Rationalizing Bribery: Corruption Has No Witness.

This is part three of my four part series on how I "Rationalized Bribery."  It addresses the reality that there are usually no witnesses to overseas discussions involving an actual or potentially corrupt transaction.

As tweeted by Ben DiPietro, Wall Street Journal Reporter,  @BenDiPietro1 during my interview with Wall Street Journal Reporter Chris Matthews at the April 23, 2014 Dow Jones Global Compliance Symposium (DJGCS):

"bistrong: usually no witnesses when sales person deals with third party vendors and talk turns to bribes."

For the most part, front line sales, marketing and business development personnel travel alone to their overseas territories.  Agent meetings (maybe including a public official) also usually occur without anyone else present. 

You Get Close, You Get Comfortable

Adding to "lack of witnesses" dynamic is the relationship which develops between an overseas employee and in country intermediaries.

The tradition and cultures of many countries leads to a great deal of social interaction outside of work hours.  My own relationships with agents developed and grew over the course of ten years.  We had obligatory evening meals, often in the home of an agent.  Over time, I even took vacations with agents and their families.  Some agents insisted I not stay in a hotel, but as a guest in their home. We became friends and as these relationships grew so did the level of comfort in the conversations.

During the course of my sales travels, casual discussions led (on a number of occasions) to the agents explaining to me, in barely masked language, that they were paying bribes to win contracts.  One of the first times this happened to me, I was on vacation with an agent I had known for years.  I had no reason to suspect he was corrupt, but on this vacation, he explained to me how he was "paying tolls" to win contracts.  

As I shared at the Dow Jones Symposium, the agent had presented me with a dilemma.  I have won contracts with this agent in the past.  I am hoping to secure future contracts.  And now he tells me about paying bribes (I didn't need to clarification as to the "wink and nod" language).

For Compliance Professionals, this is a simple "call home" moment.  Withdraw from all transactions with this agent, and inform Legal and Compliance.  Simple, right?  Not necessarily for sales or marketing employees, as the thought process can be far more complicated.  This is where the rationalization process can take hold and dictate decision-making.

For a sales, country manager, or marketing person, it is more than just walking away from a transaction, it means walking away from the entire third party relationship.  For these employees, there are not just short term financial consequences, but also the loss of all future deals, sometimes with regional implications.

As an example, see my post on Cisco and Russia (see post), where once the Cisco employee allegedly heard talk among agents about paying bribes, he was reported to have walked out of the room, not to report the conversation or undo the deal, but just to maintain deniability.

Add in Procurement Instability and Financial Incentives to Create the Perfect Storm.


As Ben DiPietro @BenDiPietro  tweeted during the DJGCS:

"bistrong: to pay a bribe or sever a relationship is more complicated decision than compliance people think."

In other words, when the employee hears talk of corruption, he or she might rationalize going forward due to vague language and lack of witnesses.  Add in procurement instability (see prior post) and incentive compensation (see prior post) to create a Perfect Storm for a bad decision – "I am not going to see this tender come back for quite some time.  If I lose it, a large part of my forecast and bonus projection will be gone, so why make trouble?"

As Maryam Hussain states in Corporate Fraud, The Human Factor, "it is often the case that a narrowly defined objective – an ever growing sales target to achieve bonus, a consistent progression of earnings per share to maintain an upward trending share price – takes precedence over everything else and can lead to employees stepping over the line to achieve the goals that have been set." Furthermore, the impact of not having a witness to these events can have an tremendous impact on that "stepping over the line" moment. 

As I have shared before, if the C-Suite preaches compliance but the sales incentive package awards "winning the sale" above all else, how will that employee determine whether management wants compliance or sales?  

Private conversations between agents and corporate personnel are not the red-flags that get picked up in an audit or routine review. These red-flags are only seen and heard by the international sales, marketing and business development teams.

I invite comment to how training and compliance programs address such scenarios.  Up Next: One more element to complete the "Perfect Storm of Rationalization."

GSK, "Free Samples," and a New Business Model.

On April 16th, 2014 Hester Plumridge and Christopher M. Matthews, Wall Street Journal, reported that GlaxoSmithKline (GSK) is investigating claims that its employees bribed doctors "in Jordan and Lebanon by offering perks such as flexible travel arrangements and free samples that doctors could sell on..." (for the full article, link here).  GSK, as reported in the article, stated that the allegations "relate to a small number of individuals in these countries." In their press release of 16 April, 2014 "GSK Statement on Media Reports," (link here), GSK disclosed the number of violations, breaches, dismissals and warnings with respect to sales and marketing misconduct,  claiming "these numbers are very similar to those reported by other companies in our sector." Well, is that a good or bad statistic?

Nonetheless, what really caught my attention with respect to this article was the use of "free samples" as part of the "incentive scheme," as juxtaposed  to GSK's "rouge employee(s)" insinuation. While I am not an investigator, journalist nor compliance practitioner, I do have some experience when it comes to controlled samples (assuming these drugs are subject to some level of regulatory and customs control), and thus, I think there is an additional component to this issue.

