Monthly Archives: November 2014

Bribery and Conflicting Messages

Bribery and Conflicting Messages

“Take risks” and “Don’t expose the company to bad press.” So begins a Harvard Business Review article “When Your Boss Gives You Conflicting Messages,” (link here)  and “Prevent Conflicting Messages from Confusing Your Team,”  (link here) by Len Schlesinger and Charlie Kiefer. As they ask “what if you’re the employee and your manager doesn’t recognize the impossible position he’s put you in?” Thank you Mr. Schlesinger and Kiefer elevating this dynamic. As I have shared before, when front-line international business personnel ponder, “What does management really want?” as they reconcile their bonus structures and forecasts to the messages of anti-bribery compliance, it is peril for all involved. Indeed, when international field personnel take compliance decisions into their own hand at the front lines, it is often due to a “double bind” where they confront conflicting messages from management regarding fiscal success and anti-bribery ethics.

The Authors provide some excellent recommendations which front-line personnel would be well advised to review and consider when they feel tension between anti-bribery compliance and business/bonus goals.

“Don’t pretend this conflict does not exist”

If you see a conflict between the ‘spoken rules of behavior’ as articulated in formal anti-bribery compliance programs and the ‘unspoken rules of behavior’ as in ‘win above all else,’ especially in high-risk areas, don’t “make the problem worse by acting as if the messages are consistent.” Here, I entirely agree with the Authors in their recommendation to call management’s attention to the inconsistency. In other words, stop the action, and articulate that anti-bribery compliance programs and business plans are now in a zero-sum matrix, as both cannot be delivered to the C-Suite. Don’t let management pretend, as the Authors state, “that the messages don’t conflict” which can “preempt any discussion of the matter.” Speak up and remove the element of “undiscussability.”

As the Authors reflect, “the ultimate remedy is to make the organizational habit of undiscussability a topic of investigation and overt discussion on the part of everyone in the system.” While the Authors warn that “going at it very directly early on can get you in deep trouble” and that  “it’s best to start with a specific dilemma,” I wouldn’t recommend waiting too long. Even the Authors articulate that when bringing a conflicting message into the open, do so “without any expectation that the original mixed message will change, because it probably won’t, at least in the near future.”

Furthermore, the time to raise your concerns are not when you are in the field, where it is often difficult to think strategically, and where time zones separate you from management; thus, consider raising your objections while you are at the home office. In addition, I agree with the Authors  that there is a way to raise your apprehension, which maximizes the possibilities of positive engagement. Approaches such as “can you give me insight or advice on how to pull that off” or “how to balance the two” are good examples. There is no need for hostile confrontation; why not assume that management has the best intentions, and ask for strategic and tactical clarification. But what if?

“Grow up and get over it”

When the response is  you ‘figure it out,’ and conflict is left unaddressed, as the Authors state,  “you will have confirmed the challenges you face.” While the Authors ask “what, specifically can you do to be effective in this situation,” with respect to bribery and corruption (in fairness to the Authors, I don’t think they were considering illegal conduct when they penned the article), the dilemma leaves you with few options. It might be to continue to elevate the dilemma up the organizational chart with the goal of getting someone “excited about investing in you.”

Perhaps your supervisor’s boss might be aghast at the position you now face, or it might just result in getting more people upset at your elevating the ‘how things get done around here.’ In my opinion, from an organizational perspective, it is doubtful that you are going to get better support as you move up the corporate hierarchy, even though it is an essential step. More likely, your supervisor is now going to be disappointed at your leaping levels in the org chart. Sorry, I didn’t invent that rule.

When one option to reconcile conflicting executive messages is to break the law, and you have asked for clarification in order to “succeed on the agenda,” even up the org chart, then we are back to my “call home” moment. Not to call compliance, it is too late for that. It is to call your family. If breaking the law is the only way to reconcile success and compliance, then no job, bonus, or gain in reputation for success is worth the risk. As the Authors state, when the final response is “make plan, and deliver on all your commitments” you  are now confronting great exposure and are putting yourself and others in harms way.

