Transparency and Accountability - the need for transparency in

							           United Nations
   Global Compact Learning Forum
        Business Case Study
               December 9-11, 2003
               Belo Horizonte, Brazil


Promoting Business Integrity in Nigeria:
           The Case of the
   Convention on Business Integrity

                 Darren Kew, Ph.D.
                 Assistant Professor
         University of Massachusetts, Boston
Case Abstract:

This case will examine the impacts of the Convention on Business Integrity (CBI) in Nigeria on
the businesses that signed the Convention. In many ways the CBI is still in its infancy, but some
companies affiliated with it have made important progress that demonstrates CBI’s impressive
potential. Critical to its success will be the willingness of member businesses to drive the process
themselves, and the strength of the auditing oversight required by the CBI. In addition to
examining the CBI’s approach to promoting business integrity in Nigeria, this study will also
explore possible roles for cooperation with governmental and nongovernmental actors.

The relevant UN Global Compact principle is Principle 2, particularly in terms of its concern with
Transparency and Accountability.

              Principle 2: Transparency and Accountability - the need for transparency in
              business practice has been highlighted both by globalisation, the growth of civil
              society interests and some recent problems in the corporate sector. Advances in
              information technologies and global communications mean that companies can ill
              afford to conceal poor or questionable practices.


This case is based on research materials provided by the CBI and on interviews conducted in
November 2003 with CBI member businesses and organizations, potential members, and other
potential stakeholders in the work of the organization, such as anti-corruption NGOs, government
agencies, and other business associations.


Subject Profile: The Convention on Business Integrity

The Convention on Business Integrity (CBI) is a nongovernmental organization (NGO) created
by a number of concerned business leaders in Nigeria to combat corruption in the private and
public sectors. Its signatories include large corporations like Cadbury and Dunlop, multinationals
like Pfizer and SAP, and small local firms. The CBI invites businesses to reach for a higher
internal standard of operation and to open themselves to an external auditing process that the CBI
oversees. If companies maintain that standard, they receive a high integrity rating from CBI,
which they can then use to demonstrate their trustworthiness to investors and business partners.

CBI breaks down this integrity rating into a five-star graduated system, although this will only be
used internally by CBI for monitoring members, and not published:1

      1.       One Star—Compliance: CBI checks an organization’s “fitness for purpose,” making
               sure that it cannot act outside its area of competence, and that it has adequate
               professional competence and skills.


1
    From “The Convention on Business Integrity,” a CBI pamphlet.


           The Case of the Convention on Business Integrity, Nigeria                               2
    2.      Two Stars—Ethics and Morals: CBI checks the value system of an organization to
            ensure that it has articulated acceptable ethical and moral standards for itself by way
            of credos, codes, or policy statements, and whether processes that require such values
            are known and imbibed throughout the organization.
    3.      Three Stars—Transparency and Accountability: CBI checks that processes are put
            into place to 1) ensure timely and accurate disclosure of information to stakeholders
            (as much as a particular stakeholder has a right to) both at pre-agreed intervals and at
            unscheduled times; 2) ensure independent verification of such information, as may be
            required by stakeholders, is possible and welcome; and 3) ensure that the board and
            management cannot act ultra-wires.
    4.      Four Stars—Will and Power to Do the Right Thing: CBI checks for processes in
            place to ensure auditing of an organization’s compliance with stated business
            processes as well as continuous enhancement of such processes. Such processes must
            include self-audits of compliance with the values of the CBI code by a board level
            member of the organization with sufficient powers to define and execute any remedial
            action as necessary.
    5.      Five Stars—Commitment: CBI looks for anecdotal evidence of a track record of
            sanctioning deviant behavior and a history of rewarding acceptable behavior within
            the organization. CBI looks for a commitment to entrenching the stated values into
            the culture of the organization. A demonstrated will and power over time to review
            and enhance integrity continuously will be seen as a sign of full implementation of the
            CBI code.

                         Signatories to the Convention on Business Integrity:

            Accenture
            Augusto & Co.
            Cadbury Nigeria, Plc.
            Denham Management Ltd.
            Diamond Bank
            Dunlop Nigeria, Plc.
            Lagos Business School
            Omolayode & Co.
            Pfizer
            Prominent Securities
            Risk Watch
            SAP, AG



Problem Statement: Corruption in Nigeria

Ranked consistently by Transparency International as one of the most corrupt countries in the
world,2 Nigeria has sadly become synonymous with corruption. Military regimes in the 1990s
looted billions of US dollars-worth of public funds, fostering institutional cultures within the state

2
 Transparency International, Annual Corruption Perceptions Index 2003. See:
http://www.transparency.org/pressreleases_archive/2003/2003.10.07.cpi.en.html.


