The Effects of Corruption on Business

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.






SOURCE: smallbusiness.chron.com