You did the right thing by elevating the dilemma that you confront between personal/corporate success and anti-bribery compliance. Your goal was to “navigate the conflicting messages and possibly bring awareness to the dysfunctional behavior.” But if the response was ‘succeed but keep us off the front page of the Wall Street Journal,’ stop the action. As I will share in future posts, more and more companies are demonstrating business success in high risk areas without bribery. Send your resume to one of those organizations.

As the authors conclude, “in the most severe cases, it may well be a game you simply choose not to play-by leaving.”

*Finally, a quick thank you to all the new readers to my blog and community. There was an overwhelming readership to last week’s guest blog on “Mapping Corruption” by James Cohen. I hope you will continue with me on this real-world journey as I try to elevate issues of compliance and corruption which impact those who operate at the field level, and those tasked with providing them with practical compliance tools in their work.

Is It Time For A Different Look at Mapping Corruption?

Is It Time For A Different Look at Mapping Corruption?

Today’s guest post is by James Cohen. James is an independent international development consultant based in Ottawa, Canada. He focuses on corruption, human security, and corporate social responsibility. Recent contracts and collaborations include the African Centre for Justice and Peace Studies and the Global Organisation for Parliamentarians Against Corruption. He has experience with organizations such Transparency International UK and the Geneva Centre for the Democratic Control of Armed Forces. He can be followed on Twitter at @JamesCohen82 or contacted through LinkedIn. 

Maps are powerful visual cues used by many organizations to communicate their research. The most well known data set on corruption is Transparency International’s annual Corruption Perception Index (CPI) and its accompanying map below (Source: Transparency International’s 2013 CPI map).


The CPI map depicts levels of perceived corruption in warm colors, from shades of yellow to red. The lack of any “cool” colors like green or blue signals that no country is entirely free from corruption.

The Colors of Corruption

That said, looking at the map gives a quick visual cue that there are safer (yellow) places in the world — predominantly in North America, northern Europe, Japan, and Australia. Then there are the reds and deep reds covering just about all of Africa, most of Asia, and the majority of Latin America. This global visual perpetuates the idea that we in the West are generally good, and those places in red are deeply corrupt. However, a deeper analysis demonstrates that the CPI map both conveys, and unintentionally conceals,  the realties of corruption.

The CPI map does convey petty corruption (e.g. citizens paying bribes to government officials) and large-scale corruption (e.g. politicians stealing state assets). What the map doesn’t show is that large-scale corruption does not stay within national borders.

 where the theft occurred. Those funds often move to developed countries, which the CPI displays as low in corruption. For the most part, citizens in those yellow countries don’t experience corruption on a day-to-day basis; rather, corruption there mostly happens behind closed doors and as we have recently seen with respect to many of the recent enforcement actions, those are often Western bank doors.

Looking at the African continent on the CPI map, saturated mostly in shades of red, it loses more money annually through illicit financial flows than it receives in foreign aid. The issue has been raised by the High Level Panel on Illicit Financial Flows from Africa, led by former South African President Thabo Mbeki. The UN-established body estimates that the African continent loses $50 billion annually — roughly twice what’s received in financial aid. A report by a coalition of aid organizations led by Health Poverty Action published a damning report on the perception of Africa as a drain on wealthy countries — when, really, the continent is a net creditor to the world, via these illicit cash flows, to the tune of roughly $60 billion.

In recent years, the dialogue on corruption has corrected itself on this point by putting more emphasis on the burden of illicit financial flows and the issues of anonymous shell companies. The recent G20 meeting in Brisbane, Australia recognized this, after pressure from groups including Transparency International to address issues including money laundering and proceeds from crime. G20 leaders acknowledged that they need to tackle shell companies in their final communiqué. Prior to the meeting, some governments started developing better legislation and policies to deal with their country’s role in addressing global corruption such as the UK and Denmark’s announcements of creating public registries of corporate beneficial ownership information.

Despite these shifts, the annual CPI map will come out December 3, 2014 and, will continue to show corruption as something contained within borders. In fairness, Transparency International does a great service in publicizing the CPI (full disclosure: I worked for Transparency International’s UK chapter from 2011-2013), and other programs, like tracking foreign corruption legislation in OECD countries; however, most casual observers just see the map and take away the visual message.

