By Matthew Jenkins and Yusuke Ishikawa, in collaboration with Transparency International
First published on U4 Anti-Corruption Resource Centre
Today’s business environment is a lot tougher than it was 50 years ago. Competition for an ever-dwindling number of customers who can afford certain goods and services is fierce. Regulatory and compliance requirements can be onerous, while just breaking into the market can be a lengthy process. Shareholders are demanding and clients expect the best from both goods and staff.
So then why do companies of all sizes make it harder for themselves by engaging in corruption?
It might seem counter-intuitive to think that corruption could create stumbling blocks – the assumption would be that it gives some companies an advantage over their competitors – but a new study from the U4 Anti-Corruption Resource Centre, which reviews and presents evidence and findings from 1995 to 2025, says otherwise. The report delves into the relationship between business integrity and commercial success, and the conclusion is clear – corruption is bad for business.
The report states: “Although some firms may gain short-term advantages from bribery (particularly in captured economies characterised by crony capitalism), evidence shows that corruption leads to higher costs, reduced productivity, and slower growth over time.”
This makes making business integrity “not just an ethical imperative but a sound economic strategy”.
Let’s be frank – some firms do get away with corruption year after year, though there is no guarantee of that. The likes of Steinhoff, Bosasa, Bell Pottinger, VBS, and more, were ultimately brought down by their corrupt dealings. Others, like EOH or KPMG, were called out for corruption and managed to bounce back. These are high-profile examples – but small and medium enterprises (SMEs) are equally at risk.
For instance, a report released in October 2023 by the South African Anti-Money Laundering Integrated Task Force provides a case study of a small company which was registered with the Companies and Intellectual Property Commission in February 2020 and a mere 66 days later secured a R5.7-million tender to supply surgical masks during the Covid-19 pandemic. The company was not registered with the South African Health Products Regulatory Authority for the supply of medical supplies or equipment, nor did it have any history in the supply of such. Furthermore, it was not registered for VAT with the South African Revenue Service, despite charging VAT for the medical supplies.
For its sins, this company became the target of a law enforcement investigation – one of many which tried to cash in on the Covid response. It seems strange that a company with such glaring flaws could expect to get away with them – but this is just what has been happening for years and years, with the complicity of public sector collaborators who close their eyes to irregularities.
“While resource constraints can make anti-corruption business integrity or compliance more burdensome for SMEs than larger firms, evidence suggests that anti-corruption practices can strengthen SMEs’ contract opportunities, profitability, and sustainable growth.”
Corruption is anything but an advantage
The U4 report debunks the common perception that bribery and corruption provide competitive advantages, saying rather that it is fundamentally detrimental to business success.
Once detected, says the report, corruption can lead to legal sanctions, loss of shareholder and investor confidence, reduced access to capital, reputational damage and diminished staff morale.
The financial impact is significant – in Europe and Central Asia firms spent, on average, 1.1% of their revenues on bribes, which equates to 8% of their profits. The OECD’s Foreign Bribery Report of 2014 painted an even bleaker picture, stating that at that time bribes averaged 11% of the value of a given transaction and a staggering 35% of profits.
In today’s cut-throat business world, companies can ill afford to essentially throw away money and resources. A mere 1% increase in the bribery rate is associated with a reduction of more than 3% in company growth, says the report, while evidence also suggests that paying bribes is three times as harmful to growth than paying the equivalent amount in taxation.
Globally, almost half (45%) of enterprises reported that paying just one bribe for an illicit service led to demands for the same service from other officials, creating a vicious corruption cycle. This applied to small, medium, and large firms, taking big chunks out of the bottom line.
“While some of the more indirect costs may not be captured on a company’s account books, they can have severe implications on the firm’s performance,” says the report. “For example, even acts of corporate corruption undetected by regulators can have a deleterious effect on staff morale, which in turn often leads to marked slumps in productivity.”
In sub-Saharan Africa, for instance, this is certainly the case. Firms in this region which pay bribes have 20% lower output per worker, and for both SMEs and big companies operating in sub-Saharan Africa, the inclination to bribe has “little discernible impact on growth” – on the contrary, it has a negative effect on sales growth.
More evidence of the harmful effects of corruption is seen in the evidence that on average, stock prices of firms prosecuted for foreign bribery fell by 3% on the first day and fell 9% during corruption enforcement actions.
