29. August 2016

Are Collective Action enforcement mechanisms a burden for companies?

As the Basel Institute on Governance's second anti-corruption Collective Action conference draws near, let's take a moment to look back at one of the key messages that emerged from the 2014 edition, on the question of enforcement mechanisms and business participation Collective Action. 

Defining what constitutes an ‘enforcement mechanism’ depends to a certain extent on the Collective Action itself; there is no single method to keep all stakeholders bound to their commitments. To date, such mechanisms have ranged from self-monitoring and peer pressure, to using external monitors, legal sanctions, fines, disbarment from tendering, or other coercive means to make sure a Collective Action agreement has bite.

The question whether enforcement mechanisms in anti-corruption Collective Action initiatives are a burden on companies was raised at the conference, and without giving a definitive answer on this wide ranging question, various aspects are summarised here.

Asking if companies, as opposed to any other stakeholders, find these mechanisms burdensome is to approach the question with a narrow perspective. If a Collective Action is to live up to its name, then all the participants should feel obligated to make it work, and sometimes this may be more onerous on one or other of the parties. Research on the effectiveness of Integrity Pacts developed by Transparency International has examined the matter from the perspective of other parties involved in making an Integrity Pact work, including external monitors and the public sector. What emerges from this research is a more differentiated picture of what is burdensome: failure by an errant stakeholder to follow the commitment is probably the hardest burden for all the other stakeholders to bear when contemplating the consequences of the breach.

Where an enforcement mechanism requires corporate competitors to raise concerns about each other to a third party monitor or government agency, there is a risk that none will take such action for fear of upsetting the market in which they all operate. In such cases the mechanism may fail and as a result the Collective Action initiative may also not succeed. The best way to address such a scenario is to have a strong basis of trust between the stakeholders, and a good rapport with the external facilitator who may or may not be the monitor. The mechanism will work if there is a forum for dialogue and even confrontation to address possible breaches of an initiative, moderated by a trusted facilitator. This is why some of the more successful Collective Action initiatives are a sustained commitment that are developed over time and which also allot time for regular meetings in person.

Enforcement through High Level Reporting Mechanisms

The High Level Reporting Mechanism (HLRM) in Colombia presents another form of ‘enforcement mechanism’ in Collective Action, requiring pre-selected bidders for certain designated infrastructure projects to sign up to an integrity pact type commitment. The HLRM is however, more than an integrity pact arrangement and presents an interesting study of an enforcement mechanism as a tool rather than a legal remedy, to ensure the procurement process continues even in the event of allegations of breaches of the pact. The enforcement element is thus more of an enabling mechanism, offering a win-win for all involved.

The Colombian HLRM example represents a shift away from solely punitive approaches that can end up stymying the procurement procedure and involving the parties in protracted legal proceedings. Instead, the novelty of the HLRM process lies in the ad-hoc committee that has been established to receive complaints that bidders (or potentially others) in the procurement process can raise.

The committee in the Colombian example consists of just four experts: in criminal law, civil engineering, business structures, and public procurement. The bidders can raise technical issues, problems of extortion and of course allegations of bribery by their competitors in the tender process, with the committee’s recommendations transmitted back to the Secretary of Transparency, thereby offering a quick and solution oriented process. If the prosecution authorities do need to be involved, then appropriate referrals will be carried out.

The HLRM reporting procedure is in itself part of the remedy in that it starts a process that aims to keep the procurement procedures running, instead of bringing them to a halt. As such, this feature may help to incentivise companies to participate actively, rather than just depositing a complaint, then waiting for the outcome in enforcement terms and possibly delaying or stopping the tender process altogether.

Positive reinforcement

More generally, the participatory and voluntary characteristics of Collective Action are not only its distinctive features but also its strengths; otherwise signing up to a no-bribes pledge or a similar type of agreement in the context of a government procurement process would be nothing more than just another formal requirement that has to be acknowledged. Given these two basic characteristics, the notion that companies find enforcement mechanisms burdensome becomes less credible; companies enter such arrangements with their eyes open, and knowing that they can influence the process through their participation.

In future, it is likely that the number of Collective Action initiatives that are based on positive incentives, such as white listing or preferential treatment for companies participating in these types of commitments, should increase. There are many examples where enforcement is based on incentives, and hopefully these will continue to grow in number.

The question as to how burdensome enforcement mechanisms really are to all stakeholders would be a worthy area of more research. This would help to establish the business case for companies considering whether to join a Collective Action initiative and also to bolster wider support for such approaches.

International Centre for Collective Action