A new map on illicit financial flows would be challenging to create, but it would go a long way to complement Transparency International and other advocacy groups which elevate our understanding of corruption. For example, Global Witness’s ‘Great Rip Off’ map project shows locations harboring shell companies and links them to victims of illicit financial flows. The map depicts cases that have been uncovered, calling attention to shell-company-friendly governments and giving an idea of the harm they’ve caused. The map is live and Global Witness continues to add cases as they are discovered.

The Tax Justice Network (TJN) bolsters this work with the Financial Secrecy Index (FSI). The FSI “ranks jurisdiction according to their secrecy and the scale of their activities”.

Other organizations have estimated the losses to developing economies due to illicit financial flows. Global Financial Integrity (GWI) examines macro-level economic trends and trade mis-invoicing in its annual report on illicit financial flows out of emerging economies. With this data, they even produced a ranking of top 25 outflow countries between 2002 and 2011. In its report, GWI also displays average illicit financial flow to GDP ratio.

So, estimating and visually representing illicit financial flows is possible. A new corruption map could build on the work of Global Witness, TJN, and GWI. A next step for a new corruption map would be determining the directions of flows. That kind of map could look something like this:

moneyflowmapDo we really need another corruption map?

But Global Witness already produces a pretty good map, so why not just use that and build it up? While Global Witness has built its reputation — one of its founding members won a TED prize for her campaign on shell companies — Transparency International is still the best-known name in anti-corruption, cited most often by journalists and politicians, and the CPI is the most well-known anti-corruption resource. Thus, it would be my hope that Transparency International might embrace this concept and to consider this issue in its future mapping programs.

In addition to supporting advocacy efforts the new map can also have practical benefits for the business community. Compliance with anti-corruption legislation is slowly, but progressively getting stricter. TRACE and the Rand Corporation recently produced a new index and map on business bribery risk based on demands and input from the business community. A map on illicit financial flows can alert businesses to banking jurisdictions which government regulators may target and can be a due-dilligence tool as well. Additionally, companies looking to use corporate social responsibility as a brand advantage can use the map to demonstrate they are not contributing to illicit financial flows, but instead supporting local tax revenue and investment.

Making a new map wouldn’t be a dramatic shift for Transparency International; it would actually fall in line with other recent changes. First, the methodology of the CPI was changed in 2012 to address the long-standing issue of comparing the CPI between years. Second, a map focusing on illicit financial flows would bolster the direction Transparency International is taking on since the election of its new chair, José Ugaz. The former prosecutor who took down Peruvian President Alberto Fujimori is leading the organization from a predominantly advocacy role to a more confrontational ‘name and shame’ tactic in order to fight impunity.

A new map showing illicit financial flows would still face the corruption data challenge of complete accuracy, but it would go a long way in helping bring the discourse on illicit financial flows to the public and it would break the mentality that ‘we’ (in the West) are clean and ‘they’ (in the rest) are corrupt. Instead, it would show the shared challenge of combating corruption and allow deeper analysis into the factors facilitating specific illicit financial flows.

Postscript: After having read James’ work, I went ahead and asked a number of compliance  and risk professionals  for their perspective on this issue. Alison Taylor, Senior Managing Director, Control Risks, responded “I think a map of illicit financial flows would be great, though would be very interested in understanding where the data came from and the methodology used.”  Her colleague, John Bray, Director (Analysis) at Control Risks  shared that “Country ratings serve a purpose – different purposes depending on what goes into them and what comes out. Maps have a visual appeal that is hard to beat.” He added that with respect to James’ proposal “His current idea sounds interesting: it touches on the point that there are (at least) ‘two ends’ of corruption.” Philippe Montigny, CEO, Ethic Intelligence, added  “I do share your views, that while a new map can add value,  it is important to know the quality of the data that are used,  to avoiding conveying wrong messages.” Thus, it would appear that the main challenge is  data  driven, as opposed to the concept, and I would invite Transparency International to submit their own views of James’ mapping proposal.

