The Aftermath of the Adam Smith Controversy: What’s Next for UK Aid?

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Photo Credit: DFID (via Flickr)

Although the international development community aspires to noble ends, the firms and organizations therein are not free from the same compliance challenges that face corporations with more naked profit motives. Adam Smith International (ASI), the largest international development contractor for the United Kingdom’s Department for International Development (DfID), can attest to that point. In February 2017, ASI suffered a major blow when DfID froze all future contracts with ASI after uncovering unethical behavior on the part of ASI. These firm-specific compliance issues, however, serve as the entrée to a broader conversation about the roles of ethics, compliance, and the public in the arena of international development.

ASI earned their DfID sanction by hiring an ex-DfID employee who then used their access to proprietary DfID documents to help ASI gain inside information into how to win big DfID contracts. ASI also sought to influence the results of parliamentary hearings by making up glowing letters of support, supposedly from its beneficiaries.  Read More...

The Birth of the New Samsung?

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Photo Credit: NBBJ (via http://www.nbbj.com/work/samsung-r5-research-building-and-landscape/#)

On February 28, 2017, Samsung unveiled the “Business Renovation Proposal” (The Proposal, hereinafter) on its official website. The Proposal contains several measures aimed at strengthening Samsung’s transparency and compliance mechanisms, as a result of the conglomerate’s involvement in the recent political scandal in South Korea. Samsung is suspected to have illegally given approximately $37.8 billion to Soon-Sil, Choi (who allegedly engaged in improper relations with the South Korean government by influencing her “friend”, Former President Geun-Hye, Park.) in order to garner business benefits from the former President.

In the Proposal, there are three notable provisions regarding compliance for Samsung. First, Samsung subsidiaries would engage in self-management, focusing specifically on their own board of directors. This suggests there wouldn’t be any interference from the Samsung Group on their subsidiaries’ business activities. In the same context, Samsung closed their Future Strategy Office, which worked as a control tower (as a large conglomerate, Samsung had a special decision-making unit that crucially affects all subsidiaries in the Group… It has been documented that the control tower took charge of vast areas of the Group’s business such as strategy, planning, HR, etc.) that engaged in the business of all subsidiaries and directed giving illegal support to Choi.  Read More...

Raising the Stakes for Anti-Corruption

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Photo Credit: US Army Europe (via Flickr)

Corruption is like a cancer, draining the health of an economy if it is allowed to spread unchecked. In fact, it’s such an insidious problem that in 2016 the International Monetary Fund (IMF) estimated the direct cost of bribery alone to the global economy to be between $1.5 and $2 trillion annually. And there’s a long list of what that figure doesn’t include: other forms of corruption apart from bribery, indirect costs of corruption like lost tax revenue and lost economic opportunities for the poor, and intangibles like public distrust of institutions and eroded governance. (And a note to the discerning readers – this conservative IMF estimate even factors in methodological considerations such as varied understandings of corruption, perceived vs. actual levels of corruption, and aggregating indices.)

But let’s take a step back for just a moment and consider the why: why is corruption bad?  Read More...

Changing a Culture

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Photo Credit: Jack Kurzenknabe via Flickr

As a longtime fan of the National Football League (NFL) team the Buffalo Bills, I know how hard it can be to change the culture of an organization. The Bills have not made the NFL playoffs since 1999 and as a result have developed a “culture of losing” that has now spanned 18 years. In fact, this last year the franchise earned the embarrassing “honor” of having the longest playoff drought in the four major North American sports (football, basketball, baseball and ice hockey) leagues. Years of festering in the same toxic culture is an important reason why the organization has not advanced and remains in a consistent state of inconsistency. In order for the Bills to reach their full potential they will need a change in culture. The same is true with businesses and corporations that continue to operate in a culture of non-compliance.  Read More...

The Rolls-Royce Case Lands the UK’s Serious Fraud Office in the Anti-Corruption Big Leagues

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Photo Credit: Robert (via Flickr)

In January 2017, Rolls-Royce, one of the world’s largest luxury-car and aircraft engine manufacturers, agreed to pay $800 million in a global settlement with the United Kingdom’s Serious Fraud Office (SFO), the U.S. Department of Justice (DOJ), and Brazilian prosecutors. Rolls-Royce acknowledged that in the course of three decades it hired intermediaries who paid bribes in return for lucrative contracts in at least seven countries, including Indonesia, China, India, Russia, and Nigeria. The key role in this investigation belongs to the SFO. Rolls-Royce is the largest ever case carried out by the British anti-corruption agency. Over five years, 70 investigators examined more than 30 million documents related to the case and conducted about 200 interviews with Rolls-Royce employees. To a great extent, this case was a survival test for the SFO, which was under systematic abolition threats since 2011. The deferred prosecution agreement (DPA) with Rolls-Royce in the amount of £497.2 million placed the British agency among anti-corruption’s big-league players.  Read More...

