Corruption Still A Fact Of Business Life by Zsolt Balla

Exact figures may be difficult to determine, cases are hard to unveil and trends are difficult to forecast, but Hungary will continue to face huge challenges due to widespread corruption, experts at Ernst & Young state in the Hungarian chapter of the company’s annual global survey on corruption.

The analysis, prepared for the 10th time this year, surveyed senior managers of major companies (financial, risk management, legal and internal audit executives in Hungary’s case) on their views and notions about corruption in the business environment they operate in. 

The questions were focused on the practice of corruption and the role of the state in tackling the issue.

“Based both on the findings of the survey and our everyday expertise, we can assess that Hungary is a medium-corrupt country, slowly losing its position during the last five years compared to CEE countries,” Ernst & Young Fraud Investigation and Dispute Services manager Márton Pados told The Budapest Sun.

Although the current survey didn’t look at global or local trends, the most important change in recent years, according to Pados, was the increase of reviews and investigation on corruption business practices.

Although Hungarian growth falls behind global figures, 40% of Hungarian respondents think that the the number of reviews against corruption and bribery has increased in frequency in the previous years (global figures show an 55% increase, while the regional average for CEE is 44%).

Pados notes that, while most people imagine corruption as a financial transaction between two or more parties, recent years saw the emergence of a more sophisticated model, involving the use of a chain of subcontractors to disguise payments, or incentive trips and other allowances.

Concerning the market environment as a whole, Hungarian respondents proved more optimistic than their international peers. 

“Only” some 38% of surveyed executives thought corruption was widespread in Hungary, while every sixth respondent thought that he or she had already lost business opportunities due to the corruption of his or her rivals.
Ernst & Young’s study, however, concludes that underestimation of the phenomenon is more likely to be the reason for these relatively low figures than the environment itself.

When asked about their own companies, slightly more than half of the surveyed Hungarian companies (56%) said they complied with all statutory requirements concerning corruption. 

The gap between the Hungarian and the global average (78%) seems substantial, but it is also worth noting that Hungary is above the regional average of 51% in this field. 

An even bigger advantage is seen in connection with the efficiency of authorities, at least, as seen by the experts of major companies. 

While only 36% of Central and Eastern European companies think that the authorities do well in enforcing the regulations, Hungarian companies appeared more optimistic at 54%. The country, of course, still has a steep road ahead before meeting the global average of 69%. In connection with the above figure, Pados points out that, while corruption cases continue to pop up from time to time in the local media, only a very few of them are covered in the court phase. 

This, of course, strengthens the notion that no matter how efficient authorities are in denouncing corruption cases, the consequences are usually not serious enough to be deterrent.

Whenever needed

“Although this wasn’t the focus of the current survey, our day-to-day experience shows that corruption happens in Hungary whenever business requires it to happen,” says Pados. 

According to the expert, although 86% of companies have some kind of internal regulation of ethics, or a code of conduct (the global figure is 90%), only those companies who already have bad experiences, or those whose company culture is strictly devoted to fair business, refuse to grease palms.

In this area, Ernst & Young highlights the role of the senior management and board members as role models. 

Pados goes as far as estimating the impact of the behavior and the moral of these executive businessmen equal to those of the legal regulations. 

“Political will, of course is an important factor, but to abandon a bad structure, that was based on corruption, companies will have to be determined too,” Pados emphasizes.

A way to leap this hurdle, of course, would be self-regulation. While in Anglo-Saxon markets it is an emerging practice to approve “integrity pacts” before public procurement tenders, and authorize an independent body to control and supervise the procedure, Hungary hasn’t seen such examples yet.

According to Pados, there exists a certain need among Hungarian companies to introduce this practice.

The global survey of Ernst & Young included 1,186 companies from 34 countries. In the CEE region, some 250 companies took part in the survey (compared to 429 West European companies), and the executives of 50 Hungarian companies were surveyed. All respondents work for companies with more than $1bn annual revenue."

Source: Budapest Sun