Why Sanctions Alone Are Not Enough: The Nigerian Model

Why Sanctions Alone Are Not Enough: The Nigerian Model

Q: Hello Sven. I feel like I know you through your three part series in the Journal of Business Compliance, and our soon to be published roundtable. So, could you tell us a little about today’s Q and A? [1] 

Richard, thanks for the opportunity to talk with you about a topic that is very important to me. After having spent around 10 years for a major consulting company in the areas of financial performance management, risk management and compliance, I felt the need to understand a bit better of what actually drives business behavior when it comes to compliance, and specifically anti-corruption. I have seen too many clients and colleagues struggling to “sell” an anti-corruption program in their own company to senior management.

Are companies getting active because they are required to by law? Are they doing this because it is the right thing to do? Or does it actually make good business sense? So I was rather fortunate to spend the last 3,5 years working for a Governance School in Germany, researching and testing a combined approach of punishments (sanctions) and rewards (incentives), often referred to as ‘carrots and sticks’.

Q: Can you share some of your lessons learned from this experience?

The question of what appears to be the most effective way of making companies adhere to anti-corruption standards (e.g. law, code of conduct for suppliers) typically triggers the following reaction: companies and their representatives that behave wrong must be punished. But is this really the best approach?

There are more than 170 countries that signed up to the United Nations Convention against Corruption (UNCAC); and I am happy to say this list includes now also my own country,  Germany. But there were already companies out there that conducted business in an ethical way – based on principles of accountability, transparency, and integrity – even before the enactment of such conventions. And it is probably fair to say that another large portion of the business sector understood the relevance of investing in effective anti-corruption ethics & compliance programs after witnessing high-profile cases, where companies were fined billions of dollars and executives were sent to jail.

Q: So where do things stand now? Lets call it a global “snapshot.”

We need to ask ourselves the question: despite an increased awareness among companies of the negative social, economic, commercial and moral consequences of corruption, why are we still seeing so many cases of companies and their representatives engaging in corrupt acts?

I would say there are three practical arguments that may answer this question:

  • Companies are not afraid of getting caught: Companies do not fear negative consequences for being corrupt because they simply don’t get caught.
  • Companies are not afraid of getting punished: Even when companies get caught, the consequences (e.g. legal and regulatory fines) are not dissuasive enough, so being corrupt is still perceived as more profitable.
  • There is no real business alternative to corruption (in the short term): Even if companies are afraid of getting caught and fear negative consequences, they may see no other way of surviving in a competitive environment.

Let’s be hypothetical for a moment. Under conditions of perfect enforcement, dissuasive sanctions would increase the costs of corruption so substantially that they would be enough to convince companies not to engage in illicit acts. In other words, corruption becomes too much of a risk and is therefore seen as unprofitable. However, perfect enforcement conditions rarely exist and sanctions are very often neither applied nor dissuasive enough.

That means, one way – let’s call it the traditional way – of motivating business to counter corruption is to work on increasing the “fear factor”. Strengthening law enforcement, cooperation between national and international authorities and the protection (and rewarding) of whistleblowers are among frequent discussed topics. But these typically take time – and political will.

Q: But wait, isn’t that what is happening now? There is a lot of talk about more enforcement, greater international cooperation, etc? What about the continued stream of enforcement actions, now taking place not only in the US, but also in the UK, Germany and, Canada?

Indeed, we have seen a significant increase in law enforcement over the last years. And that is very positive; but there is still much that needs to be done. For example, the latest Transparency International report on enforcement of the OECD’s Anti-Bribery Convention [2] shows that “in half of the [OECD] countries there is little or no enforcement against foreign bribery”. Thus, we are still seeing a lot of environments where the threat of punishment exists only ‘on paper’, the situation ‘in practice’ looks much different.

So we need to work on this. But in the meantime, does that mean that in zones of weak governance there is nothing that can be done to get business’ attention? And even in environments with strong law enforcement, is the common approach of penalizing corrupt business really sufficient? I would argue that the answer to both questions is ‘No!’.

Q: Ok, so if sanctions are not working, what are the alternatives?