         The Case of the Convention on Business Integrity, Nigeria                                  3
and the private sector that accepted bribery, stealing, and influence peddling as standard elements
of how government or corporations did business. Economic centralization of critical industries
into government hands since the 1970s facilitated this development of cultures of corruption, as
the government’s contribution to GDP grew to nearly half (it is currently around 40%). Winning
government contracts thus became the primary method of wealth accumulation in Nigeria,
placing tremendous power in the hands of the public servants who controlled those contracts,
which many used to their own financial advantage.

The challenge facing an organization like CBI in fighting corruption in Nigeria is: given the
difficulties of doing honest business in an economy dominated by government contract-seeking
and public corruption, how can CBI make business integrity desirable and profitable to
businesses? How can businesses be inspired to police themselves, and eventually to push for
probity in government and society, amidst widespread poverty and public corruption?


“Drivers:” Motivations for Fighting Corruption

The Convention on Business Integrity was the idea of several business leaders who by the mid-
1990s were disgusted with the widespread corruption fostered by poor governance in Nigeria at
that time. They were appalled at the growing dysfunction in the Nigerian state overall, and at
Nigeria’s pariah status in the international community. At the same time, as business leaders they
were painfully aware of the drag that corruption had on their attempts to do honest business and
to attract international investment.

In addition to these motivations, the proponents of CBI sought to create an alternative for those
people doing business who would prefer not to engage in corrupt practices, but feel that they have
no other choice. CBI seeks to create such an alternative not only by organizing a circle of highly
credible Nigerian businesses to work with one another, but to open international avenues for CBI
members, such as through international chambers of commerce or the Commonwealth Business
Council.

In order to enter this community of high-integrity businesses, companies must undergo a series of
stages during which their past integrity is examined their internal integrity controls are improved.
Once these are complete, an external audit reviews what has been done, and if companies have
made sufficient progress, they receive full membership and the right to use the seal of the CBI on
company materials and marketing efforts.

CBI monitors the progress of companies using a five-star rating system, which will not be
published but will assist the Board internally in tracking compliance. By the time companies
have reached full membership, they will typically have reached only a three-star level. The
fourth and fifth stars are reserved for companies and organizations that show a demonstrated
commitment to integrity over time.




        The Case of the Convention on Business Integrity, Nigeria                                  4
                                 Accreditation Process for Intending CBI Signatories
                                                   Private Sector

   Stage 1

   Application: Interested companies state why their organization would like to be considered for membership and
   summarize the efforts made thus far to improve corporate governance. Included in these application materials
   would be the audited accounts and tax clearance certificates for the last five years as would normally be submitted
   to a bank when applying for financing. CBI also requests a board resolution authorizing the entity to seek
   membership of CBI.
         …………………………………………………………………………………………………
   Stage 2

   A resolution accepting the intending signatory as an associate member will be issued by the Convention on
   Business Integrity, and a media event will be organized for a public signing of the Convention and a declaration of
   commitment to the following road map.
        ………………………………………………………………………………………
   Stage 3

   CBI will assist the associate member in a review of codes, creeds, and ethos that govern the values with which the
   organization would like to be associated. Where these are not available, the exercise will be to create, disseminate
   and popularize such an instrument in consultation with CBI.
        …………………………………………………………………………………………
   Stage 4

   CBI will assist the associate member in a review and strengthening of internal audit mechanisms.
       …………………………………………………………………………………………
   Stage 5

   The associate member will undergo an external audit to:
            i. Establish the veracity of documents submitted in Stage 1
           ii. Establish the level of implementation of Stage 3
          iii. Establish the level of implementation of Stage 4

   80 % implementation (three-star level) is necessary for consideration for full membership in CBI.
       …………………………………………………………………………………………
   Stage 6

   A media event will be organized to present a certificate of full membership to the signatory. This confers the right
   to use the distinguishing mark of the Convention on Business Integrity on marketing materials, denoting full
   compliance.




Key Players and Other Stakeholders

CBI is driven by the efforts of its Board of Directors and original signatories to the Convention in
1997, in particular Soji Apampa (SAP, Africa), Christopher Kolade (formerly CEO of Cadbury
Nigeria, now Ambassador to Great Britain), who is the Chair of the Board, and Pat Utomi (Lagos
Business School). Since CBI established a secretariat in 2002, its Executive Director, Bunmi
Obagun, has also become a driving force in the organization.

