Compliance practitioners often hear that bribes must be paid in emerging markets to get anything done. Indeed a recent survey by CEB (formerly Corporate Executive Board) of more than 700,000 employees of multinationals around the world, discussed in a Harvard Business Review article, entitled “Greased Palms, Giant Headaches”, by Dan Currell and Tracy Davis Bradley reported that there was a large jump in the payments of bribes, providing or receiving improper gifts and failures to report conflicts of interest in the BRIC (Brazil, Russia, India and China) countries over developed countries. Is bribery really pervasive in those countries or is it simply the perception? On the other hand, as Andre Agassi was found to say “Perception is reality.” Certainly the story by the New York Times (NYT) about Wal-Mart in Mexico paying over $24 million to be the first big box retailer into the Mexican market may lead some credence to that perception. While the authors did not specifically address the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act, they did report that “bribery and corruption is the second leading category of unlawful activity by Western companies in emerging markets”.

However, Currell and Bradley focus their collective attention on the US corporate headquarters in their article. They note that “Our research suggests that one driver originates at headquarters-multinationals’ increasing growth imperative in emerging markets.” While it certainly is a recognized and valid long-term growth strategy to identify and develop new markets, the authors believe that companies are now thinking that they can “meet our targets by increasing revenues quickly in markets” like the BRIC countries. In other words, long-term strategic plans suddenly become “short-term necessities” and this change can increase “the pressure on local employees to make their numbers, tempting some to break the law.”

What is a company to do when short term goals cause pressure, pressure and more pressure for increased revenues? The authors acknowledge that a robust compliance program is a key component for protection against bribery and corruption by employees, but they believe that more is needed. They identify “Integrity Capital” as a key component to “lower levels of misconduct along with higher levels of reporting when employees do witness wrongdoing. Integrity capital is embedded in the culture, not instituted through controls, and it helps shape employee behavior, which could include offering a bribe or defrauding the company.” The authors identify the following as five factors of Integrity Capital:

  1. Management takes action when it becomes aware of misconduct. This means that companies “must insist on a swift response to complaints, unbiased investigations” and even “public hangings” of offenders.
  2. Employees are comfortable speaking up about misconduct and don’t fear retaliation. While this would seem to be self-evident, it is a sad fact that in many companies, whistleblowers are ostracized or even blamed for the conduct in question. Witness the initial response by Wal-Mart management in the 2005 time frame to allegations of corruption made by an employee with knowledge of the conduct. He was blamed for the conduct at issue. Even in the recent allegations brought to light with EADS, the whistleblowers were marginalized or worse by the company.
  3. Senior leaders and managers treat employees with respect. The authors believe that in addition to not mistreating whistleblowers, companies should “praise employees who have the courage to call out wrongdoing.”
  4. Managers hold employees accountable. Simply put, if an employee engages in bribery or corruption, they need to be disciplined or discharged. Allowing high revenue generators or high income generating territories or business units to avoid scrutiny and/or sanctions is a clear recipe to destroy the integrity of a compliance program.
  5. High levels of trust exist among colleagues. Your employees must believe that the company will take allegations seriously and will act on the information that they provide.

The authors conclude their article with three different concepts which they believe will minimize the occurrences of bribery and corruption within an organization. First, a company should use commonsense observation. If an emerging market shows success in “speeding things along”, such as regulatory approvals for the construction of bricks-and-mortar facilities, this made need to be looked at closer. Since regulatory approvals do not happen quickly in BRIC countries, it may be that the skids were greased with cash to pay bribes. The second is that a company must be proactive in seeking out and obtaining information from employees about allegations of bribery and corruption. The authors “advise companies to also proactively solicit information from frontline employees and to use surveys or online tools to guarantee anonymity” in reporting allegations of bribery and corruption. Lastly, the authors insist that companies have organization justice so that if there are credible reports of misconduct they are not swept under the rug.

Currell and Bradley provide interesting observations which can be used by a compliance professional to evaluate the sufficiency of their compliance program. Their thoughts on things to look for from an emerging market provide solid guidance on searching for potential red flags which might warrant further investigation from internal audit or a FCPA based compliance audit team. There are a number of practitioners and ethicists who talk about the need for ethics in any company culture to compliment a compliance program. The article by Currell and Bradley provides some of their guidance on what that may look like.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

1 comments
QuintilianoValenti
QuintilianoValenti

The deviation from ethical approach is not justified even if the company is in difficult financial conditions.The corrupt actions will always be a permanent liability.If the ethical approach is considered on a long term view and you are looking for the prosperity of your company,you cannot weight with corruption your strategy.The ethical bankrupcy is the prelude to financial bankrupcy