The reason why companies are in business is because they want to engage in profitable transactions. So we should use this raison d’être as a complementary approach in the fight against corruption, by offering incentives to companies that demonstrate good performance. If the commitment to counter corruption is linked to tangible business advantages, the likelihood is much greater that companies will actually make that commitment. Countering corruption is then not only seen as a way to avoid negative consequences, but as a way for companies to set themselves apart from their peers (and gain competitive advantage). This offers an alternative approach for companies that currently feel refraining from corruption translates directly into a loss for the business.

However, research has shown that such a complementary “incentive approach”, to date, is often underestimated or even unknown to those seeking to advance anti-corruption.

Q: Sven, with all due respect, this sounds quite utopian!

[Laughs] You are right; we are far away from mainstream. This has also been shown by our research. While our expert survey in 2012 showed that 92% of respondents agreed that preferential treatment should be applied to companies that demonstrate adherence to anti-corruption principles, it is still challenging to find such examples. But they are there and increasing by numbers. A remarkable and inspiring example can be found in a country that is seldom making positive headlines in the fight against corruption: Nigeria.

A Corporate Governance Rating System in Nigeria has been established, seeking to leverage the financial markets for advancing good governance and anti-corruption practices. How? By providing business advantages for companies listed at the Nigerian Stock Exchange (NSE) [3].  This flagship rating system was recently introduced to various market players including domestic and international investors, listed companies, international organizations and the general public. According to the Chief Executive Officer of the NSE, Mr. Oscar Onyema: “It is expected that companies will enjoy tangible business advantages from risk-oriented and/or ethically sensitive business partners and investors. In addition, competitors would be challenged to establish the same level of good governance by setting standards of excellence. Companies would not only set themselves apart from their peers, but also contribute to improving the climate for doing business in Nigeria.[4]

This statement sums it up nicely: Providing tangible business advantages to companies which demonstrate ethical leadership Twitter Iconmotivates even those companies which so far have not seen any value in countering corruption.

Q: Ok, that sounds nice, but having been to Nigeria, and having my credit card credentials stolen by the hotel, and twice overcharged on domestic flights, I am skeptical. So, would you mind giving us a few examples of how these incentives are actually applied, and what benefits a company enjoys when they rank well?

Companies can enjoy commercial advantages by attracting risk-averse or socially responsible business partners – both on a national and international level. This is especially important, as doing business in Nigeria is perceived as a high-risk venture due to the country’s high level of corruption. Nigerian companies that can demonstrate good governance practices can set themselves apart from their local peers and become much more attractive to inventors or international companies seeking local business partners [5]. The attention that this rating system has already gained in the business community in Nigeria and beyond already demonstrates that companies understand the benefits of being associated with such a system – and what it means if they don’t make the cut.

But there is no easy way of getting those benefits. Companies need to achieve a very ambitious score of 70% or higher in the ratings process. The process looks at a company’s Corporate Compliance, Fiduciary Awareness and Corporate Integrity, combining quantitative with qualitative assessment, so this is not just another ‘check the box’ approach. Also, the rating system has a more diverse and in-depth information base compared with other existing corporate governance ratings / indices. And finally, the rating process is very transparent, supervised by a multi-stakeholder governance board.

Because it is very clear, stakeholders will grant such incentives to companies only on solid and justified grounds.

Q: So, any parting thoughts?

Obviously, such genuine incentives are not a substitute for sanctions. But in addition to sanctions stakeholders need to start offering genuine incentives to business. The public sector could reward companies with granting public advantages, including public subsidies, licenses, public procurement contracts, contracts funded by official development assistance, and officially supported export credits [6] . Within the business sector, companies could motivate their business partners by offering incentives such as (but not limited to) preferred supplier status, assistance for capacity building, favorable payment conditions. And civil society organizations can publicly praise companies for outstanding performance.

There is much that can be done – and well, if it is taking hold in Nigeria, imagine the possibilities!

