Training: What Works? 2

Training • Tags: , ,

Not long ago, at an anti-bribery conference in Chicago, the compliance officer for an American corporation told the crowd of fellow compliance officers, “You have to start out with the assumption that all marketing people are more or less criminals. You have got to pen them in with a set of rules as clear and sharp as barbed wire, or they will run wild.” The audience, almost entirely Americans, practically broke into applause.

In contrast, at a similar event in Europe, a participant asked in advance, “This isn’t going to be an American-style training session, is it? These people know right from wrong. They don’t need to be treated like criminals.”

So which approach is better?

This is an active debate in anti-bribery compliance circles: Should companies take a values-based or rules-based approach to training? These two approaches are often characterized as “ethics” versus “compliance.” A values-based or ethics approach assumes that employees want, and generally can be counted on, to do the right thing. Proponents of this style believe that there can never be enough rules to address every situation, and so an employer’s relationship with its employees must be based on trust. On the other side of the debate, proponents of the rules-based or compliance approach say that good employees need to know exactly where the line is so they can avoid over-stepping it, and that bad employees need to know at what point their behavior will be punished.

In reality, neither approach will work alone. Simply laying out the rules is a losing proposition because the issues and situations involved with bribery are too complex to render down to ten commandments— or a hundred. Furthermore, training that delivers a long, condescending list of dos and don’ts may work, but if the employees feel as if they are being scolded like naughty two-year-olds, it will inspire their contempt in return. On the other hand, appealing to the bright angels of everybody’s better nature will cause more than half of the crowd to cross their arms, roll their eyes and close their minds. There is also a real danger that poorly aimed training will compel participants, Goldilocks-like, to choose the option that is just right, overlooking subtleties and encouraging hypocrisy.

Another problem is that both of these approaches to training assume that a company’s employees are a community of like-minded individuals, sharing a single set of values, goals and risk-to-reward analyses. Like a school of fish, these employees are thought to swim collectively either toward safe water or away from danger zones. Such approaches ignore the diversity within a corporate community and, in so doing, miss the opportunity to speak to the different priorities of each employee. There should not be just two training styles, just as there are not just two kinds of employees.

Every company has some idealists in its ranks. These employees put their work life into the context of the greater community, even when the connections aren’t apparent to others. They are sincere in their commitment to good corporate citizenship and want their employers to go beyond what is strictly required of them–they want them at the front of the compliance pack. To launch into anti-bribery training with a list of rules and penalties is to squander the enthusiasm of this group. For this community, it is more effective to discuss the social, health and security problems that bribery spawns rather than to show slides of executives escorted out of court rooms in handcuffs. This group is concerned that bribery undermines fledgling democracies, enables smugglers to introduce potentially hazardous counterfeit pharmaceutical products into markets and makes it easier for criminals to ship guns, narcotics and people across international borders. It is important to inspire the idealists in your midst; they can be powerful supporters as you roll-out an anti-bribery program.

Another group of employees fall into the ethical majority. They may not be concerned about the global implications of their business strategies like the idealists, but this ethical majority certainly wants to know how those strategies will affect their company. This community prefers to work for a company with a good reputation. While idealists may want their employers to be at the front of any compliance pack, this group is content to have their company operating in the low-risk, low-profile, middle-of-the-pack. It is important for these employees to know how their marketing strategies, which may include wining and dining customers or sponsoring lavish events, can impact corporate reputation for good and for ill. In keeping with the ethics or valued-based approach to anti-bribery compliance training, these employees will understand the New York Times test: Would you be content to read about this conduct on the front page of the New York Times tomorrow? They need to hear how effective anti-bribery compliance can enhance the corporation’s standing in the community and, as a result, shareholder value.

