How much is enough?
The US Foreign Corrupt Practices Act (FCPA), one of the most well-known and relatively stringent anti-corruption legislations in the world, appears to be the flavor of the season with another large organization being recently subject to an investigation with regard to potential improper payments by its Indian subsidiary. The corporation in question is a leading multinational with widely acknowledged best practices and a strong governance focus. So what could have possibly gone wrong?
Most multinational companies, who can be subject to investigations under the global anti-corruption legislations, have an anti-bribery and corruption policy and a whistleblowing mechanism to support. The policy helps demonstrate the ‘tone at the top.’ Is having a written anti-corruption policy and whistleblowing mechanism enough?
In our experience, a robust and effective compliance program requires multi-dimensional deterrent and preventive approaches to be carried out on a regular basis. One-time activities do not register easily in the minds of the people. Periodic preventive procedures such as data analytics to identify red flags in routine business transactions and spot checks are a few of the simple, yet effective, measures that can help create an element of surprise and build an ethical environment in the long term. A well-promoted whistleblowing mechanism along with strict action against any violation can also go a long way in demonstrating a strong tone which reflects ‘walk-the-talk’ by demonstrated action.
India Inc. is getting better in the ‘Ease of Doing Business Index’ as per the recent survey by the World Bank Group; however, there are still many challenges in the environment that need to be addressed. The foremost among these is the mindset of businesses to lay down unrealistic targets and deadlines, which creates pressure on employees. The phrases “quickly” and “at any cost” could be interpreted in different manners in different countries. Multinational organizations operating in India should be mindful of such softer issues.
The fact that the company’s shares fell sharply upon the announcement of the investigation is an indicator of weakened public trust in the company’s management and, in turn, the culture which is promoted by the management. The company in question has company-owned facilities in India. There are areas which are corruption risk prone, such as Real Estate, Licenses and Permits, Regulatory Scrutiny or Inspections and Government Sales, where interactions with government officials and discretion regarding any decisions, lies with a government agency. Such areas, if left unmonitored or completely in the hands of third parties, can bring significant corruption risk to organizations.
While self-disclosures of violations are helping organizations negotiate for reduced fines and penalties for violation of anti-bribery regulations, the (reduced) fines, penalties, cost of investigations, and remedial measures have a significantly negative impact on the financial health of the company to be a deterrent for others. Organizations should learn the lessons from other companies and understand that an ethically run business, though it may seem daunting, is the only value proposition for businesses in the long term.
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Authored by: Sumit Makhija, Partner, Deloitte India