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The Shadow Cost of Corruption

18/02/2014


It has been said that fortune favours the bold. Many businesses understand there is money to be made by boldly going where others fear to tread; seeking the larger rewards that are associated with higher risk.Perhaps they are doing so with eyes tightly closed, hoping that everything will work out.

It has also been said that it’s better to be prepared than lucky. This is where a clear understanding of risk allows leading businesses to make informed and strategic decisions, capitalizing on opportunities that others miss. Preparation – including a solid understanding of the costs associated with managing risk – allows companies to develop better financial models with which to assess opportunities, ultimately leading to better use of capital and enhanced stakeholder value.

A New Way to Assess ROI
Analysis of returns on investment needs to expand beyond traditional metrics. In the energy industry and elsewhere, we are starting to see consideration paid to the shadow costs of carbon – the costs associated with environmental compliance and remediation, and ‘royalties’ paid for the social licence to operate – which are factored into the economic analysis of new projects. As this example demonstrates, an evolving awareness of the true impact of business activities allows for better decision making.

Likewise, companies with international operations are grappling with anti-corruption compliance issues. Awareness is growing that doing business in certain countries comes with significant risks. How much risk is acceptable for your organization? At what point does an opportunity under consideration become unfeasible due to associated risks? How can you succeed where others hesitate? A robust anti-corruption compliance regime can give your business a reliable measure of the shadow cost of corruption, which can elevate your decision-making process. Preparedness ultimately becomes your competitive advantage.