SAP, for whom Soji Apampa works, gave CBI a significant grant in 2002, which enabled it to
establish a secretariat. SAP remains an important supporter of the group, and of the efforts of Mr.
Apampa in particular to develop the organization.

Many other groups are potential stakeholders in CBI once it expands. These include businesses
across many sectors, business associations, and government agencies. The Lagos Chamber of
Commerce, the national chamber of commerce (NACCIMA), the manufactures association


         The Case of the Convention on Business Integrity, Nigeria                                                        5
(MAN), and Nigeria’s leading business think-tank (the Nigerian Economic Summit Group), have
all been approached by CBI; discussions are under way regarding cooperation and possibly
having these associations join the Convention. NGOs, labor unions, and other associations also
have an avenue for affiliation to the work of CBI.


Development of the CBI

Soji Apampa, Yemi Osinbajo (currently the Attorney General of Lagos State in Nigeria), and
several other visionaries sought to reverse the collapse of the Nigerian state in the mid-1990s and
the corruption rife throughout the system. They considered working through government
channels, but the intransigence of the military government left little room for public reform, or for
public protest. Instead, they decided to bring pressure for government reform by setting an
example outside the government orbit, led by businesses themselves, whose success would accent
the government’s failure to reform.

They considered the central role of the government contract/business corruption nexus, and
looked for alternatives for the Nigerian elite and middle class to expand without resort to
government contracts. This led them to look overseas for markets abroad, and partners willing to
support efforts to promote integrity in Nigeria. If Nigerian businesses could hold themselves to
higher standards, and if an organization existed that could judge their compliance and sanction
the errant, then such an organization could help these businesses get international access to what
they want: finance, markets, and skills. If businesses of high integrity gained credibility with
international investors and foreign business partners, their successes would inspire other Nigerian
businesses, and ultimately, the Nigerian government to follow the path of reform.

With this in mind, the founding members approached a number of Nigerian businesses with
public reputations of the highest integrity, and invited their leaders to join in the development of a
convention on proper business standards and a watchdog organization to protect and promote it.
Ten businesses and several professors of the Lagos Business School signed the Convention on
Business Integrity in late 1997, and set to work developing a Code of Business Integrity for CBI
members.

The CBI code commits signatories to developing their own high standards of business practices
in addition to pledging to uphold the law, abstain from bribery, and to improve internal auditing
and ethics machinery. Every signatory is to designate an ethics officer to manage internal
complaints, and provide protections for whistleblowers. Signatories agree to CBI oversight,
including allowing complainants to bring their cases to CBI if they feel that they have not
received adequate hearing within their companies.




        The Case of the Convention on Business Integrity, Nigeria                                   6
                                        Selections from the Code of Business Integrity of CBI

         The intending Signatory shall –
              (a) Articulate and document (as creed, code or policy) the values and standards which should be identified with
                   her operations and her people; and
              (b) Ensure by way of processes within the entity that her stakeholders as appropriate are made aware of the
                   said values and standards; and
              (c) Ensure by way of processes within the entity that all those who should accept to abide by the said values
                   and standards do accept and abide by them.

         The intending Signatory shall…along with other members of the business community and representatives of
         international business institutions, form a coalition against corruption in order to empower people, systems, and
         institutions against corruption.

         The intending Signatory shall not offer or accept bribes or any other form of inducement to or from any person or
         institution, whether in the public or private sector….

         The intending Signatory shall issue a directive to all her employees, agents, and other representatives to report to the
         entity any corrupt practices taking place in the entity…. Where repeated consultations with an Ethics Counselor
         [which shall be appointed by the Signatory upon signing] fail to yield satisfactory results, the whistleblower may seek
         further counseling with the [CBI Board of Directors] which may or may not lead to the lodging of a formal complaint for
         investigation by the [CBI Board of Directors].

         The intending Signatory shall ensure by way of processes within the entity that effective checks and balances are
         built into (a) the power, authority, control and … decision making … structure of the entity; and (b) the financial and
         accounting systems of the entity; and (c) internal policies and procedures such that they enhance transparency and
         accountability.

         The intending Signatory shall ensure by way of processes within the entity that her stakeholders have timely access
         to accurate information on the entity, to which they have a right.

         The [CBI Board of Directors] shall determine the classification of sanctionable offences…. Type ‘A’ offence will result
         in the temporary de-listing of the offender from published lists of participating entities…. Type ‘B’ offence will result in
         the permanent blacklisting of the individual offender(s) and the temporary de-listing of the corporate entity from
         published lists of participating entities.