From my perspective, it would be difficult, if not impossible, for a salesperson to transfer samples for re-sale, either through carrying such samples to the end user, which would require a carnet (see here for carnet information), or even by shipping them, without other individuals and departments knowing that these samples would never return to their point of origin. Furthermore, when shipping or carrying samples, there are numerous customs and regulatory declarations that the samples are either going to be returned, or that they are not subject to re-sale, or both. Thus, at minimum, we have what could be a serious disregard for customs and export declarations in this scheme. 

Again, assuming that given the business in which GSK operates, that they have strict shipping and accountability protocols, including internal and perhaps regulatory audit, that the "we didn't know" just does not square with this type of operation.  It requires too much internal and customs paperwork for such samples to simply "disappear" without  the knowledge of  support and/or management personnel.  Furthermore, one would think that Glaxo would have internal tracking protocols which would alert them when product simply "disappears." As someone who spent over a decade dealing with the issue of controlled samples and international shipments, there is, most likely, a logistical and/or managerial underbelly to this story, beyond the "its just a few." Expensive sample drugs, such as those referenced in the article,  just don't disappear without someone signing off on the expense. 

Maybe Its Part of a Greater Issue, Maybe....

One day later, as reported in Reuters (link here), GSK appeared to have broadened their reaction, given prior corruption issues in other countries, including China, declaring that they will commence to "build a new sales model designed to eliminate sharp marketing practices."  What caught my attention was the quote attributed to GSK Chief Medical Officer James Shannon when he stated  that "sometimes you have to step backwards to move forward.." and continued, "this is an entire rethink about our business practice." When I hear a C-Suite executive publicly stating that the company is looking at a total shift in the business model when it comes to their international business strategy,  I pay attention. 

Why? Because it means that management has accepted that a tinkering of the existing model, including a shifting of compliance and ethics priorities, will not suffice in addressing the issue of international corruption. Its too deep, and even if not "discovered," it remains too engrained in the operating mentality of the international sales, marketing and business development teams which operate in high-risk regions known for corruption.  Thus, it appears in this report, that GSK is no longer content with their problems being "similar to those reported in other companies."

So, What are the Alternative Models?

Coincidentally, while reading the current reporting on GSK, I had the benefit of getting a link on  the HBR Blog Network called "How GE and IBM are Playing Global Development to Win," by Jonathan Berman, as posted on April 16th, 2014 (link here). I read Mr. Berman's post, then immediately ordered his book Success in Africa: CEO Insights from a Continent on the Rise  (link here). In his post, Mr. Berman lays out what I consider to be no less than a total change in  international business modeling, whereby GE and IBM (as two examples) analyze countries not as customers but as business development partners.  It is a mutual investment of time and resources to identify the infrastructure challenges a country faces and then to examine the potential role that the corporation can play in meeting those challenges.

Mr. Berman describes compelling examples of how both GE and IBM used the "development to win" model in order to "spur economic development and create opportunities for their companies." Thus, it is not your traditional "sales cycle" approach to business development with the standard marketing SWOT analysis (strength, weaknesses, opportunities and threats); it is much deeper, as it engages the customer, and in this context we are speaking of state owned entities, as a partner,  not just a  recipient of products and/or services.  Futhermore, in my opinion, it also reduces the level of risk which impacts overseas compliance, bribery and corruption by taking a longer term and patient approach to international business development.

Long Term Vision and the Reduction of  Risk

Again, from my perspective, a longer term horizon with respect to the international sales cycle means less exposure to corruption risk. Why? In many countries and regions the sales cycle is unstable, subject to delays due to regime change, personnel turnover, funding delays and procurement instability. Much of the history of  FCPA enforcement relates to companies trying to "overcome" these instabilities. Thus, a long term vision, as stated by Mr. Berman, includes:

• An upfront "investment of money and time to understand the growth challenges" in the perspective country.

• "Senior management and board involvement." Adding that "companies playing development to win have CEOs traveling to the region 2-3 times per year, supported by engagement of the full management team." Accordingly, here we have the involvement of the C-Suite in the international business development process, stepping outside the normal organizational groupings of sales and marketing personnel.  

• A vision of earnings, investments and returns which are "long term" and "its common to invest for a decade or more before shareholders see material earnings."

As Mr. Berman concludes, "The companies playing development to win need the institutions and policies with which they are engaging to yield tangible results," which in the case of infrastructure investment in state entities, means providing the benefits of those projects to the citizenry. Thus, going back to the paradigm shift, if we think of transactions involving bribery and corruption as producing short term gains, where the immediate beneficiaries are the companies receiving the contracts and those receiving the bribes, this model takes that gain out of the equation. In the "playing to win" model, the vision is long-term, whereby both the corporation and the state both have a sustainable investment in one another, and results are delivered to their mutual constituencies in order bring long term value to all.  It is a positive definition of mutual dependence and both parties have a lot to lose if they don't deliver meaningful value.

In my view, this shift takes the entire debate on corruption and compliance, both in terms of ethics and programs, to a different level of engagement. I am looking forward to reading Success in Africa, CEO Insights, from a Continent on the Rise,  for deeper understanding.