Effects of corruption on Brand

and Sales systems

15th February 2016
Presented by:
Michael Ndero- D65/75738/2014
Chris Muya- D65/ 84205/2015
Mark Tindi- D65/71037/2014

introduction
Corruption is all about demanding an undue
advantage.
A good brand must be a legal as well as an ethical
one-Ethical brands enhance their reputation and
reputation in turn reinforces a brand.
Corruption can take the form of public sector
corruption and private sector corruption. Public
sector corruption is more than money missing; its
about peoples lives.

introduction

In private sector, corruption becomes complex

when focus shifts from bribery to subtle forms
of upstream corruption at the businessgovernment nexus, when no money changes
hands but entrusted power is instead leverage
to build positions of influence.

Cont

Brands and branding too have a profound impact

on society as a whole and not just on people who
buy them. Shareholders and consumers too come
into perspective when brands engage in corruption.
Faccio (2006) highlighted some startling results
providing evidence that conflicts of interest
permeate developing and developed countries a like
and require urgent attention by policy makers.

Cont

He highlights that in the UK; politically

connected firms are estimated to account for
almost 40% of market capitalization. In
Russia, the percentage is even higher at 80%.
Goldman etal (2009) notes that academic
research highlights that the undue benefits of
such political connections are real, significant
and ubiquitous.

Cont

Us companies listed on the standard and

Poors 500 index shows that those connected
to winning/ loosing party in national elections
realized abnormal gains or losses in their stock
market values and were significantly more
likely to register increase or decrease in
procurement contracts won.(undue advantage)

Cont
Faccio estimated the benefits accrued from political
connections by analyzing more than 100 sudden
deaths of senior politicians around the world and
documenting a significant decline in the value of
firms geographically connected to these politicians.
Sharper drops in firms value signaling particularly
beneficial links between politicians and companies
were experienced in countries with high levels of
corruption.(Faccio and Parsley 2009).

Cont
What do you think about City Hoppa after George
Thuos death?
Who owns Double M?

Cont
Undue influence does not only occur at the businessgovernment nexus but also inside a company when
strong managers and powerful large shareholders take
opportunistic decisions and enrich themselves.
An example in Kenya is the Uchumi supermarkets
brand which has seen senior managers engage in
corrupt deals like being main suppliers of the
supermarket. Shareholders alike have sold assets
belonging to the supermarket in unprocedural ways
leading to its current weak state.

Cont
Imperial Bank has suffered reputation issues when its
top managers engaged in illegal activities breaching
the Central Bank rules.

Practical examples

Practical brand examples

The FIFA World Cup scandal
Swiss authorities arrested 14 officials on corruption charges and opened
criminal proceedings into the awarding of the 2018 and 2022 World Cups to
host nations Russia and Qatar.
The scandal continued last month when Blatter and UEFA president Michel
Platini were banned for eight years from all football-related activities after a
FIFA ethics committee investigation into a payment of 2 million Swiss francs
(1.4m) by Blatter to Platini.
Sponsors contribute $1.63bn Kshs 1.65bn) around 28.5% of FIFAs
revenues every four years.
Last May, Visa threatened to reassess its sponsorship of the World Cup if
FIFA did not take swift and immediate steps to address the issues within its
organization.
Meanwhile, Coca-Cola said it had repeatedly expressed its concerns about
the serious allegations and expects FIFA to continue to address the problem
as it has tarnished the mission and ideals of the FIFA World Cup.

Nyayo Stadium

Practical brand examples

Nyayo stadium vs. Coca-Cola
The stadium was renamed to the Coca Cola National Stadium
after the multi-national company won the naming rights to the
stadium in February 2009. The deal was worth Ksh 150
million and would have seen the beverage company do
branding, marketing and naming to the whole stadium for
three years. Three months later, however, Coca Cola withdrew
from the contract, because the Kenyan government wanted to
have the stadium branded as Coca Cola Nyayo National
Stadium but was renamed again to the Nyayo National
Stadium, as the Government of Kenya wanted it branded.

???

???

Practical brand examples

Kenya the brand
A report by the Transparency International ranks
Kenya 154 out of 182 countries that were surveyed
on the Corruption Perception Index with Police,
Courts Rank as Most Corrupt Institutions in Kenya.

Practical brand examples

Middle men in bids
Only manufacturers of laptops can
participate in the fresh tendering, blocking
out middlemen, who have been accused of
inflating prices and making it difficult to fit
in the governments budget.

