Corrupt Practices Invading U.S. Companies?

by Michael Wynne

When I managed companies for Mobil in Latin America, I learned how to detect and avoid many of the dangerous corrupt situations that still threaten companies today.

On one occasion, an official of one nation’s tax department offered to lower our taxes as a “friendly gesture” (another term for the word Bribe).   Mobil did not approve of such actions.   I also knew that once a company bribes anyone, that person’s hand stays in your company’s pocket forever.  We diplomatically rejected the offer, even though we were concerned that the official might find a way to raise the company’s taxes.  In the end, nothing happened.

An internationally experienced colleague recently told me about an Asian government official who asked him if he could recommend the best American universities because he wanted to send his son to study in the United States.  My colleague gave him a list of the ten best U.S. colleges, and added that they were very expensive.  The official said that was not a concern as a European company was paying for the boy’s education and would send a check directly to the university (leaving no direct track of bribe). Why did he mention it to my colleague?  He probably felt there was nothing unethical about such an arrangement.

International bribery is common among European, Asian, and Latin American companies.  A German industrial firm paid $1.4 billion in bribes between 2001 and 2007.  A 2010 study by Transparency International showed that worldwide levels of corruption had risen in the past 3 years.

Although dishonesty is frowned upon when exposed, in many countries it is viewed as acceptable if you can get away with it.  People who get away with corruption are often considered smart for their ability to create new approaches.

Most Americans think that corrupt practices are something that only foreign companies engage in.  Not so; penalties for foreign corrupt practices by American companies are approaching $5 billion a year.  They are expected to grow as the Department of Justice and SEC increase enforcing the Foreign Corrupt Practices Act.

Surprisingly some people who should know better suggest that U.S. companies should be allowed to use bribery in order to better compete with foreign companies.

The Chicago Tribune recently published an article by columnist Steve Chapman titled, “A Bribery Ban Backfires”.  Walmart’s alleged $24 million dollar bribery of foreign officials during the company’s aggressive expansion in Mexico, currently under investigation by the Department of Justice, may have inspired the article.

Chapman suggested the U.S. government withdraw the Foreign Corrupt Practices Act, which prohibits American companies from bribing foreign officials.  He argued that the Act is unfair to U.S. companies because it places them at a disadvantage when competing against foreign companies that have been using bribery for years to grow their businesses.

In essence, the article implies that the end justifies the means, in other words, if corruption helps a company compete more effectively, then it’s OK.  Just because many European and Asian companies compete using bribery does not mean at corruption outside the United States should be acceptable for U.S. companies.

Chapman may not realize that corruption is double-edged sword.  It is a dangerous infection that spreads within companies that foster it.  By approving bribery, companies create an internal culture of corruption that comes back to bite them.

Eventually, word gets around that the company is engaged in corrupt practices.   By showing its own people that corruption is acceptable, the company opens the door to internal corruption.  The same people that handle the company’s corrupt practices will see opportunities to “get a piece of the action”.

Company leaders cannot turn a blind eye to corrupt practices anywhere.   The tone of morality and ethics has to be set at the top.  CEOs, board directors and senior executives may think they will not suffer any consequences.  They are wrong.

The Foreign Corrupt Practices Act says it is management’s responsibility to monitor their company’s foreign practices and, if they don’t, they will be held accountable.  Companies will be penalized millions of dollars, executives will be prosecuted and convicted, and company profitability will decrease sharply.

Trust and reliability are indispensable elements of business relationships everywhere.  In the end, the cost of corruption is much higher than the benefits.   Doing what is right may be costly, but doing what is wrong will be far more costly.

Even though your company may have clear guidelines for avoiding foreign corrupt practices, it is hard to know where or when they might appear.  Ninety percent of the corrupt practices that involved U.S. companies weren’t caused by their employees but by intermediaries.

“A stitch in time saves nine” applies to this threat.  We can help your company avoid these dangers.□

 

Michael Wynne is known as the Real World Business Speaker, Profitability and Innovation expert.  He is President of International Management Consulting Associates. He helps companies develop innovative growth and profitability strategies. A thought leader speaker, fluent in English and Spanish, with over 30 years top management and global operations experience, he works with CEOs and business owners bringing them real business world understanding and practical solution. You may contact him at mykwyn@aol.com