Rationalizing Bribery: A Perfect Storm from the Field of International Sales.

On April 23, 2014 I was interviewed by Chris Matthews, Wall Street Journal Reporter, at the Dow Jones Global Compliance Symposium, in a keynote interview entitled "Informing on Bribery." The session started by discussing elements of my cooperation with US law enforcement, including my disclosures to the Department of Justice and FBI concerning overseas corruption in which I had participated, as well as witnessed, during my career in international sales.  These initial disclosures, made during my proffer sessions at the Department of Justice, ultimately commenced my two and half years of covert cooperation with US and UK law enforcement. I addressed how the FBI witnessed, during my cooperation, the "wink and nod" language of foreign bribery, as confirmed by my first consensually monitored conversation in July of 2007.

Mr. Matthews then turned the questioning towards "what was I thinking" as I encountered corruption in my overseas work. My initial response to his question was that it was a "perfect storm of rationalizing risk," which I broke down into four elements:

1. International procurement instability.

2. Personal incentive compensation.

3. Lack of witnesses.

4. Illusion of no-victims.

Over the next week, I will post on each one of these factors, which all contributed to my "rationalization" of bribery as I encountered it during my international sales experience. To be clear, I make these observations in no way to "justify" my behavior, or even to "explain it away." To the contrary, my goal here is to open the window with respect to my thinking and how I rationalized overseas corruption. My hope is that by sharing my experience, compliance professionals and practitioners might better understand the forces facing international executives, and to better assist them with the  tools and training to help them manage the risk they face, especially the front line personnel, who are, in my experience, the most exposed to foreign corruption in their work. As Wall Street Journal Reporter, Ben DiPietro, tweeted during the interview "I knew (what) I was doing was wrong but I rationalized my risk." Well, here's how:

International Procurement Instability. Winner Take All or Win Big-Lose Big.

Having spent about half my career (the first half) as a VP responsible for US law enforcement and US military sales, I could easily describe that procurement environment as stable. As I shared with Mr. Matthews, take a fifty mile radius around Washington DC and consider all of the surrounding federal, state and local agencies, each one of which has a procurement department(s). These procurement agencies all purchase goods and services on a regular basis. It does not matter if there is a change in departmental leadership, a new President, a new Mayor, etc, the purchases continue. If a procurement official goes on vacation, takes leave, retires, etc, there is someone to take his or her place in the bureaucracy. In addition, the frequency of purchases ranges from long sales cycles (as in large military contracts), to smaller, high-frequency purchases. For a sales person, this is a stable environment and one which can easily be modeled into a sales forecast. If a sale is lost to a competitor, there will be another agency to go after, or that same agency will be buying again in the near future.

Contrast that environment to overseas procurement, regardless of product or services. In many countries, including EU and NATO members, the Ministries at the national level procure goods and services for the entire country, from the federal to local level in a single integrated contract. Thus, in those countries, the contracting entity is concentrated in a specific national Ministry, be it Health, Finance, Interior, Defense, etc.  In addition, those contracts, which cover the purchases for the entire country, often have renewal and escalation clauses which reduce the probability that they will be offered again for public tender in the near future. In my experience, it was common for a Ministry of Defense or Interior to award a contract and to use renewal clauses over the course of three or four years.

So, How Does that Impact an International Sales Executive?

It means that in a territory there will be a small number of tenders for the products/services that he or she sells, and that those tenders will be significant in value. In addition, if the sales person "loses" the tender to the competition, it means that in terms of the identified market segment, there will be no more business opportunities, perhaps, for years to come.  Thus, for the sales person, and for the company, in most overseas countries, it is "win big or lose big" for sales to state controlled entities.

Is That All?

No. Moving outside the NATO and EU community, procurement instability gets dramatically magnified. In addition to the infrequency of tenders and their large financial scope, there is also the unpredictable and unstable nature of the procurement process as a stand alone issue. Such instability, which can stall, delay, indefinitely postpone, or even cancel a procurement, can be attributable to the following issues which I have encountered the most:

• Regime Change  and Personnel Turnover. I list this bullet point first as it is probably the most common reason for procurement delay or cancellation. In many countries, a change in regime can cause a cancellation and re-bid of all outstanding tenders in the State Ministries. In addition, where there is not cancellation, many of the tenders, even those awarded, will be indefinitely delayed, as existing procurement personnel are often replaced. Such turnover in procurement staffing due to regime change is common. In extreme cases, the funding for all outstanding procurements is cancelled, and the entire tender and sales process starts from the beginning. 

