Hiring practices under the Foreign Corrupt Practices Act (FCPA) are not often given much thought or widely discussed. They have come up for discussion more recently because of the issues surrounding the hiring of sons and daughters of foreign government officials most publicized with JPMorgan Chase & Co. But numerous other company’s similar hiring practices are under regulator scrutiny. As far back as 2004, in Opinion Release 04-02, the Department of Justice (DOJ) realized this was an important part of an overall compliance program when it approved a proposed compliance program that had the following requirement:
Clearly articulated procedures which ensure that discretionary authority is not delegated to persons who the company knows have a propensity to engage in illegal or improper activities.
I thought about some of these issues when I read The Saturday Essay in the Wall Street Journal (WSJ), entitled “How to Trick the Guilty and Gullible into Revealing Themselves” by Steven Levitt and Stephen Dubner, which they adapted from their most recent book Think Like a Freak. In their essay they began by comparing two diverse tactics used by King Solomon and the band Van Halen to see who might be telling the truth, or not, in a specific situation. In the oft-told tale involving King Solomon he decreed that he would split a baby and give one-half each to two women who claimed to be the mother. The true mother told him to give the baby to the other woman. King Solomon used this fact to determine which was the real mother. In the case of rock band Van Halen, they had a 53-page rider giving “point-by-point instructions” in in their touring contract. This rider had technical and security specifications for each venue the band played. It also had language in ALL CAPS that stated “M&M’s (WARNING: ABSOLUTELY NO BROWN ONES).” Initially this language was derided as simply rock and roll excess to the hilt, but band member David Lee Roth explained that if he went into the dressing room and found no brown M&Ms, it signified to him that the local promoter had read the contract. If there were brown M&Ms, the band had to perform extra reviews of the stage electrical and lighting requirements.
Why is hiring so important under the FCPA? It is because hiring is important to any company’s health and reputation. At this point, until the US Supreme Court tells us that a corporation is the same as a human being, with both obligations and rights; a company is only as strong as its employees. Like most areas of FCPA compliance good hiring practices for those employees who will do business in compliance with anti-corruption laws such as the FCPA are simply good business practice. Levitt and Dubner cite the following statistic, “By one industry estimate, it costs an average of roughly $4,000 to replace a single employee, and one survey of 2,5000 companies found that a single bad hire can cost more than $25,000 in lost productivity, lower morale and the like.” For one of the energy Services Company where I worked this estimate went as high as $400,000 to hire and fully train a new employee. I would add that those costs could go up significantly if a bad hire violates the FCPA.
Brooke Denihan Barrett, Chief Executive Officer (CEO) of the Denihan Hospitality Group, interviewed in the New York Times (NYT) Corner Office column said that by the “time somebody meets me, you can assume that the skills are there. So what I interview for is fit. And I’m always very curious to know, what is it about our company that appeals to that person?” She asks specifically about culture, requesting the candidate define it and how do you think that culture is special. She also asks candidates to talk about a failure and what lessons that they learned from the experience and how they dealt with the experience. I would suggest that both of those lines of inquiries should be used when evaluating a candidate for hire.
In a completely different arena, Houston Dash General Manager (GM) Brian Ching talked about the expectations he and his club have for the female soccer players on the squad. In addition to the obvious requirement for a professional soccer player to be technically proficient in the game of soccer, the team expects each player to have significant community involvement to help develop a fan base for the club. In the player interview process, this is thoroughly explained and each prospective player is asked if they would be willing to take on this additional role. But more than simply using this Q&A as an evaluation technique, it allows the team to communicate its expectations to each potential team member.
This is something that Human Resources (HR) and others involved in the hiring process can take to heart. They should have a serious and frank discussion with all potential hires, particularly those going into senior management or FCPA-related high-risk areas. This not only allows an evaluation along the lines that Barrett uses to determine if a hire will be a cultural fit for her company but it permits a company to directly express its expectations surrounding FCPA compliance and doing business ethically if a person is hired.
Another area that is often overlooked is the reference check. Many practitioners feel that a reference is not of value because prospective candidates will only list references that they believe will provide glowing recommendations of character. This leads to a pro forma reference check. However, in an article in Harvard Business Review (HBR), entitled “Gilt Groupe’s CEO on Building a Team of A Players”, author Kevin Ryan explodes this misconception by detailing how he views the entire hiring process and specifically checking references. I would add that it could be a valuable and useful tool for you and your compliance program.
In the hiring of personnel, Ryan details the three steps his company takes: (1) Resume review; (2) In-Person interview; and (3) Reference checks. Ryan believes that resumes are good for establishing “basic qualifications for the job, but not for much else.” He believes that the primary problem with in-person interviews is that they are skewed in favor of “persons who are well spoken [or] present well.” For Ryan, the key check is through references and he says, “References are really the only way to learn these things?”
Ryan recognizes that many people believe that reference checks are not of great value because companies cannot or will not give out much more information than confirming dates of employment. However, he also believes that “the way around it is to dig up people who will speak candidly.” He also recognizes that if you only speak to the references listed on a resume or other application, you may not receive the most robust appraisal. Ryan responds that the answer is to put in the work to check out references properly. Ryan believes this is one of the key strengths of search firms and that companies should emulate this practice when it comes to reference checks.
He notes that anyone who has worked in an industry for any significant length of time will have made many connections. Invariably some of these connections will be acquainted with you or those in your current, and former, company. Ryan gave the following example: A longtime friend who was employed at another company called and said that he had been asked by his hiring partner to find out “the real story” on a hiring candidate by asking Ryan his candid opinion of the candidate. Ryan’s response was “Don’t hire him.” Lest you think that such refreshing honesty no longer exists when informal employment references are provided, you are mistaken. In my past corporate position, I was charged with performing compliance due diligence on senior executives and I spent time doing what Ryan suggested, calling acquaintances that I knew and asking such direct questions. More than 75% of the time, I got direct responses.
Ryan believes that you must invest your company in the hiring process to get the right people for your company. The same is true in compliance. You do not want people with a propensity for engaging in corrupt acts working for, or leading, your company.
The hiring of someone who will perform business activities in compliance with anti-corruption laws such as the FCPA or UK Bribery Act will continue to be as much art as science because the hiring of quality employees for senior management positions is similarly situated. But that does not mean a company cannot work to not hire those persons who might have a propensity to engage in bribery and corruption if the situation presented itself. The hiring process is just one more tool that can be utilized to build an effective compliance program.
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© Thomas R. Fox, 2014