A third group of employees is made up of the bottom-liners and box-checkers. They want to know what the rules are so they can shoulder up next to them and stay there. They want to do the absolute minimum necessary to stay on the right side of company policy and the law. They see little value in good corporate citizenship and prefer to leave ethical leadership to competitors, often assuming that it is an unnecessary expense and a drag on business. While they don’t set out to violate company policy or to violate any laws, they cut corners until tires are screeching. If your bottom-liners are in management positions, they’re probably sending the message to their teams that they must keep their eyes on the strict interpretation of the rules not because the rules have any inherent value, but because violations will incur the wrath of the law department or ethics office. These employees need to hear what the rules are with as much detail as can be provided. Finally, they need to hear that they will be held accountable for violations of these rules and encouraged to seek the advice of the department responsible for anti-bribery compliance when there is any doubt.

And finally, although it’s rarely discussed, all companies of any size have at least a handful of criminals—those who knowingly break the rules for their own ends. Here, a purely values-based approach is disastrous. These people will invariably participate in training at some point and won’t be moved by appeals to idealism, the likelihood of corporate reputational damage or even bright-line rules for business practices. Indeed, many trainers fear that the latter approach simply trains the criminals in more effective techniques to evade detection. This community–for as long as they’re with you–needs training that focuses on controls and consequences. These employees need to understand that the rules are enforced, that sanctions are imposed and, if true, that the company will offer up those who knowingly violate corporate anti-bribery policy to the enforcement agencies. These employees need to leave training asking themselves whether they look good in orange.

So how can anti-bribery training meet the varied needs of all these audiences? It isn’t as difficult as it sounds. Excellent training will address the priorities and goals, at least for part of the time, of each learner. Training should begin with a clear statement from senior management about the importance of the issue to the company. Opening remarks can weave together messages about good corporate citizenship in the global community and about the importance of the company’s reputation, while introducing the nightmarish alternative when companies get this wrong: Lengthy and expensive investigations, management distraction, disruption to business, roving compliance monitors, massive fines and, possibly, imprisonment. This should get everyone’s attention. Then the training should delineate the company’s rules and sanctions, discuss grey areas and direct employees to additional resources.

It’s often helpful, in closing, to align the company with the “good guys.” International crime of all kind requires bribery at some point: forged documents, smuggled goods, false certifications. Steering clear of these practices should be an easy sell to most of your audience. For the remaining few, well, hardly anyone looks good in orange.

This article was originally published by Alexandra Wrage in Ethisphere magazine in June 2008.

BAE: “It’s all tosh” Reply

FCPA • Tags: , , , , , , , , , , ,

At a pre-screening event at Berkeley this weekend, Frontline’s Lowell Bergman and Oriana Zill de Granados launched “Black Money”, their documentary about international bribery. Amongst those in the audience were Helen Garlick, formerly of the Serious Fraud Office, Mark Mendelsohn of the Department of Justice, Mark Pieth of the OECD, and Nuhu Ribadu, formerly of Nigeria’s Economic and Financial Crimes Commission. The screening was part of Berkeley’s Graduate School of Journalism “Reporting on Corruption” Symposium.

While KBR and Siemens are mentioned briefly in the film, the BAE matter steals the show. There are some very funny moments, including a clip in which Tony Blair and George Bush are interrupted, departing a G8 summit, with a question about Prince Bandar’s role in the BAE matter. Watch for their blinking, baffled delay as each hopes the other will take the question.

If Bush and Blair make you wince, Louis Freeh will make you cringe. Freeh represents Prince Bandar and argues that a plane given to Bandar by BAE was for Saudi Arabia’s military purposes and was not a personal gift. And, no, according to Freeh, the fact that Bandar used the plane himself and had it painted in the colors of his beloved Dallas Cowboys doesn’t change the aircraft’s military nature.

The Frontline producers promise that more of Freeh’s interview will be posted to the website shortly. Don’t miss this website, which has additional footage and background information from this year-long project. The documentary airs on PBS stations tomorrow at 9:00pm EST.

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The article below about the Al-Yamamah deal was originally published in Ethical Corporation magazine in February 2007.

The Price of the UK’s Capitulation on Corruption

For years, the UK Serious Fraud Office had been looking into payments by BAE Systems, a major domestic defence firm, to members of the Saudi royal family in connection with a huge contract known as al-Yamamah.

The ongoing deal was largely for Tornados, Hawks and, later, Eurofighter Typhoons. People were taken into custody, offices were raided, and a vast slush fund, lavish gifts and all-expenses-paid travel had come to light. The allegations were startling.