I recalled a transaction in my interview where I had sales responsibility for a  procurement which was funded and licensed, yet delayed for over a year, due to regime change. The change in leadership had caused a significant turnover of personnel in the Ministry, and one of the people who needed to sign the final release of the purchase order was no longer employed  and had to be replaced. One year for a single signature: how can you account for that kind of instability in a sales forecast? 

• Logistics. In many countries, even after a purchase order is funded, signed and issued there can be indefinite delays due to licenses (if regulatory agencies are involved) and/or the arrangement and costs of logistics, including warehousing, shipping and forwarding.  I was involved in a transaction where the purchase order was executed, funded and secured, but there was a negotiation over which party would pay and arrange for the transportation costs once the goods had arrived in port, including storage fees. That negotiation lasted almost six months, mostly driven by the end user (who was a public official). Again, circumstances beyond the control of an international sales person, but one which makes for instability in the planning and forecasting process, both on the personal (as in bonus compensation) and corporate level.

What Does This Have to do with Rationalization of Bribery?

A lot. This is the procurement environment in which overseas sales, marketing and business development people operate. Infrequent but large volume tenders, delays subject to regime change, personnel turnover and logistics, all of which make the entire sales process extremely unstable. If we are talking about sales personnel with high personal performance sales goals as part of their incentive compensation (the next part of this storm), creates tremendous pressure, as it becomes difficult to predict and achieve performance goals.  In other words, the sales person starts to think, "if I miss this sale, I doubt I will see this opportunity again any time soon,  and even if I do win  it, I don't know when it will actually be booked and shipped. A miss here will destroy both my forecast and bonus."

If we are talking about a public company environment, the challenge gets dramatically magnified, as sales and expense forecasting, which are usually on a rolling and quarterly basis, are a part of corporate life. Nonetheless, how can you forecast for a "win all-lose all" tender? How can you predict when an order will get shipped and billed when it is subject to all kinds of delays due to regime change, personnel turnover, etc? All this makes for vulnerability if a corrupt offer is presented. Accordingly, this backdrop of procurement instability is a major part of the "rationalization process," even if mostly an unseen one.

More to come.

Why Transformation Efforts Fail: Lesson 3.

As introduced last week, John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, Harvard Business School, in “Leading Change, Why Transformation Efforts Fail,” (HBR, January 2007) discusses why companies seeking to change the way they operate in a new “more challenging market environment” often encounter internal institutional resistance from “those in the trenches of the business,” and why “leading change is both absolutely essential and difficult.” Today I will continue to follow Kotter’s outline by focusing on his third “common error”  as  relating to my own experiences, and to bring the reader through Kotter's thinking  so that  others may “avoid the common pitfalls.” For those who are interested in learning more, including the details of eight unique steps to transformation, here is a link to the work.

Lesson 3: "Lacking a Vision."

First, the simple question, of which there have been many answers in academic and corporate discussions-: "what is vision?" Kotter defines it as "a picture of the future that is relatively easy to communicate and appeals to customers, stockholders, and employees" with the additional, and critical caveat that vision "helps to clarify the direction in which an organization needs to move." So, what happens when vision is not clear or well articulated in the process of transformation? As Kotter explains, the process "can easily dissolve into a list of confusing and incompatible projects that can take the organization in the wrong direction, or no direction at all."

In the context of a company looking at corporate transformation when it comes to FCPA compliance and ethics, this "vision thing" is more than just lip service to a "sound bite." To the sales person sitting and traveling in an overseas territory, far away from the home office, if that vision is not amplified at the start, it can become diluted, distorted, and at worst, ignored,  through each level of the org chart, as it gets communicated "downward."  All it takes is one person in the communication process, maybe a sales manager, a business development executive, or perhaps even a divisional leader, to say to that person in the field, "don't worry about that stuff, just focus on selling," and all that transformational  effort at the corporate level melts away and never  touches the person(s) most likely to come into contact with foreign bribery: the overseas sales and marketing team.  I once heard a Global (yes, Global) VP of Sales at a large multi-national company refer to his compliance department, after a major FCPA training conference, as the "business prevention department." So, for the sales team working in that organization, looking for direction, operating in remote territories, what did the corporate vision mean to them?  Back to my "kidney stone" management analogy. Its going to hurt during the process, but "hang tough" through the pain, and it will be back to normal soon enough.