Discussion then moved to development of a watchdog organization to oversee and promote the
CBI. By 1998, however, with the death of General Abacha and the onset of civilian government,
many of CBI’s core members became busily engaged in the political transition, and several
served in the new government. At the same time, donor funds decreased as attention turned to the
new government. Together these two factors allowed the momentum for the development of CBI
to slip, until Board member Soji Apampa secured funding from SAP for setting up a CBI
secretariat in 2002. Since that time, CBI has moved quickly to reenergize its founding members
and to approach new members to join.

Another important shift in focus over the last five years was a change in conception of CBI as an
NGO-led initiative, with the center of gravity being a secretariat that led projects and
implementation, to a business-led initiative. Under the new approach, the business members and
the Board – elected from the membership – drive the work of the organization, with the
secretariat serving the decisions of an active Board and keeping momentum for the process alive.
A significant element in this shift in focus was a commitment to make CBI self-sustaining on
member dues over time, rather than seeking assistance from donor agencies as in the
organization’s early days. CBI still relies on a mix of funds from members and from foreign


        The Case of the Convention on Business Integrity, Nigeria                                                                       7
governments, particularly the United Kingdom’s Department for International Development
(DFID), but it intends to be self-reliant by 2008.

CBI’s strategy for bringing Nigerian businesses into its orbit sees the corporate sector divided
into three groups, such that CBI is focusing its energies on the first and the second, in the hope
that the third will eventually be partly inspired and partly cajoled into joining:

   1.      True Believers: These are the businesses who already practice the highest standards
           of integrity, and who are interested in taking leadership responsibilities for changing
           the way business is done in Nigeria. All of the original CBI signatories in 1997 fall
           under this category, and CBI has approached another 20 businesses of this caliber to
           join in 2004.
   2.      The Willing but Timid: Many Nigerian businesses would like to subscribe to high
           ethics in their daily activities, but they feel that they have no choice but to engage in
           occasional corrupt practices because it is the dominant business pattern. CBI is
           currently targeting these companies for involvement as soon as possible, with the
           promise of greater international access once they pass through the stages of the CBI
           process.
   3.      The Unwilling: These businesses are quite comfortable with the status quo, and
           probably see themselves as benefiting from it to some extent. If they do not engage in
           corrupt practices, they are still unwilling to subject themselves to the external audits of
           the CBI process, out of fear that such sensitive information will pass to their
           competitors.

CBI’s strategy, in short, is to form an “island of integrity” among the “True Believers,” bring as
many as possible of the “Willing but Timid” into the process over time until a critical mass of
sufficient numbers is reached, such that the “Unwilling” will have to get involved.

The founders of the CBI had a vision broader than simply attacking business corruption. They
also set up additional infrastructure for research into government reform of corrupt practices, and
the Integrity Club, a vehicle for civil society groups to receive training for combating internal
corruption and to partner with business in pushing for government reform. These additional
projects were housed in an NGO called Integrity. At this point, the leadership of the CBI and
Integrity are one in the same, but CBI members will soon elect a new Board, which will include a
representative from Integrity. This arrangement will ensure that the founding leadership retains
some input, much like a holding company, and can serve as liaisons with the other projects.

Recently, CBI earned the attention of a powerful member of the Nigerian government, the
Minister for the Federal Capital Territory (FCT), the seat of the nation’s government. The FCT
ministry is the largest federal bureaucracy and has a reputation for being one of the most corrupt.
The new FCT minister is committed to reversing this situation, and invited CBI Board member
Soji Apampa to discuss the CBI with him. The minister was so impressed that he is considering
having all businesses that receive FCT contracts become CBI members, and asked Apampa to
have CBI assist the FCT to develop its own adherence to the CBI code. If this arrangement
works well, the minister promised to recommend it to other government agencies. If he proceeds


        The Case of the Convention on Business Integrity, Nigeria                                    8
with this plan, however, CBI would face a massive influx of new members very quickly,
stretching its young organizational capacity.


Outcomes and Impacts

Even though CBI came into existence in 1997, its activities depended primarily on the spare
volunteer time of its founders until its secretariat was established until 2002. Since that time,
however its Executive Director and the Board have been moving quickly to develop CBI
oversight mechanisms, to approach potential new members, and to increase the international
visibility of CBI in order to provide members with better global access. Thus in many ways the
organization is still in its early stages, making overall analysis of its impacts tentative and
deserving of further review over the next 2 to 3 years.

