Name: Miftakul Janah

NIM: 5.16.06.14.0.013

Course: Business English

Corruption in Business
The Effects of Corruption on Business

Read the article below and answer the following questions (write maximum 100 words to
each question) :

The Effects of Corruption on Business

by Linda Ray
Corruption inevitably leads to a diminished business climate when the public trust is put at
risk, according to Stanford Graduate School of Business. Corruption can take many forms
that can include graft, bribery, embezzlement and extortion. Its existence reduces business
credibility and profits when professionals misuse their positions for personal gain.

Inefficiency

When resources are tampered with and used improperly, the efficiency of a business suffers.
Insufficient resources are available to effectively run the business and maintain its levels of
operations. When the news about corrupt business professionals breaks, customers lose
respect and trust, requiring company officials to spend valuable time and resources to monitor
the fallout and reassure clients the company is still viable. Legal fees, penalties and public
relations efforts reroute important resources form the core business and lead to an inefficient
use of company funds and personnel.

Lost resources

In addition to the inefficient use of resources, corruption can have a number of other
economic impacts on business. Employee ranks often are inflated to cover up the corrupt
professional’s activities. The cost of increasing employee ranks in addition to any
embezzlement that is going on is passed on to consumers in the form of higher prices. Prices
also can be inflated when corruption takes place outside a company in the form of corrupt
government officials who take bribes. Consumers pay the costs of vendor corruption when
purchasing agents require payoffs, or when vendors skim profits and raise prices to cover
their illegal activities.

Weakened development

Investors are skeptical of doing business with companies and municipalities that are known
for corruption. Whether you are seeking investment to grow your firm or you sell investments
for a living, you will have a much harder time finding willing investors when bribes or in-
kind favors are required, or your business has a history of corruption within its ranks.
Competition is unfairly affected when investors’ risk is multiplied by changing business
climates that follow corrupt business practices. Due diligence is defeated when the facts
change according to the current levels of corruption. Practical investors steer clear of
businesses with a corrupt history.

Increases crime

The results of corruption in business add to the burgeoning roles of crime-fighting

government agencies, police departments and internal investigators. The trickledown effect of
corruption usually ends up feeding black market interests, and may even support the efforts
of organized crime as the activities infiltrate various business levels. Corruption begets
continued criminal activity when it goes undetected. The effects of corruption in emerging
third world countries is evident and widespread, but even in America, where competition and
greed can outweigh the good of society, corruption fuels the growth of criminal enterprises
and eventually affects the society in which the business operates.
Why does corruption affects losses of the company?

Because corruption is one of the worst enemies of business which it will can result in far-
reaching consequences, including total closure of the company .When corruption is rife in a
business, the general business climate is affected, because the public trust has been
jeopardized. Corruption may wear many faces, from extortion to embezzlement to bribery.
The existence of this robs many businesses of not only their profits but also of their
credibility in the eyes of their customers. There are numerous adverse effects of corruption
can affect company losses: 1). Inefficiency. When resources are tampered with and used
improperly, the efficiency of a business suffers. 2). Lost resources. When the resources
within a business are tampered with, then the efficiency with which the business turns those
resources into profit is reduced. 3). Weakened development. Investors are skeptical of doing
business with companies that known for corruption. 4). Increases crime. When businesses
engage in corruption, there is something of a trickle-down effect that increases the crime in
that area. Based on the explanation above, it can be concluded that corruption can affect
company losses.

How can corruption be avoided in enterprises?

Corruption can be avoided in companies with developing a mindset of anti-corruption.

Therefore, we need to create a culture of openness and integrity within our company and the
leaders need to be committed to that culture for the long term. It is the leaders that are
ultimately responsible for setting the standards of behavior in the workplace. When they set
the right standards, the employees will inevitably follow. Once the leaders adopt an approach
to doing business that is ethical, the rest of the company will adopt that approach and
corruption will be less likely to occur.
The first thing the company can do is to set the right procedures in place. A hotline also may
help. The company's internal auditing controls should also be strong, with receipts being
demanded everywhere and no cash payments being accepted. Staff, contractors, and agents
should also be trained as to the right action to take to prevent corruption and bribery.
The point is to remain as clear and effective - and also as practical as possible - with the
procedures that the business adopts. Meanwhile, top-level management should always remain
committed to the plan and should set an example that lower level employees can easily
follow.
The company should also be able to assess the risks associated with bribery. Certain
employees might be at greater risk of giving or receiving a bribe, or of committing other
forms of corruption than might other employees. These employees should be trained and
equipped with the procedures specific to making difficult decisions, when they arise.