So, in my experience, while I agree with Kotter that vision needs to be clear and well articulated, it also needs the "lesson 2" mandate of a powerful and broad guiding coalition to insure that it is heard as loud in remote foreign capitals where the sales team operates, as it is in board rooms of the home office. Thoughts?

Why Transformation Efforts Fail: Lesson 2.

As introduced yesterday, John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, Harvard Business School, in “Leading Change, Why Transformation Efforts Fail,” (HBR, January 2007) discusses why companies seeking to change the way they operate in a new “more challenging market environment” often encounter internal institutional resistance from “those in the trenches of the business,” and why “leading change is both absolutely essential and difficult.” Today I will continue to follow Kotter’s outline by focusing on his second “common error” as to bring the reader through his thinking  and “avoid the common pitfalls.” For those who are interested in learning more, including the details of eight unique steps to transformation, here is a link to the work.

Lesson 2: "Not Creating a Powerful Enough Guiding Coalition."

In my own experience, I think this is perhaps one of most deadly of the transformational sins, as it often only takes one person who is out of  alignment in the coalition of change, to impact how change is perceived by those in an organization, especially by those "lower in the org chart." Kotter recommends bringing in personnel from the organization who are not at the C-Suite level in the reform process as such efforts where the current system is failing “generally demands activity outside of formal boundaries, expectations and protocol.” Kotter spends a great deal of time discussing the necessity of a powerful “guiding coalition” as to not “underestimate the difficulties of producing change.” He adds that "if the existing hierarchy were working well, there would be no need for a major transformation."

Taking this lesson to the sales field in the context of FCPA, again, I  bring up the oft used sales perception that management needs to pick either "compliance or sales," as a dangerous zero sum game in the goal of driving an anti-bribery culture and program.  By bringing  sales leadership into the transformational process, which I have yet to either hear about or experience (and I invite comment with examples), the C-Suite demonstrates that they "hear the voice of sales" in the process, and that both global and regional concerns will be addressed and valued by corporate leadership in the implementation of change. Furthermore, I agree with Kotter in that it does not have to be the VP of sales or a high level executive. More appropriate, it might be a regional sales manager in a territory which ranks low on the integrity index, as that person would be able to represent some of the most challenging issues in encountering foreign bribery to management as part of a transformational effort in rolling out an anti-bribery culture and program.

I once worked with someone who had a career in the military (as an Officer) and he told me a story that really had an impact on my thinking, and I think it is relevant to today's post. He shared with me how he was implementing a major initiative which required a great deal of work among his direct (non-commissioned Officer) reports, if it was to succeed. He told me how he got them all into a room and made everyone cover up their insignia, himself included, to discuss the program.  He then solicited  their opinions of his initiative, and asked for open and honest feedback, explaining that for the discussion, rank did not exist. He shared with me that he got incredible insights from the field, made some adjustments based on those comments, and had great results. Just ponder that for a minute, that as an Officer he did not need to either bring others into his thinking, nor solicit feedback, but as he shared with me, once his reports knew that they were "part of the team" they worked double hard and double-time to make it a success. That's what I call a powerful coalition!

Welcome.

Welcome. My goal in the launch of this Blog is to engage and stimulate discussion with respect to the existing field of anti-bribery compliance efforts. How? By endeavoring to present compliance professionals with a real world sales and marketing perspective on foreign bribery based on my own personal experience, from a career in international sales to my Federal sentencing. I look forward to sharing my journey with you, and would welcome constructive comments on current compliance and enforcement trends, especially as they impact international sales and marketing organizations.

Furthermore, I hope that my experience, inclusive of my US/UK cooperation, as well as US Plea and sentencing, might provide some value and insight to other individuals and corporations who are dealing with the reality of compliance "on the ground". In addition, I will look for comments and observations as to how compliance policies are best  articulated and implemented, especially within a sales and marketing organization. Thus, in order to  exchange views, I would like to invite other professionals to guest blog and comment on relevant and challenging issues with respect to FCPA compliance.

Thank you.