Nonetheless, several corporate members of the CBI have sought to implement some of its
standards and activities since 1997, with important implications for the organization as it moves
into full operation.


Positive Impacts and High Potential:

Two CBI signatories in particular demonstrate the positive impacts that involvement in the
Convention can bring.


Pfizer Nigeria:

Pfizer Nigeria is a wholly owned subsidiary of the New York-based pharmaceutical corporation,
Pfizer. By the mid-1990s, the New York headquarters had grown concerned with the extensive
corruption across Nigeria, and was keen to find individuals of integrity to run its Nigerian
operations. Led by a new director in 1997, Lere Baale, Pfizer Nigeria restructured to develop an
open, transparent system, and in 1998 implemented a new value code, which included integrity
and ethics as primary elements. Baale welcomed the development of the CBI and had Pfizer be
one of the original signatories in 1997.


                                    Growth in Pfizer Nigeria Revenue

                            1997:     US$ 1,297,000
                            2003:     US$ 5,183,000




Prior to Baale’s arrival, government contracts had provided approximately 20% of Pfizer’s
business in Nigeria. Beginning in 1997, Baale promulgated the new ethics code, instituted
reforms similar to those required by the CBI process, dropped the Nigerian government as a


        The Case of the Convention on Business Integrity, Nigeria                                   9
customer altogether, and focused on increasing business partners within the private sector alone.
By the end of 1999, salaries at Pfizer had doubled. By 2003, Pfizer had seen a tenfold increase in
business volume without any increase in its workforce. Roughly 20% of that increase can be
attributed to new products (primarily the ever-popular Viagra), but Baale attributes the other
eightfold increase in Pfizer’s business, which translated into a roughly 300% increase in revenue
over that period, to the company’s new integrity policy.

“The change process is tough,” says Baale, “but once it begins people will see the benefits. It’s
not as tough as businesses think. Integrity enhances productivity in an organization.” Pfizer’s
reputation has also increased tremendously since it adopted its ethics code in 1998.

Baale – in a comment echoed by other CBI members – welcomes the CBI external audit process.
He sees it not only as a check on potential corruption, but as a method for healthy corporate self-
analysis and self-improvement. He feels that business people who are afraid of audits are either
lazy or do not want to face what the audit will find. Leadership, Baale concludes, must set the
standard.3


Prominent Securities:

The Nigerian Stock exchange has a reputation of insider trading and of companies taking
advantage of their clients. In particular, trading companies often report different prices to clients
than those they received on the trading floor, and keep the difference for themselves. When
Prominent Securities began trading on the Stock Exchange in 1993, therefore, its CEO Modupe
Dada thought that a comparative advantage to attract clients for the new company would be a
policy of transparency and accountability. So she set up a program that allowed clients to see that
the price on the Exchange floor was the price that they were receiving from the company.

                                       Growth in Prominent Securities Revenue

                                     1993:    500,000 Naira
                                     2002:    44,000,000 Naira



Despite Prominent Securities’ transparency policy, the poor reputation of the industry made it
difficult to convince clients that their company was different. Thus when the CBI invited
Prominent Securities to join in 1997, Dada jumped at the chance.

She laments, however, that Prominent Securities has not yet felt an impact from joining the CBI.
Her company is still virtually “going it alone,” since only one other stock company joined CBI in
1997, while most other companies do not employ fair business practices. CBI will need to get
more signatories to affect the market and for Prominent Securities to see a significant impact.


3
    Interview with Lere Baale, November 14, 2003. All Pfizer financial data courtesy of Lere Baale.


            The Case of the Convention on Business Integrity, Nigeria                                 10
Nonetheless, Prominent Securities’ transparency policy has created trust with its clients, and the
company enjoys a good reputation among investors. Revenues have risen dramatically in the last
decade, and Dada insists: “All of this is due to good reputation. That’s why I jumped at joining
CBI.”4


The Promise of Change:

The CBI process rises and falls based on two critical premises:

      1. Businesses can be inspired to reform and police themselves. No watchdog
         organization or agency, no matter how efficient, can catch all corrupt practices all the
         time, and not all positive incentives – such as improved access to international markets –
         will be sufficient to inspire all business people. The heart of the CBI ambition to reform
         Nigerian business practices depends upon the will of individual business leaders to make
         it happen.