Sven Biermann is the former Director of Anti-Corruption Projects at the HUMBOLDT-VIADRINA School of Governance in Berlin/Germany and a recognized though leader, author and anti-corruption coach for business sector-related integrity measures. The author can be contacted at [email protected]

[1]      Extracts taken from HUMBOLDT-VIADRINA School of Governance, Motivating Business to Counter Corruption – A Practitioner Handbook on Anti-Corruption Incentives and Sanctions, 2013 (see also
[6]      As shown e.g. in the 2009 recommendations of the OECD Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions, Article
Bribery and the Classroom (not in the Classroom)

Bribery and the Classroom (not in the Classroom)

“Mr. Bistrong, in the complaint it was alleged that you were a conspirator in bribing foreign officials in multiple countries, such as Nigeria, the UK, and the Netherlands, as well as bribing UN officials. Were there instances in which you had opportunities to bribe other officials in other countries? If so, why didn’t you?”

Ouch. Tough question. And guess what, it didn’t come from a compliance professional at a symposium, or a Defense Attorney during cross-examination. It came from a student at Mike Koehler’s FCPA Law Class at Southern Illinois University.

Lately, there has been a great deal of writing about “teaching bribery and compliance” from a number of perspectives. That prompted my own research, where I have reviewed curriculum and course descriptions that speak to raising awareness of how “global business environments and practices” operate in the “real world” as part of the coursework. There are even “how to” books about bribery.

I’m skeptical.

But as this blog is a platform for inclusion as opposed to cynicism, I want to thank, as well as elevate, the perspectives of two professionals who invited me to address their classes as a guest lecturer. Mr. Koehler, who many know as the FCPA Professor, asked for me to come in via video to his “FCPA Law Class,” which specifically focuses on FCPA enforcement and FCPA compliance, at Southern Illinois University. Dr. Tim Hedley (Partner, KPMG) asked me to speak at his Fordham University “Contemporary Issues in Forensic Accounting” business class. What I found from both classes is that the students were extremely engaging, intelligent and wanting to know more about ‘what it’s like out there on the front line.’ Not only did they ask probing and insightful questions, but also they asked follow-on questions that I found quite challenging. It was like cross-examination without the stress and jury!

While I had prior thought that I had considered almost all the different elements with respect to my own experience, these students brought up issues that I had not considered. I had one psychology minor ask me if the sale of my family business (in the Defense sector) had any impact on my conduct and thinking later in my career. I am still pondering that one.

There is no shortage of textbook and case studies for today’s students. Obviously, this academic foundation is essential and appropriate. But what is the responsibility of today’s academic leaders to bring the front lines of international business to the front lines of the classroom? I am not talking specifically of my own experience with respect to corruption and bribery, but am also thinking of those who are currently on the front lines, and those who have retired from overseas positions. How about the perspective of those who made a career out of not paying bribes or agreeing corrupt transactions? While such perspective are certainly different to my own experience, they all provide lessons for tomorrow’s professionals, who will be tasked with providing legal, audit, and regulatory counsel to their future clients.

I recently participated in a Round Table discussion at the SIAS Corporate Governance Week via life-video feed to Singapore. The discussion topic was “Bribery and Corruption in Foreign Jurisdictions,” which was moderated by Professor Yuen Teen Mak, Advisor, SIAS Global Corporate Governance Conference. One of my co-panelists was Girija Pande, Executive Chairman at Apex Avalon Consulting Pte Ltd, and who spent the greater part of his career as Chairman and CEO of Tata Consultancy Services in Asia Pacific. During the discussion Mr. Pande shared his experiences about leading a large organization (Tata) in highly corrupt regions. Mr. Pande reflected on his practice of not engaging in corrupt activities, transactions and projects while still bringing value to both customer and company. For tomorrow’s professionals, these are the “real-world” perspectives that you don’t find in textbooks.  Twitter Icon

I don’t always agree with Mike Koehler’s perspective on FCPA matters, and I would probably be entirely lost taking Dr. Hedley’s accounting course! Yet these two professionals embraced an academic responsibility to their students to show them the “real-world” of overseas commerce. The fact that Mike Koehler and I disagree on a number of FCPA issues resulted in my even greater appreciation for his invitation. When I asked him after the class “why me?” he responded, “My students are engaged in a semester long study of the FCPA.  Having the ability to hear from an individual who violated the law they are studying, and being able to hear first-hand of real-world business conditions, was of tremendous value to the students and added an important dimension to the class.”