Practical brand examples

Kenya Airways
After the 2009 KQ strike where
Naikuni told the Cabin Crew that their
work and Cabin Crew ni kama waiter
naweza kuenda Kencom na nipate
wengi. (Cabin crews are like waiters
who can easily be recruited from
Kencom bus stop). Retrenched 420
cabin crew and assigned the role of
recruiting and managing the Cabin
Crew to Career Directions.

Practical brand examples

Uchumi
Several suppliers are understood to be reviewing their
partnership with the retailer over non-payments of
deliveries.
Media houses last year suspended the supply of
newspapers to Uchumi after they continuously failed to
pay for the stock they had sold. Some media houses are
still owed millions of shillings.

Practical brand examples

2nd generation alcohol and wine fraud
The Kenya Bureau of Standards (KEBS) has
suspended licenses for 385 alcoholic brands in
the country in the ongoing clampdown on
illegal brew e.g. New moon, trigger, flying horse
and euro. EABL brands were also destroyed.
Counterfeiting and the relabeling of inferior and
cheaper wines to more expensive brands is
another common type of wine fraud

Practical brand examples

The Diesel Dupe Case
Volkswagen was accused of cheating about its
emissions. Immediately the accusations were
confirmed to be true, shares dropped in the
stock exchange and a drop in sales were
expected too. Customers lost trust with
Volkswagens promise to being
environmentally friendly on some of its product
lines. Some cars had to be recalled making the
brand to spend more in trying to regain
customer trust.

Effects of corruption on brands

Corruption destroys the basis of economic life and
distorts competitiveness- It is a crime that favours
minorities but detrimental to society at large as
highlighted by eur-lex.europa.eu website in an article
entitled combating corruption in private sector.
It distorts Competition and free markets-This can
happen in different levels, from bribery related to
procurement to favoritism in design of policies.

Effects of corruption on brands

Bribery in public procurement processes reduces the
benefits of competitive market and can lead to
increased costs paid for products or services and thus
diverts public funds to private gain.
An effective no bribes policy and culture where
strong business values and ethical behavior are
central facets, potentially offers the competitive
advantages of transparency: a cleaner corporate
image, more trust worthy business relationships,
lower costs and less litigious shareholders.

Effects of corruption on brands

On the other side, corruption in procurement can lead
to sub-standard products or constructions that can risk
the public health, environmental or personal security.

Cont..
Corruption inevitably leads to a diminished business
climate for brands when public trust is put at risk
according to Stanford Graduate School of business.
Its existence reduces business credibility and profits
when professionals misuse their positions for
personal gain.

Cont..
It also leads to inefficiency of Corporate brandsWhen resources are tampered with and used
improperly, the efficiency of a business suffers.
When news about corrupt business professionals
breaks, customers lose respect and trust requiring
company to spend valuable time and resources to
monitor the fallout and reassure clients the company
is still viable.

Cont..
Weakened development as investors become skeptical
of doing business with companies and municipalities
known for corruption. This hinders brands from
entering into new markets.
Due diligence is also defeated when facts change
according to the current levels of corruption and
investors steer clear of companies with corrupt
histories.

Cont..
Perpetuation of fraud boosts the entrepreneurs risk of
accruing losses through a decline in sales and misuse
of scarce resources among others.
Sales can also plunge e.g. GlaxoSmithKline in China
lost customer trust as it bribed hospitals doctors and
officials. Other forms of corruption- paid bloggers to
taint brand image, to bring down brand visibility.

Cont..
It can change legal outcomes which do not favour the
operation of brands in that, the government can be
induced to either ignore illegal activities or to favor
one party over another in court cases or other legal
proceedings.

Cont..
Impacts the companies brand and potential business.
The companies investigated/convicted of corruption
may have difficulties getting financing, deals or even
be allowed to participate in bids.
Competition is unfairly affected when investors risk
is multiplied by changing business climates that
follow corrupt business practices.

Practical brand examples

The Diesel Dupe Case
Volkswagen was accused of cheating about its
emissions. Immediately the accusations were
confirmed to be true, shares dropped in the stock
exchange and a drop in sales were expected too.
Customers lost trust with Volkswagens promise to
being environmentally friendly on some of its product
lines. Some cars had to be recalled making the brand
to spend more in trying to regain customer trust.

references
Anti-corruption research network website
http://corruptionresearchnetwork.org/, Combating
corruption in private sector checked on 13th February
2016
Transparency International website
http://www.transparency.org/ checked on 13th
February 2016

Thank you