This was the first significant investigation of bribery initiated by the SFO and it put Britain on its way to establishing a reputation for being serious about enforcement. The investigation gathered momentum when it looked like the SFO would gain access to Swiss bank accounts and finally get answers to the “who received what and when did they get it?” questions, those smoking guns of a bribery investigation.

But in mid-December last year, after a representative of the Saudi government reportedly threatened to end diplomatic ties with the UK, terminate the lucrative al-Yamamah deal and curtail co-operation on anti-terrorist efforts, the SFO ended the investigation.

The Saudi government, which essentially is the Saudi royal family (or the House of Saud), appears to have panicked and pulled out the big guns. The UK government folded at once. The “public interest”, we are told, demanded that the SFO shut down the investigation. But the interests of the public, the UK government, the House of Saud or even of BAE were not well served by this capitulation.

It is difficult to imagine what interest of the people trumps their interest in the rule of law. The interest of the British government is not served when it is seen to bow to foreign princes in a commercial scandal.

How can representatives of the UK possibly attend the antibribery conferences of the world, pound the table and credibly demand that other countries take this issue more seriously? Clearly the House of Saud puts its narrow interests first, and has proved it
is willing to use oil money and anti-terrorism enforcement as chips in its defence. Allies will question whether such fickle friends can be depended upon in the long run.

Even the interests of BAE Systems are ill served by this decision. Of course share prices jumped as the immediate threat of prosecution retreated, but this scandal has harmed the company’s reputation and now this “resolution” has cost BAE the opportunity to vindicate itself.

Case not closed

Moreover, the legal risk is not now in the past as far as the company is concerned; the matter is not closed. There is no international law or convention to prevent another country’s enforcement agency from investigating this matter, and the US Department of Justice has already shown it is ready to go far beyond borders to enforce US laws. It recently investigated and fined Norway’s Statoil for conduct that the Norwegian government had already punished.

And there are obvious jurisdictional links: BAE has offices in the US and some of the questionable gifts and hospitality were allegedly provided there. That is more than enough for US prosecutors.

Tony Blair’s government should not have caved in. It sold out its commitment to the enforcement of the laws and it bought shallow and transient relief from pressures that ultimately were healthy for the business community.

The Saudi royals could have weathered this investigation. It is not even clear that an absolute monarchy like the House of Saud can be guilty of accepting bribes; the monarchy is already entitled to all that its country has. Instead, their belief that they can bully foreign governments and escape with impunity has been confirmed.

And now the business community will wait to see the impact of this decision. Will UK companies dismiss the issue of bribery as lightly as their government has?

And will the large and growing number of companies devoting time, staff and money to anti-bribery compliance be able to justify the cost when the risk of prosecution for non-compliance seems remote?

Alexandra Wrage

In Brazil: Benevolence or Bribery? Reply

Brazil, Training • Tags: , , , , ,

During anti-bribery training for almost 200 people in Sao Paulo and Rio de Janeiro this week, some clear themes emerged. TRACE representatives Carolyn Lindsey and Paula Orlando report that many participants expressed concern about frequent requests by government officials for personal favors. Instead of asking for money or gifts, the current trend appears to be toward requests for assistance of some sort. A request might, for example, come from an official with a sick relative in need of an organ transplant. The official may know that a company he deals with has a relationship or influence with the doctors in the local hospital. The official then asks the executive to use that influence to have a relative bumped up the waiting list for a transplant. The request is most often made of medical device or pharmaceutical companies, but may also be made of companies in other industries if the official knows that a particular executive has a connection with the local hospital. (In one example, the executive’s brother was the chief of staff at the hospital).

Often these favors are requested in the context of a long-standing relationship between the parties, who rarely see it as a violation of anti-bribery law. For many, it’s simply a matter of doing a favor for a friend who is also a customer. (Supporting the suggestion that this is a simple exchange of friendly favors is the fact that requests may flow in the other direction, too; the company executive may seek a similar favor from the government official if the official has influence in the local medical community.) Urgent medical care is certainly of value to an official and his family and granting the request would, presumably, increase the official’s goodwill toward the company. Whether there is a direct quid pro quo–an expectation of some business advantage–is more difficult to ascertain.

