that foster a culture of strong corporate governance within local companies
By Ashvinder Singh, Programme Analyst, Governance for Development, UNDP Malaysia
Small- and Medium-sized Enterprises (SMEs) are all too aware of the damage caused by graft
Globally, a survey undertaken by the Association of Chartered Certified Accountants in 2019 reported that 64% of respondents highlighted bribery and corruption as key concerns for SMEs while a similar survey in Malaysia in 2018 noted that 80% of SMEs were in concurrence over the same concerns. The effects of bribery include below-par products or services and denial of licenses to operate, but these direct costs of corruption are relatively smaller than the indirect costs that face SMEs, such as loss of reputation and exclusion from global value chains. In the case of women-led enterprises, the risk of graft is amplified as these entities face a relatively higher barrier to financial access, often facing unscrupulous parties that are attempting to take advantage or threaten business closure.
In the current environment, COVID-19 and corruption are converging
Before the COVID-19 pandemic, SMEs comprised 98.5% of business establishments in Malaysia, contributing 38.9% to GDP. However, some 32,000 SMEs in Malaysia were forced to shut down between March and November 2020 due to the pandemic, according to the Entrepreneurship Development and Cooperatives Ministry. A survey conducted by the Small & Medium Enterprises Association Malaysia on its members in mid-June 2021 showed that two of three SMEs opined that their businesses will not recover this year.
With dwindling reserves, SMEs also face constraints to maintain sufficient resources to implement the robust risk management measures and internal controls needed to reduce the likelihood of graft. And when solicited for bribes and facilitation payments in exchange for a fast turnaround of a permit, a company struggling to stay afloat may need a surfeit of courage to resist.
At the same time, the regulatory context is also evolving.
Strict corporate liability provisions under Section 17A of the Malaysian Anti-Corruption Commission (MACC) (Amendment) Act 2018 have come into force in June 2020. The consequences of even minor infringements of the anti-corruption legislation are increasingly more pronounced. It is important that SMEs not only demonstrate resilience in the face of challenging business conditions but also show their commitment and ability to comply with the new corporate liability provisions.
UNDP’s solutions through the ‘Promoting a Fair Business Environment in ASEAN’ (FairBiz) Project
The project—which is supported by the UK Government, ASEAN Economic Reform Programme—aims to raise business standards in six countries in ASEAN (including Malaysia) by working with both public and private sector entities to create a fair business environment.
In Malaysia, UNDP is partnering with a global healthcare company in a pilot project to train 33 senior- and middle-level executives from 21 SMEs in their local supply chain. A two-day training on 28 and 30 June saw the SMEs engage on critical issues ranging from human rights to sustainability, as well as, internal compliance to corporate governance.
In his opening remarks, Niloy Banerjee, UNDP Resident Representative for Malaysia, Singapore & Brunei Darussalam, stated that this pilot project aims to strengthen the resilience of SMEs based on international best practices and continues UNDP’s collaboration with both the private and public sectors in Malaysia in the field of anti-corruption. UNDP intends to extend the training to more companies with the cooperation of global multinationals and leading national companies, strengthening business integrity practices throughout the economy.
The training provided the participating SMEs with practical knowledge and exercises to strengthen their knowledge and resilience in key management areas. Over the next few months, the participants will work to develop new integrity policies and tools in their operations, creating an enduring change in terms of standard policies and business practices.
A new role with the private sector to build back better
After engaging with key public sector institutions over the last few years on strengthening national anti-corruption measures in Malaysia, UNDP’s approach now establishes efforts to enhance business integrity in the private sector. Working with SMEs helps to ensure a rigorous approach in addressing graft and creating a fair business environment in the country, as they contribute to the dynamism of the Malaysian economy. With SMEs strengthening their business resilience, the Malaysian economy and society will gradually be rebuilt, with the country continuing to remain an attractive place to do business in.
 Sow et. al. (2018)
 Mahat et. al. (2021)
One of the biggest risks for multinational companies is the risk of non-compliance with anti-corruption and other extraterritorial laws by third party distributors and agents in the supply chain.