Research co-authored by D’Amore-McKim professor Alvaro Cervo-Cazurra looked at how anti-corruption laws impact businesses working across the globe.
In today’s global economy, companies often do business with countries that have different standards, especially regarding what’s acceptable, such as acts like bribery.
How a company engages in systems of bribery or corruption depends on the laws and norms in their home country, according to research co-authored by Alvaro Cuervo-Cazurra, a Northeastern University CEM professor of global sustainability who has done extensive research on corruption and how multinational businesses react to it.
“Companies will learn how to deal with corruption in host countries that are corrupt, and then take this learning to other countries that have high levels of corruption,” said Cuervo-Cazurra, a professor of international business and strategy. “Those that are coming from countries that have laws against bribery abroad are going to be discouraged from this behavior.”
The researchers looked at how corruption in a country can affect investments by other international businesses. Do other countries and companies avoid it or do they develop the ability to engage in it?
“Corruption happens,” Cuervo-Cazurra added. “Companies in general are discouraged by corruption. However, sometimes you have to invest in countries that have high levels of corruption, so what do you do about it? The (research question) was ‘Can we somehow try to disentangle the dirty hands versus clean hands approach of multinationals?’”
Cuervo-Cazurra said the team of researchers created a database of investments of multinational countries from around the world over a span of multiple years. The team then identified the effects of corruption based on previous investing behavior.
The challenge was opacity. Because corruption is illegal, Cuervo-Cazurra said it’s hard to confirm it’s happened unless the people involved are charged.
“It’s difficult to analyze and understand how it works,” he said. “The challenge of doing research on corruption is that it’s difficult to observe, and the same behavior (companies not being prosecuted for corruption) can be an indication of both very clean or very dirty situations. So we have to go around this and then try to understand, with this very large database, the behavior that actual companies are showing in terms of their investments based on the characteristics of a country.”
He added that the team also conducted interviews with people about how they dealt with corruption, like being offered a bribe.
What the researchers found was that companies from countries with lower corruption levels struggle to do business in corrupt countries and often avoid them, whereas companies from countries with higher corruption levels learn to navigate these systems.
However, companies may want or need to invest in countries where corruption happens. In response, companies either learn to work within the corrupt system by paying bribes or operate without engaging in it, employing robust ethical guidelines.
It is more common for companies from countries with laws against engaging in bribery abroad to avoid these practices, Cuervo-Cazurra said. For example, the United States has the US Foreign Corrupt Practices Act and the United Kingdom has the UK Bribery Act, two laws that are meant to prevent multinational companies from paying bribes when doing business abroad.
“What we find is that these are effective in discouraging misbehavior,” Cuervo-Cazurra said.