Insights for General Counsels and Compliance Executives
Over the past few years, tougher enforcement of anti-corruption laws has become the norm. In 2011 that trend continued, as there were numerous Foreign Corrupt Practices Act (FCPA) enforcement actions taken by the SEC while new laws such as the U.K. Bribery Act were enacted. It is against this backdrop that AlixPartners wanted to explore the ways in which companies are thinking about their anti-corruption efforts. To do so, we surveyed general counsels and other senior executives at multinational companies with annual revenues of $250 million or more. In particular, we focused on those executives who are responsible for business ethics and compliance with anti-corruption and anti-bribery laws.
Our goal was to better understand the ways in which companies are preventing, identifying and addressing corruption risk. We wanted to determine whether executives were confident about their compliance policies and, in light of new regulations and strict enforcement of existing laws, whether they were altering their approach to anti-corruption. We asked participants about their compliance policies and the regulations that are having the most impact. In addition, we wanted to know how successful they have been at preventing risks, and if so, which business practices they believed to be the most effective.
Here is what they had to say.
In our survey, two-thirds of participants indicated that they have reassessed their anti-corruption activities due to regulations such as Dodd-Frank and the U.K. Bribery Act. In addition, 90% of participants said they have implemented or planned to implement anti-corruption training. Participants indicated that their companies operated in industries such as technology, manufacturing, business services, aerospace, and insurance, among others. Of note, 41% of participants perceived their industry to be at significant risk for corruption; 54% said there was some risk.
A GLOBAL CONCERN
Corruption has clearly become a global problem, according to our survey. Given this trend, we wondered which parts of the world were perceived as having the most exposure to corruption and bribery risk.
Participants were asked to identify the geographic regions and countries in which their companies did business and those that they perceived to pose the most risk. Southeast Asia led all regions, with 83% of participants identifying that region as the one that posed the most corruption risk (participants were allowed to select multiple regions). Africa came next, followed by China, Russia, and the Middle East. Mexico and Central/South America (excluding Brazil) each received 69% of responses. Interestingly, 30% of participants indicated that the United States posed a significant risk. It is perhaps not surprising that China, Southeast Asia, the Middle East, and Russia were identified as having significant risk, as doing business in these countries often requires involvement of government officials.
IMPACT OF ANTI-BRIBERY LAWS AND OTHER REGULATIONS
Our survey shows that the new laws and the uptick in FCPA enforcement actions are clearly having an impact on the way companies do business. In particular, 74% of participants said that their activities related to compliance with the FCPA increased in the past year. Two-thirds of participants said that they were reassessing their internal anti-corruption compliance activities due to the U.K. Bribery Act, which is perceived by many to be a tougher law than the FCPA.
In light of the new whistleblower protections in Dodd-Frank, companies are also making a concerted effort to identify and address corruption issues internally. As a result, many appear to be developing mechanisms that facilitate the reporting of incidents or other concerns. Accordingly, 80% of participants said their company has already implemented or plans to implement a hotline for reporting issues. Perhaps it is not surprising, given that the SEC’s whistleblower awards fund continues to increase the monies available for payout to qualifying whistleblowers.
ADDRESSING THE RISKS
Amid a heightened enforcement environment, companies are committing more resources and adopting new policies to address the risk of corruption, according to our survey.
Which policies are being implemented? And, more important, which ones have been effective in helping to identify and address corruption risk?
The results of our survey indicate that three business practices stand out as the most effective in reducing corruption risk: employee training, scrutiny over books and records, and involvement of audit committees and boards of directors in anti-corruption compliance programs.
Participants also noted that they have been placing foreign subsidiaries under a greater level of scrutiny. Nearly half of all participants said that their companies have training efforts focused specifically on this group. As we noted earlier, regions such as Southeast Asia, China and the Middle East are clearly perceived as risky places to do business. Yet when asked whether they had reduced their exposure to some regions of the world, a majority of participants (59%) said no.
In addition, 60% said they had not scaled back their relationships with vendors and other third parties, such as agents, consultants and distributors. It will be interesting to observe whether these trends continue in 2012. It will also be interesting to see whether companies increase their due diligence of third parties, particularly in light of the U.K. Bribery Act’s strict liability offense for commercial organizations that fail to prevent bribes paid by persons associated with their business.
THE CHALLENGES OF COMPLIANCE
Despite establishing new policies and expanding the use of practices to prevent corruption risk, companies still face hurdles when implementing anti-corruption programs, according to our survey. Nearly half (46%) of participants cited inadequate staffing as a problem, while 40% said the need to customize policies and procedures on a country-by-country basis was a significant constraint. And while most participants (90%) said their companies already have or plan to implement employee training, a third said they do not evaluate whether those programs are adequate. It will be interesting to see whether companies take steps to fully understand the effectiveness of their compliance programs in the future.
We’d like to thank those professionals who participated in our survey for providing valuable insights into the state of anti-corruption compliance. Based on their responses, we believe that there are a number of trends in anti-corruption compliance worth watching in 2012.
For general counsels and compliance executives, the challenges in preventing, identifying, and addressing corruption risks loom large. As companies seek to take advantage of growth overseas and become subject to local laws and practices, the need to adopt policies and develop due diligence protocols that can account for these risks will only increase.