           Yet this will for integrity is not solely a matter of personal idealism. In economic systems
           with more open flows of information, personal integrity is good business. Pfizer and
           Prominent Securities both demonstrate, however, that in a country like Nigeria plagued
           with corrupt business practices, high corporate and personal integrity can be a
           comparative advantage. Smaller companies like Prominent Securities face a more uphill
           battle than multinationals like Pfizer, but tenacious leadership in building integrity can
           return powerful results, as both companies’ dramatic rise in profits demonstrates.

           One CBI Board member noted that rotating credit networks in Nigeria have the lowest
           rates of loan default in the country, because everyone knows each other and lives nearby,
           and defaulters face social ostracism. Another interviewee who had headed a code of
           conduct committee for a business association recalled that he would circulate news that a
           member had defaulted on a loan to the entire membership. The bad reputation that such
           defaulters earned was the greatest sanction that kept the members of this association from
           defaulting.

           In order for this self-regulation – and possible ostracism of the errant – to be effective,
           however, businesses must perceive themselves as part of a community whose members’
           opinions it values. Further, if CBI is to be the vehicle whereby violators are to be
           identified and isolated, then CBI’s judgment will have to be seen by the community as
           credible. Indeed, the solid reputations of some of CBI’s original founders, such as
           Ambassador Kolade, attracted the other original members to join and were often the first
           elements of what potential signatories said was convincing them to join as well.

           A number of respondents pointed to the importance of the demonstration effect in regard
           to the effectiveness of the CBI. With so many Nigerians feeling that they would stand

4
    Interview with Modupe Dada, November 14, 2003. All financial data courtesy of Modupe Dada.


           The Case of the Convention on Business Integrity, Nigeria                                 11
   alone if they worked ethically, seeing that prominent business leaders refuse to bribe
   anyone is a powerful incentive to join in efforts to promote integrity.

   The CBI process also includes whistleblowers’ protections that allow stakeholders to
   forward information on improper conduct directly to the CBI Board. This arrangement
   provides some additional assurance that if executives are not fully compliant with the
   principles enshrined in the CBI code, lower echelons or other stakeholders within the
   company can still take the initiative to promote integrity. Thus every stakeholder in the
   company is empowered and engaged in the effort to eliminate business corruption.


2. Internal and external auditing processes required by CBI will catch serious lapses in
   compliance, and that incorruptible auditors can be employed. In addition to the
   whistleblower process, the other critical policing activity that CBI provides is assistance
   for companies to develop their internal auditing machinery. This is followed later by an
   external audit, which seeks to confirm that integrity procedures are in place, and is done
   as an associate member enters the last critical stage before receiving full membership.

   The first check seeks to ensure that the stakeholders of a signatory company have access
   to the information to which they are entitled. Signatories will be required to submit their
   financial statements to CBI, which companies produce from their own audits and are
   normally public property, but CBI itself will not conduct financial audits. Rather, CBI
   will require an additional procedural audit that checks what processes the company set in
   place to ensure integrity, and queries key stakeholders of that company to see how well
   these processes have been implemented. CBI will base its judgment on the company’s
   level of compliance with the convention on the extent to which these processes have been
   set in place and how well the stakeholders confirm that the company is acting with the
   integrity it claims.

   Naturally, this approach relies strongly on the perspectives of the stakeholders regarding
   how well a company is implementing the appropriate integrity procedures. The
   presumption that stakeholders have a financial interest in good corporate governance, and
   hence will give the CBI frank assessments of the implementation of integrity procedures
   within the company, should indeed prove correct overall, depending on whom the CBI
   asks. CBI will have to ensure that a representative sampling of stakeholders are
   approached, especially those who are least likely to benefit from corrupt practices within
   the company, such as mid-level employees, secondary clients, or shareholders without
   personal relationships to company executives.

   In addition, several prospective signatories indicated that they had deep concerns that
   sensitive information from the external audit presented to the CBI Board could find its
   way into the hands of competing businesses. This openness to the CBI Board poses some
   risk and requires signatories to have faith in the integrity of the Board. Because the CBI
   itself is not conducting financial audits, however, and is only looking for evidence of the
   implementation of proper procedures that ensure that companies undertake standard due


    The Case of the Convention on Business Integrity, Nigeria                                  12
       diligence (such as providing its own constituents with proper financial statements), the
       Board will not have access to sensitive financial data or business intelligence.
       Nonetheless, suspicions among many business executives run deep, and may pose
       significant barriers for involving companies that perceive that competitiveness may be
       affected by any measure of outside scrutiny.

       The CBI process also brings tremendous pressure upon the internal and external auditors
       themselves. If they do not subscribe to the highest principles of integrity, they are liable
       to be compromised. As one business consultant commented, “you can buy an audit in
       Nigeria.” Moreover, even though contracts are often inflated 30% to the benefit of the
       individuals arranging it, the books will look good to many auditors, as the bribe will be
       hidden in the security budget, community development, and so on.

