Systems Criteria Companies would need to provide evidence of compliance with the following FTSE4Good requirements (in relation to the Countering Bribery and Corruption Policy) in order to be included in the Index: 1 Communicate policy to employees 2 Relevant training for employees 3 Compliance mechanisms (eg assurance, audits, monitoring, board reports) 4 Sanctions for breaches of policy 5 Risk assessment or risk led prioritisation/implementation (simple and high level to identify the vulnerability of the company) 6 Communicate policy to contractors, suppliers and agents 7 Appropriate systems for appointment and remuneration of agents (eg vetting of agents anti-bribery policy, or that payment is not above expected rates, which could be to facilitate bribery) 8 Whistleblowing procedures for protection (or internal reporting mechanisms) 9 Policy/code has procedures to remedy any non-compliance* See appendix 2 for details * Where there is significant and credible controversy/allegation that a company, its suppliers, contractors or agents are committing bribery, the company must have taken visible, demonstrable or quantifiable steps to prove it has investigated, and if appropriate, addressed these allegations effectively QUESTIONS Do you think it is realistic for high-risk companies to meet all of the proposed management systems criteria? (yes/no) Please tick any indicators that you think are not realistic (ie are too challenging to be adhered to on a practical basis), the indicators you think are the least essential, and the indicators you think are the most essential Are there any other indicators you consider should be included? If so, please detail Please note any comments you have on the proposed management systems criteria 7 REPORTING REQUIREMENTS (DISCLOSURE) - HIGH RISK COMPANIES Page 8

9 While it is generally accepted as good practice for higher risk companies to have some form of policy and system, very few report in detail on performance yet, such as on non-compliances and actions taken, as this is a relatively new development in company reporting However transparency is an underlying value behind these criteria, and public declaration of policy and systems is important for sectors countering bribery, so it is appropriate that companies declare what they are doing to counteract bribery Therefore these proposed criteria require disclosure and making public, company policies and procedures only, as opposed to performance Proposed Reporting Criteria Companies will need to comply with the following FTSE4Good requirements in order to be included in the index: 1 Policy is publicly disclosed 2 Compliance mechanisms are publicly disclosed QUESTIONS FTSE proposes that high risk companies are required to publicly disclose their policy and compliance mechanisms Do you agree with the proposed criteria for reporting and disclosure? (yes/no) If not, please state why and detail alternative/additional suggestion 8 MEDIUM RISK COMPANIES 81 IDENTIFYING MEDIUM RISK COMPANIES FTSE is considering introducing a Medium Risk category for companies, and would like to identify the degree of consensus on this There is concern (supported by some research) that companies in the High Risk Sectors may have a propensity to be involved in bribery regardless of countries of operation (or whether they are involved in government contracts/licensing) These companies are often involved in large contracts (business to business or private to private) in the more developed world, where public scrutiny and expectations can be very high and demanding, so there is still a significant reputational issue for the company Proposed Medium Risk Companies 1 All companies in the High Risk sectors (see previous sections): Public works/construction, associated Engineering, and Property Development; Defence producers and contractors; Oil and Gas; Energy and Utilities; Mining and Extractives; Global Hotel chains and major gambling operators; Telecomms and IT; Pharmaceuticals; Steel and Chemicals 2 Operating in any country (outside the high risk countries), whether their operations are private to public sector or private to private (business to business) 82 CRITERIA MEDUIM RISK Page 9

10 Medium risk companies will need to be aware of the risks and exposure they face, and have some minimum approach to the issue in order to control potential incidents FTSE proposes in the first instance the following criteria as a minimum These companies are perceived to be less exposed to these risks and therefore are generally at an even earlier stage (relative to high risk companies) in developing their approach to these issues Therefore the proposed criteria are a minimum first step for these companies Proposed Medium Risk Policy Criteria Anti-bribery policy* Policy publicly available * The policy should include a commitment to obey all relevant regulations QUESTIONS FTSE proposes that all companies in the high risk sectors may have a propensity to be involved in bribery regardless of their business activity or the countries in which they operate FTSE proposes that these companies be classified as medium risk Do you agree with this definition of medium risk companies? (yes/no) If not, what other sectors would you add to, or remove from this? Please list with reasons FTSE proposes that medium risk companies are required to have an anti-bribery policy that is publicly available Do you agree with the proposed criteria for medium risk companies? (yes/no) If not why, and what other criteria should apply? Thank you for your input into this consultation The results will be collated by FTSE and a report presented to the FTSE4Good Policy Committee for approval It is FTSE s intention to announce the new criteria and implementation timetable in 2005 Page 10