I asked Dr. Hedley the same question, not really considering the relationship between my own experience and a course on Forensic Accounting, and he replied, “No matter what I may do to teach students about FCPA, the Act remains an abstraction. You make the Act something much more tangible,” adding “from my experience, I can talk about the Act itself and how corrupt payments take place. But the real “why” corruption happens is best told from your perspective.”

Going back to all these articles about teaching the “real-world,” I hope that those leading tomorrow’s professionals will consider the possibilities of bringing the challenges of international business to their students. Bribery and corruption are real acts, engaged in (or refrained from) by real people, who ponder a decision when confronted with a corrupt transaction “to bribe or not to bribe.” By taking those who have faced those decisions in their own careers, and bringing them to today’s students, there is a tremendous potential to deepen their understanding of the issues which business personnel and groups face on the international front-lines.

As I reflect from these two examples, let me share that today’s students are ready for the experience, and based on their questions, they really want to know more.

Fordham small

(cartoon copyright Richard Bistrong, not for distribution)
Managing Corruption Risk: A Holistic Approach

Managing Corruption Risk: A Holistic Approach

In a Control Risks White Paper (link here),  “Risk, An Organizational Perspective,” author Alison Taylor (Senior Managing Director, Control Risks), states that “the traditional preventative approach to risk management is proving inadequate in the face of regulatory complexity, volatility and an environment of constant change.” However, as Alison continues, “what should replace it is not yet clear.”

In describing an organizational approach which goes beyond traditional “risk management” that is often “lacking in dynamism and commercial relevance,” Alison recommends that organizations consider “a holistic perspective that embeds risk consciousness into every part of their businesses, not just in the departments charged with formal regulatory or policing rules.” Indeed, while I have seen a tremendous and robust debate in the compliance community about the “internal processes” that appropriately need to govern anti-corruption compliance programs, what I have not witnessed is an equally healthy discourse about how a multidimensional approach to risk can impact compliance by addressing more than just “checks and balances.” I agree with Alison in that “treating corruption solely as a preventable risk stymies vital debate around these issues,” and I would add that such a gap comes at a time when the need for a more rigorous analysis has never been greater.

The current debate 

As much of the current debate reflects, companies continue to “view risk management as a cost, failing to incorporate it into strategic and commercial considerations.” In other words, the current qualitative and threat-assessment view, while essential, “often fails to cover the spectrum of risks companies face.” Furthermore, “companies tend to treat corruption as a ‘preventable’ risk and make anti-corruption implementation the responsibility of the compliance and legal department.” Such an approach stops the discussion from continuing to address “the full organizational implications of the risk management response.”

From my perspective, this behavioral based, or “threat assessment” approach to risk mitigation, appropriately focuses on audit, control, policies and procedures. As Alison well states, it is indeed essential, but the question remains, given the continued stream of FCPA and other anti-bribery enforcement actions being reported, is it working? Based on the continued rising tide of violations, I think not. Furthermore, this “traditional preventative approach” to compliance “does not tackle the full scale of the corruption challenge, which cuts across every aspect of a multinational company’s business.

So, where does the current model need to be challenged? First, while a CEO might think globally, when it comes to corruption risk, it is critical to understand that “all risks are not created equal, and different risks require different responses.” Indeed, in some cases, this analysis may have to be dissected on a country-by-country basis, as even within regions, generalizations as to the external environment might not be possible. As Jonathan Berman states in Success in Africa (2013, Bibliomotion), a great example is Africa, where businesses fail “because they fail to distinguish its parts, and because they fail to grasp its whole.”

Thus, in any risk analysis, there is no substitute for an understanding of local and regional risk, for as Alison states, those “are the risks that the company cannot mitigate through internal measures.” As Matteson Ellis describes in How to Pay a Bribe (chapter 8, 2014, Wrage), in certain regions, where the institutions of government are weak, procurement personnel are poorly trained and compensated, “bribe requests might be baked into the economic order.” In other words, know up front what the risk peculiarities are before you start rolling up sales forecasts and business strategies to your boards, shareholders and front line business teams.