       In addition, one businessman noted that the typical Nigerian company immersed in the
       corruption culture has three sets of books. Different banks are told different numbers
       when applying for financing, so that competitors will not know the company’s real
       business volumes.

       CBI leaders are well aware of these corrupt practices, and of the vulnerability of the
       auditors. CBI’s strategy of focusing first on the “true believers” among the business
       community is also seeking to bring the auditing firms with reputations of highest integrity
       to sign the Convention. These and the “willing but timid” firms will undergo the same
       CBI process as other signatories, in the hope of developing an ever-expanding pool of
       credible auditors. One CBI member noted that reputation is very important in the auditing
       industry, and that once several auditors are convinced to sign, the others are likely to
       follow quickly. Nonetheless, a number of business leaders noted that the pool of credible
       auditors at present is very shallow, and this will pose a continuing challenge for CBI.


The Global Compact Performance Model

In terms of internalizing and employing the principles of the UN Global Compact, CBI stands as
a model global citizen.

      Vision: CBI’s vision of a Nigerian business alternative based on integrity, transparency,
       and accountability fits well with the core principles of the Global Compact. Its goals are
       generally well focused, yet the organization is also developing vehicles for engaging civil
       society and government in the fight against corruption and poor governance. CBI’s
       vision, however, is very ambitious, and pits the organization against a central element of
       the power structures in Nigeria. As Lere Baale noted above, CBI will have to be
       “stubborn” in its determination, but real progress can be made.
      Leadership: CBI was kept alive through difficult times through the dedication of its
       founders, and since becoming more institutionally established in 2002, its new leaders
       show a similar dedication. Since CBI invited the “true believers” to join first, the



       The Case of the Convention on Business Integrity, Nigeria                                  13
    incorporation of CBI (and thus Global Compact) principles into the member businesses
    was fairly complete. New members of CBI will naturally take more time, but the process
    for implementation will assist in this development.
   Empowerment: Central to the CBI process is developing avenues for all stakeholders in
    a company to participate in its oversight and governance. In addition to strengthening
    internal auditing facilities, CBI assists members in creating an environment within the
    company that assures stakeholders adequate access to important information and that
    gives them a voice in critical corporate decisions.
   Policies and Strategies: CBI has its central code well established, and its process for
    signatories to follow toward those goals is fairly well developed. One critical element is
    still under discussion, however, and this the exact content of the external auditing process.
    The leadership currently conceives of it as a procedural audit and an ethical audit, in terms
    of asking stakeholders how well integrity has become part of the corporate culture, but the
    exact parameters of this remain to be decided. CBI is currently developing a strategy
    document to address most of these issues in the coming months.
   Allocation of Resources: CBI relies on its members themselves to pay for their
    participation in the process and for internal reforms. CBI intends to advise its signatories
    on how to implement these reforms, and should give more thought to assisting companies
    in the reallocation of resources that the reforms will require. As Pfizer and Prominent
    Securities demonstrate, however, high corporate integrity promotes higher profits, such
    that budget restructuring will pay off.
   Processes and Innovation: Central to the CBI method is a process of internal
    development for signatories to alter their own patterns on the workplace. CBI is advised
    to explore some of the additional tools in the Global Compact Toolbox for incorporation
    into the CBI process, such as Activity Based Accounting.
   Impact on Value Chain: Another central element of the CBI approach is that it seeks to
    alter the business and political cultures of Nigeria by having its members embody and
    model the values of integrity extant in its code. As more businesses sign and undergo the
    CBI process, reputations of integrity will become a more important element in the
    business environment. CBI is targeting sector-wide associations for cooperation and
    involvement, such as chambers of commerce, manufacturers associations, and the like.
    Moreover, the CBI Code encourages members to demand the same standards of integrity
    of their agents, suppliers, and other key stakeholders.
   Impact on People: This impact is difficult to measure considering that CBI is still in the
    early stages of implementation. Some of CBI’s members who have undertaken their own
    reforms, such as Pfizer, report high worker morale since restructuring, and high worker
    retention in the more open environment.
   Impact on Society: Again, CBI is still getting started and has had little impact so far on
    the way business is done in Nigeria overall. It faces an uphill battle, but CBI shows great
    potential to have a significant impact if it can convince a critical mass of enterprises in
    Nigeria to join.
   Reporting: The CBI process provides for continual evaluation of its members until they
    receive full membership. Thereafter, CBI will conduct regular procedural audits to check
    members’ continuing compliance.