11 Appendix 1 Policy Requirements Guidance Notes FTSE recognises that the Transparency International Business Principles for Countering Bribery 5 identifies policy requirements for companies, and that the following criteria requirements (which are a sub-set of the Business Principles and associated Guidelines 6 ) address issues that, to some extent, are business risks for all companies However the proposed criteria relate to initially applying these criteria to higher risk companies: (Not listed in any order of priority) i) Prohibits giving and receiving bribes The company should prohibit the offer, gift, or acceptance of a bribe in any form, including kickbacks, on any portion of a contract payment, or the use of other routes or channels to provide improper benefits to customers, agents, contractors, suppliers or employees of any such party or government officials The company should also prohibit an employee from arranging or accepting a bribe or kickback from customers, agents, contractors, suppliers, or employees of any such party or from government officials, for the employee s benefit or that of the employee s family, friends, associates or acquaintances Kickbacks are a particular form of bribery and typically have two distinguishing features A kickback is often initiated and received by a corrupt employee without the knowledge of the employer and it usually occurs simultaneously with or after the completion of a business transaction ii) Obeying all relevant laws The program should be consistent with all laws relevant to countering bribery in all the jurisdictions in which the enterprise operates, particularly laws that are directly relevant to specific business practices iii) Transparency of political donations, approvals & disclosure The enterprise, its employees or agents should not make direct or indirect contributions to political parties, organisations or individuals engaged in politics, as a way of obtaining advantage in business transactions The intent of this is to prevent political contributions being used as bribes to win contracts or to purchase access to and influence policy-makers to achieve a specific benefit for the company It does not require companies to prohibit political contributions as they can serve a legitimate purpose in supporting democratic processes in some countries However, they can be misused to buy unfair advantages, may lead to corruption of political processes and present an area of risk of damage to the company s reputation Therefore as a minimum they should be controlled in an approvals and disclosures process iv) Restricts and controls facilitation payments Such bribe payments are also called facilitating, speed or grease payments (some languages do not have a word for facilitation payments) They are any payment made as a bribe to secure or expedite the performance of a routine or necessary action to which the payer of the facilitation payment has legal or other entitlement Facilitation payments invariably occur by the recipient extorting the payment using the power of his or her official position and where the consequence of not paying such as failure to clear goods from customs, can be out of all proportion to the small payment demanded Such payments are illegal in most countries but they are nevertheless widespread This criteria encourages enterprises to eliminate facilitation payments in all the Transparency International Guidance to Business Principles for Countering Bribery Issue III November %202004pdf Page 11

12 jurisdictions in which they operate The corrupting influence of pervasive facilitation payments can be insidious and part of a wider climate of systemic corruption Thus there should be no distinction, as often is made, between the approaches to countering petty and grand bribery Looking at the benefits of a prohibition of facilitation payments there is evidence that it can lead to a positive effect on the bottom line; when aggregated the value of payments not made may exceed the cost of implementing the policy v) Restricts giving and receiving gifts Business gifts, hospitality and expenses whilst not part of the process for business transactions, are often an accepted form of behaviour, but practice varies across cultures and societies There can often be uncertainty in what is a reasonable transaction and there is potential for development of bribery if practices are not made clear by companies The company's policy/system can be flexible in recognising and accommodating local customs and cult ural differences but should set out clearly policy position, processes and guidance and be absolute in prohibiting any giving or receipt of gifts, hospitality or other expenses that could influence or be perceived to be capable of influencing a contractual or material transaction vi) Board level commitment Clear lines of responsibility are needed to avoid omissions or errors in implementing the policy and to assign objectives and performance standards Increased responsibilities are being placed internationally on boards and management For example, an effective compliance and ethics program has been a fundamental component of the US organisational sentencing guidelines promulgated by the United States Sentencing Commission in 1991 In April 2004, the Commission made the standards for the compliance and ethics programme more rigorous and put greater responsibility on boards of directors and executives for the oversight and management of compliance programs In particular, directors and executives now must take an active leadership role in respect of the content and operation of compliance and ethics programs Companies that seek reduced criminal fines must demonstrate that they have identified areas of risk where criminal violations may occur, trained high-level officials as well as employees in relevant legal standards and obligations, and given their compliance officers sufficient authority and resources to carry out their responsibilities Under the revised guidelines, if companies hope to mitigate fines and penalties, they must also promote an organisational culture that encourages a commitment to compliance with the law and ethical conduct by exercising due diligence in meeting the criteria vii) Policy applies to agents (including partners and contractors) It is possible that bribery through agents is more likely to occur than through the employing company itself, as the company is not present on site to control the situation Bribery can take place through agents and intermediaries, subsidiaries, joint venture partners, agents, contractors, or the company s employees offering inducement to third parties Employees too can be subject to approaches and offers Therefore, the company should apply its bribery & corruption policy in its dealings with subsidiaries in its business activities involving related enterprises and third parties in a systematic manner: The company should conduct due diligence before entering into a joint venture The company should not channel improper payments through an agent The company should undertake due diligence before appointing an agent and the relationship should be documented Compensation paid to agents should be appropriate and justifiable remuneration for legitimate services rendered Excessive payments above market rate may incorporate bribe money The agent should contractually agree to comply with the company s policy The company should monitor the conduct of its agents and should have a right of termination in the event that they pay bribes viii) Policy is publicly available For example on the company's website, or in public reports such as Annual Reviews or Corporate Social Responsibility Reports Page 12