The Alpha Strategy

When those risks are carefully analyzed and weighted at the start of the planning process, then organizations can better balance “risk and opportunity,” and consider the full implications of strategy on the rest of the org chart. As my friend Alan Kennedy states in his work The Alpha Strategies, you can’t plan strategy if you don’t know current strategy (see prior post). So why not bring in your front line business teams and find out how they are now confronting and potentially struggling with corruption issues? As I have shared before, the more upset you are by those conversations, the better they are going, as you can ‘fix what you know.’

Failure to embrace the strategic implications of risk, specifically corruption risk, into the planning process can result in employees not seeing compliance as “an essential part of organizational success,” and when that happens “process will not solve the problem.” Worse, where incentives are indexed to individual performance in low-integrity regions, and where forecasts do not reflect corruption risk, compliance can be viewed as “bonus prevention” at the front lines of international business, as employees ponder “what does management really want, compliance or sales?”

When the implications of risk “are not incorporated into business development and strategic plans,” and front-line sales teams are being given aggressive growth targets in low integrity regions, then what is the message to the front line?  As Alison states, at the field level, the message that nets out of this détente between compliance and strategy is that it might be necessary to “grease a few wheels” to win.

How things get done around here

When that happens, the ends of making and surpassing ‘plan’ often win out over the means of compliance, as employees will view the focus on financial gain as “the way things get done around here.” As Alison points out in referencing the work of those like Edgar Schein, this level of culture reflects the organization’s underlying assumptions, as being those traits “that are rarely, if ever discussed; they are taken for granted.” In other words “any risk management change effort that does not take into account organizational culture across divisions, locations and levels of seniority will never be ‘owned’ by the organization.” Worse, “it can never take root or succeed.”

When compliance is nothing but a “bolt-on” addition to “a business as usual approach-employees will quickly find themselves experiencing contradictory messaging and direction about what is important.” When that occurs, front line international business personnel will take compliance decisions into their own hands as to make choices about “what management really wants.” In sum, management needs to understand the risk that their front line teams face in their territories and factor those risks “into decision-making, targets and individual incentives.”

Where that intersects the organizational paradigm that Alison proposes, from my perspective, is at the level of “interpersonal risk management.” This part of her organizational response to risk addresses “how employees are motivated and rewarded and how these incentives are communicated and understood.” The question that organizations should be asking about their existing bonus and compensation packages is “it acceptable for them (employees) to walk away from business opportunities that might compromise the integrity of their company?” In other words, do employees know that they can ‘walk business’ back before compromising on their commitment to ethical conduct?

The ‘interpersonal’ response

When the interpersonal is addressed at the planning process, with a focus to insure that business strategy, financial forecasts and incentive packages are all aligned to the message of anti-corruption, then employees understand both the stated and unstated messages: “we do not bribe.” As Pia Adolphsen (Associate Manager of Marketing Content Strategy at The Network) reported in a compelling article about Coca-Cola, when approached by state employees who threatened a plant opening unless they were bribed, Coca-Cola said “no.” As a result, all the players in the ‘corruption ecosystem’, givers and takers included, understood the “company’s priorities: our values matter more than opening on time.”

As Alison states, when management addresses risk as a part of business strategy, going well beyond the “compliance and legal department,” with the consequential impact upon “decision making, targets and individual incentives,” compliance and commercial success are now indeed complementary goals. When this occurs, management has made the up-front decisions “as to whether to enter some markets, accepting a certain level of inherent corruption risk, or stay out of them so they can maintain stated ethical commitments.” These are the “clear-eyed” decisions that leadership needs to take, Twitter Icon as to remove the compliance-versus-success struggle at the field level.

In such cases, front line employees “understand the company’s strategy, mission and risk appetite.” Hence, the way people get “paid and trained around here” is the same as “the way things get done around here.” No longer will field personnel experience “contradictory messaging about what is important.” My appreciation to Alison and Control Risks for elevating this issue and to making a significant contribution to the existing “topsy-turvy” logic which often prevails.

A full copy of the Control Risk White Paper is available here.