In addition, reputational damage would cause 91% of consumers to switch providers after ethical violations became known. A further 85% would “condemn the company’s actions to friends and family, 83% would refuse to invest in a company’s stock, 80% would refuse to work at the company, and 76% would boycott the firm’s products or services”.
Finally, other companies may hesitate to enter into or maintain business arrangements with a company tainted by corruption.
The business case for integrity
The contrast with companies boasting strong track records of ethical business practices and anti-corruption views is stark.
“An increasing body of literature finds that business integrity is positively associated with firms’ profitability, customer reputation, and corporate environmental performance. Studies also indicate that companies operating with integrity are more likely to attract business and retain a motivated workforce.”
The report finds evidence that companies that visibly operate on an ethical basis have 10-year shareholder returns which are 7% higher than companies with the opposite ethos. It also finds that improvements in corporate governance are associated with a 20% higher return on equity.
Evidence also shows that “employees of firms with a strong culture of integrity are 90% less likely to observe misconduct in the workplace and are more likely to report misconduct they do see”.
This is vital for anti-corruption, as whistle-blowers in the workplace are an important early warning system for misconduct, fraud, and unethical practices. The UN Office on Drugs and Crime, in a study conducted in 2015, stated that employee whistle-blowing was “the single most important way in which wrongdoing was brought to light in public sector organisations”. The same applies to the private sector.
Furthermore, adds the report, companies that can demonstrate a sincere commitment to acting with integrity are likely to suffer less severe consequences if corruption does occur – this does depend on factors like company size and reputation. “An increasing number of countries, including Brazil, the UK, and the US, have passed legislation allowing for significant reductions or even suspensions of penalties imposed on firms for corporate malpractice where these companies are found to have robust internal control systems in place.”
In South Africa, the recently amended section 34 of the Prevention and Combating of Corrupt Activities Act states that a private or state-owned company can be found guilty of corruption if it is associated with someone offering a bribe for the purpose of gaining a personal or business advantage, and cannot demonstrate that it took reasonable internal precautions to prevent the corrupt act. The act defines an associated person as someone who “performs services for or on behalf of that member of the private sector or that incorporated state-owned entity, irrespective of the capacity in which such person performs services for or on behalf of that member of the private sector or that incorporated state-owned entity.’’
However, there is more to business integrity than compliance and the concern with minimising potential legal penalties for integrity violations, says the report. “There is some evidence that firms that act with integrity are able to save money in other ways, ranging from more favourable access to capital to reduced operational costs.”
This means that ethical, transparent businesses may get cheaper access to capital because their risk profile is lower. And well-functioning internal integrity mechanisms may, among other benefits, reduce the impact of employee fraud or theft, which is likely to be higher in a company that is seen to tolerate bribery and other forms of corruption.
“Where staff look for kickbacks, firms may lose their competitive edge or be left with substandard goods and services, while employee theft or fraud can be even more damaging; on average US firms are estimated to lose 5% of their annual revenues to such practices.”
In conclusion
The evidence strongly supports the creation of a ‘virtuous cycle’ as a result of business integrity – companies that invest in ethical practices not only avoid the substantial costs of corruption but also generate competitive advantages that enhance both financial performance and operational excellence over the long term.
Business integrity offers substantial benefits across multiple dimensions. These include cost saving benefits such as risk reduction and reduced penalties when violations do occur, more favourable access to capital, and improved investor perception.
Ethical companies forge themselves a competitive edge over their rivals, in the form of stronger stock market performance, better shareholder returns, and an enhanced reputation.
On the non-financial side, companies with strong integrity cultures are better able to attract, motivate, and retain talented employees. Staff satisfaction directly correlates with higher productivity, firm performance, and better stock returns.
Robust internal whistle-blowing channels and integrity mechanisms free up resources for research and development rather than corrupt payments, and help ensure merit-based hiring and contracting rather than favouritism or nepotism, which in turn leads to better performance.
Customer trust and loyalty is boosted, while a better corporate reputation leads to better brand value and stronger business partnerships.
The report notes that while SMEs face disproportionate compliance burdens, they still benefit significantly from integrity measures. In fact, a 2024 survey of the Association of Chartered Certified Accountants – the global body for chartered accountants – revealed that 68% of SME respondents reported that anti-bribery policies increased their chances of securing major contracts. Other studies show positive associations between business ethics, including senior official commitment, and SME sales growth and profitability.