The Odebrecht Case Marks a Historic Step Forward in Global FCPA Enforcement

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Photo Credit: Wikipedia via https://en.wikipedia.org/wiki/File:Flags_south_america.png

What makes the Odebrecht case so special? In December 2016, Brazil’s biggest construction company Odebrecht and its petrochemical subsidiary Braskem agreed to pay at least $3.5 billion to Brazilian, US, and Swiss authorities in a multi-country Foreign Corrupt Practices Act (FCPA) settlement. Aside from this record-breaking settlement, the Odebrecht case demonstrates an unprecedented level of international cooperation in investigations and prosecutions of transnational bribery. The case marks a historic step forward for many Latin American countries not previously known for their aggressive prosecution of FCPA violators. The coordinated enforcement action by Brazilian, US and Swiss authorities generated a snowball effect across Latin America, prompting Argentina, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico, Panama, and Peru to open investigations into Odebrecht.

One can hardly overestimate the importance of this case for global FCPA enforcement. Andy Spalding, a renowned anti-corruption expert and Professor at the University of Richmond, calls Odebrecht “a new chapter in the global fight against corruption.” According to Spalding, “anti-bribery enforcement at the highest levels is no longer solely the province of the developed world.” Global settlement agreements and huge penalties imposed by law enforcement agencies in developing countries are becoming a real nightmare for international and local companies involved in bribery.  Read More...

Lessons for Corporate Compliance from Improvisation

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Photo Credit: Heather (via Flickr)

Recently I listened to a webinar focused on a somewhat unexpected topic: what can improvisation teach us about ethical behavior? The webinar was hosted by NYSE Governance Services, the leading governance, compliance and education solutions provider for companies and their boards, and Second City Works, the B2B side of The Second City, the world’s leading comedy theatre and school of improvisation. The speakers were Kelly Leonard, longtime creative executive for The Second City, and Heather Caruso, adjunct professor of behavioral science at the University of Chicago’s Booth School of Business.

I am a big fan of Mike Birbiglia, a comedian whose new movie, Don’t Think Twice, explores the life of a New York-based improv group. I am also always intrigued by how behavioral insights can be applied in compliance. In this webinar, Leonard and Caruso recognize that many people feel trapped by their patterns of behavior, both in personal and professional life.  Read More...

Improving Corporate Governance in Ukraine’s State-Owned Enterprises

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This blog was originally published on the Center for International Private Enterprise’s (CIPE) Development Blog.

On May 1, 2016, the law, On Introduction of Amendments to Certain Legislative Acts of Ukraine Regarding Protection of Investors’ Rights (No. 289-VIII), came into effect. It introduced a number of new aspects to Ukrainian corporate law including the right to shareholder derivative actions, direct payment of dividends to shareholders, and –perhaps the most relevant to reducing corruption and privatizing state owned enterprises– the establishment of independent directors.

In many developed economies, independent directors serve as a source for ongoing advice for senior management, set the strategic direction for the company, and provide investors (both public and private) confidence that their interests are represented through additional oversight, strategy development, and the scrutiny of major decisions undertaken by management. In state owned enterprises and family owned firms, independent directors serve as additional checks on the company from the perspective of the public or nonvoting family members, respectively, among other functions key to the long-term sustainability of such enterprises.  Read More...

Transparency International Releases 2016 Corruption Perceptions Index

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Photo Credit: Transparency International

The interplay of corruption and inequality feed off each other to form a destructive cycle between corruption, unequal distribution of power in a society and unequal distribution of wealth. This is the main conclusion from the recently published Transparency International’s (TI) 2016 Corruption Perceptions Index (CPI), which highlights the connection between corruption and inequality.

TI’s CPI Index scores and ranks countries based on how corrupt a country’s public sector is perceived to be. The composite index uses a combination of surveys and assessments of corruption by a variety of independent institutions specializing in business climate analysis. Each country is scored on a scale of 0-100, with a 0 indicating highly corrupt and a 100 representing very clean.

Of the 176 countries covered in the 2016 CPI, over 120 scored a 50 or below, with the global average at an alarming 43. Less than a third of the countries managed to score above the midpoint.  Read More...

The Challenge of Compliance in State-Owned Enterprises

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Photo Credit: Puro Periodism

Last month I was in Panama, attending the 17th International Anti-Corruption Conference (IACC). Not surprisingly, the Panama papers were looming large over the event and became a major point of discussion. To me, however, an equally important thread concerned another key issue: governance of state-owned enterprises (SOEs) and its significance for fighting corruption.

The highlight of the conference was Transparency International presenting its Anti-Corruption Award to the Operation Car Wash (Lava Jato) Task Force from Brazil. The Lava Jato scandal, involving the country’s state-owned oil & gas giant, Petrobras, began as a money laundering investigation and has grown into a large investigation uncovering cases of egregious corruption. Brazilian prosecutors from the Task Force have been bravely investigating these cases, resulting to date in more than 240 criminal charges and 118 convictions totaling 1,256 years of jail time, involving influential politicians and businesspeople.

Prosecutorial successes obviously are something to celebrate as an important step toward ending impunity.  Read More...