13 Appendix 2 System Requirements Guidance Notes FTSE recognises that the Transparency International Business Principles for Countering Bribery 7 identifies management system and implementation requirements for companies, and that the following criteria requirements (which are a sub-set of the Business Principles and associated Guidelines) address issues that, to some extent, are business risks for all companies However the proposed criteria relate to initially applying these criteria to higher risk companies: (Not listed in any order of priority) i) Risk assessment In developing its system for countering bribery, a company should analyse which specific areas pose the greatest risks from bribery A company should perform a regular assessment to determine the risks of bribery to its operations by reference to the countries in which it operates, its business sectors and its business practices This will provide the basis for development of its system and for tracking and measuring performance and improvement An enterprise should develop a system reflecting its size, business sector, potential risks and locations of operation, which should, clearly and in reasonable detail, articulate values, policies and procedures to be used to prevent bribery from occurring in all activities under its effective control A company should therefore develop a system tailored to its particular circumstances to assess the specific risk of incidents of bribery This will often form part of the company s wider risk assessment process ii) Communicate policy to contractors, suppliers, agents The company should ensure that subsidiaries and joint ventures over which it maintains effective control adopt its policy and system Where a company does not have effective control it should make known its policy/system and use its best efforts to monitor that the conduct of such subsidiaries and joint ventures is consistent with its policy and program iii) Appropriate systems for appointment and remuneration of agents Agents and other intermediaries are one of the most common channels through which bribes are made This can occur either by a company intentionally using agents to channel improper payments or agents acting on their own account corruptly to achieve their contractual obligations, particularly in difficult countries where a company may not be directly represented and has to rely on intermediaries Agents represent companies and are responsible for promoting their products, services and reputation They bring expertise, local knowledge, sales and support structures and in some countries, notably in the Middle East, local laws may require their use Agents are remunerated usually by a commission on sales The risks for companies in using agents occur because agents are independent and may not observe the same values or have an anti-bribery policy equivalent to that of companies Agents will frequently be based locally and their culture and operating standards will then reflect those of the country in which they operate This presents risks if the country has a high level of corruption Further, agents will be keen to earn their commission and may be tempted to resort to bribery to secure a sale iv) Training for employees Managers and employees should receive specific training on the policy and system Training is fundamental to obtaining employees commitment to the company s policy Training should be given on a continuing basis to employees appropriate to their needs and the potential risks relating 7 Page 13

14 to their work Different segments of an enterprise s operations and different countries of operation will require levels of training specific to their assessed needs Training should be provided to employees related to the risks of bribery to which they could be exposed to the knowledge and experience of the employees Training should ensure that recruits, employees and management clearly understand the company s policies and practices, know the company s expectations of their behaviour and the sanctions that may be applied v) Whistleblowing procedures for protection To be effective, the system should rely on employees and others to raise concerns and violations as early as possible To this end, the company should provide secure and accessible channels through which employees and others should feel able to raise concerns and report violations ( whistleblowing ) in confidence and without risk of reprisal An effective system will have a policy, process and channels for communication of complaints, seeking advice and making suggestions for improvements Anti-bribery communication channels are usually termed whistleblowing channels, hot lines or help lines They may not only be for the use by employees but can also be provided for use by business partners or the general public Evidence suggests that although such channels are not heavily used, they can be important in revealing significant abuses of the policy vi) Communicate to employees The company should, on request, publicly disclose the management systems it employs in countering bribery Communication is one of the keys to the success of an anti-bribery policy Companies that make effective internal communication are in a better position to require adherence, achieve compliance, sanction non-conformance, and ultimately see that their actions live up to their values and policy vii) Compliance mechanisms The company should establish feedback mechanisms and other internal processes supporting the policy Internal controls are broadly defined as a process, implemented by an enterprise s Board of Directors or equivalent function, management or other personnel, designed to provide reasonable assurance regarding the efficiency of operations, the reliability of financial reporting, and compliance with applicable laws and regulations Accurate accounting and record keeping is very important to allow checks to be made that proper procedures are followed and to provide evidence in the case of investigations or court proceedings Books should be maintained on a current basis, transactions should be recorded chronologically and supported by original documents fully cross-referenced Care should be taken to establish a comprehensive filing system and the audit trail of each transaction from origin to completion must be guaranteed viii) Sanctions for breaches of policy The company should provide and communicate clearly to employees, appropriate sanctions that would be applied in the event of violation of its policy These sanctions must be seen to be applied openly in appropriate cases It is common for companies in dealing with a violation of its policy to select a route of asking the employee to resign rather than apply a sanction of dismissal Companies should resist using the option of resignation as this sends out a weak signal to employees that the enterprise is not stringent in applying sanctions Sanctions should be applied consistently and there should be an established process for review and opportunity for appeal of any decision Page 14