Company representatives are also asked to provide internships for the children of government officials. Prestigious internships are typically unpaid, helping students gain experience in their preferred field. Many companies in Brazil don’t flinch at such requests; they provide the official’s child with the internship without asking themselves, or their compliance officers, whether granting such a favor might trigger an FCPA violation. As with the transplant scenario, the internship is something of value to the government official’s family member. In both cases, the recipient jumps the queue of qualified candidates. The recipient may not be the most urgent or appropriate (in the case of medical care), or the most qualified (in the case of internships), candidate.

While these favors implicate the FCPA, concerns were expressed at the Brazilian workshops that local norms might trump an edict from headquarters. Some participants argued that in Latin American countries, like Brazil, this situation is more difficult to manage because friendship and business are intertwined to a greater extent than elsewhere. Businessmen may well want to help government officials out of genuine friendship rather than with the expectation that they will receive something in return, but this nevertheless presents a compliance challenge. Prudent management of these situations, which combine business, family, long-standing friendships and, in some cases, humanitarian considerations, is challenging. The consensus appears to be that a coherent, centralized approach will help avoid the risk of each decision being made by the employee closest–and most susceptible–to the influence.

State-owned, State-controlled and State-supported Entities Reply

FCPA • Tags: , , , , ,

With high levels of privatization in some industries and government bail-outs in others, the always-difficult question of what constitutes a state-owned entity has become more complicated.

Carlos Ortiz of DLA Piper, TRACE’s partner firm in New Zealand, Bulgaria and Bosnia, describes an approach that side-steps this difficult issue.
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“One outcome of the new era of aggressive FCPA enforcement is that investigations of conduct potentially covered by the FCPA increasingly require the identification of state-owned and state-controlled entities. DOJ and SEC enforcement actions make it clear that a state-owned or state-controlled entity will constitute a government “agency or instrumentality” for purposes of FCPA liability. Less clear, however, is the degree of government ownership or control needed to trigger liability.

Companies must evaluate the totality of the circumstances when determining whether the company at issue is under state control. Although there are certain straightforward indicia for evaluating state control—such as the percentage of shares held by the government or the extent of government representation on the company’s Board and in management—those considerations will not, on their own, resolve the question. For example, the DOJ has indicated that a single, “golden share” can be sufficient to render a company state-controlled if that share grants the government de facto control. Thus, companies and their counsel must identify and evaluate a range of intangible factors such as any formal or informal ties that a company’s Board members or managers might have to the government. Data privacy rules, cultural practices, and limitations on the public availability of corporate governance information all complicate or block entirely such an inquiry.

In the current climate of government bailouts, this process will become more complicated. Looking abroad, those practicing in this area must understand how different countries have structured their bailout packages. Having done so, they also must analyze how the DOJ and the SEC will apply the provisions of the FCPA in an era of government-supported, if not government-controlled, enterprises.

Determining whether a business is state-owned or state-controlled is so complicated that even those familiar with the foreign laws in question may not be in a position to evaluate this issue for purposes of the FCPA. In Opinion Procedure Release 94–01, for example, the DOJ found an individual to be a foreign official under the FCPA despite foreign counsel’s determination that the individual in question was not a government employee or public official under the foreign law.

For simplicity’s sake, one sound approach to compliance and risk management is for multinational companies to adopt policies treating customers at state-owned entities and non-state-owned entities in the same manner. Many companies have moved to this model, prohibiting referral fees, rebates, kickbacks, lavish hospitality, travel without a clear business purpose, etc., to all customers and entities with whom they transact business, regardless of a determination of state ownership or control. Indeed, bright line rules such as these are consistent with the DOJ’s informal recommendation at conferences and elsewhere to companies operating in China, where it recommends that companies treat all individuals as government officials. Finally, looking beyond the FCPA, the bright line rule recommended here may insulate against possible related charges for commercial bribery, an area of increasing concern to the business community.”