    The Case of the Convention on Business Integrity, Nigeria                                 14
Unanswered Questions

CBI is currently developing its strategy for the next phase of its development, now that it is fully
operational. Several critical issues need to be addressed:

      First, the auditing process remains the most difficult element of the CBI method. Several
       respondents in the business community questioned whether an auditor could be found
       who was incorruptible enough to do what is required, and they noted that even the
       multinational accounting firms are suspect in this regard. The declarations asked of key
       stakeholders should provide some balance to the information received in the procedural
       audits and company-submitted data, but much still depends on the veracity of what both
       internal and external auditors describe. The United Kingdom’s DFID has pledged
       assistance and training for auditing in the short run, but CBI has yet to decide whether
       DFID auditors or Nigerian auditors would be employed in the first few months. A critical
       ally to involve in CBI in this regard is the national accountants’ association, the Institute
       of Chartered Accountants of Nigeria (ICAN), which several respondents noted has a
       credible reputation.
      Once high-integrity auditors are located, respondents queried whether they will be able to
       find the well-hidden corruption, or whether the powerful businesses in Nigeria will ever
       submit to a process that provides their stakeholders with the proper information internally
       or allows an external audit to examine integrity procedures set in place. CBI plans to end-
       run the “unwilling” corporations by gaining international recognition and access first, thus
       attracting a critical mass of corporate and government interest that will eventually force
       the recalcitrant companies to get involved.
      Some question remains about the CBI sanctioning process itself: Does CBI have the
       institutional strength to sanction the most powerful businesses? In the early stages,
       because CBI needs to increase its membership, it will have great incentive not to be too
       rigorous with its powerful members, since the CBI needs them for its own credibility and
       marketing purposes. If, on the other hand, the CBI does eventually gain a wide
       membership, the sanctions process will inevitably be politicized to some degree. In either
       case, CBI needs to expand its own governance process to develop a stronger system of
       checks and balances among the Board, the secretariat, and the membership.
      Greater civil society involvement in CBI governance may also help to ensure that it stays
       credible and rigorous as it expands. Transparency International Nigeria already has a seat
       on the CBI Board, but roles for other NGOs and associations could also be found. The
       media also could play an important role in terms of oversight and publicizing information
       about highly credible or errant companies. The more that CBI opens to civil society
       involvement, however, the more it exacerbates the concerns of some companies that
       sensitive information will be made public. Nonetheless, some substantive avenues for
       civil society involvement in governance should be considered, perhaps giving participants
       in the “Integrity Club” (CBI’s outreach project to civil society groups that is not part of
       the membership) a formal role in the new member review process – much like a “social
       audit.”



        The Case of the Convention on Business Integrity, Nigeria                                 15
   An additional element to CBI’s governance concerns is that much of its success to date
    had relied upon the integrity and reputations of its founding members. As new members
    enter, the system is going to have to grow in credibility and rely less on the reputations of
    these individuals. Can the involvement of these important – and busy – individuals be
    assured through the critical transition period while the system gains credibility? In
    addition, although it is presumed, CBI should make clear that the organization itself will
    go through the same auditing processes it demands of its members. Does CBI itself yet
    deserve a five-star rating?
   So far, none of the powerful multinational oil firms in Nigeria have signed the
    Convention. Shell has expressed some initial interest in the Convention. European and
    American governments might bring some pressure in this regard, and Shell’s interest has
    been helped by the British government’s recent sponsorship of an Extractive Industries
    Transparency Initiative. CBI’s international strategy hopes to create exactly this sort of
    pressure for the oil industries to join. Foreign governments, through their commercial
    attaches, could assist by routing businesses through the CBI.
   Although the recent interest of the FCT minister in CBI is a watershed opportunity for the
    organization to gain the “critical mass” of businesses joining that it seeks, such a deluge
    of new members would likely be too much too soon, and could overwhelm its developing
    system. If this arrangement with the FCT moves forward, a more gradual process should
    be considered, such as bringing on only the 10 largest contractors per year, until CBI is
    able to manage such a large caseload.
   Several respondents noted that CBI is targeting an issue of mammoth proportions:
    corruption in Nigerian business culture and political culture. Success for any long-term
    strategy must involve Nigerian youths in a substantive manner: perhaps through an award
    for role models, courses at the universities and business schools, and public education
    initiatives.




    The Case of the Convention on Business Integrity, Nigeria                                 16