FCPA Compliance and Ethics Blog

March 25, 2014

Tales from the Crypt: Rule 3-Appearances Matter and May We Have the Envelope, Please.….Part II

Filed under: Best Practices,compliance programs,Ethical Leadership,Ethics — tfoxlaw @ 12:01 am

Tales from the CryptEd. Note-this week on am on a Spring Break college tour with my daughter. The Two Tough Cookies whom are penning the Tales From the Crypt Series have graciously agreed to contribute a week’s worth of workplace Tales from their crypts so help illustrate some key compliance and ethics concepts. Today is Part II of a lesson that appearances do matter…

Trying to step around the delicacy of the situation, I asked Carl when he returned a few moments later if there were any other “irregular” activities that occurred at the meeting.  The blank look I got from him made me uneasy.  I couldn’t tell if he was waiting for me to ask more leading questions, or if he really had no clue what more I could possibly want from him.   Swallowing hard, I started to ask direct questions about entertainment that was brought in by the business partner as part of the evening’s activities.

“Nonsense” he exclaimed, explaining he never saw any women at the dinner, but then followed with an explanation that he left the dinner early, and went to bed by himself when Mark and the Chinese  business partner suggested they move the meeting into the Karaoke bar next to the restaurant. For those of you who are novices to Chinese culture, Karaoke bars in industrial/manufacturing regions of China are, simply put, an a la carte venue for prostitutes to display their talents.  While I still had no confirmation, nor clear rebuttal, to the allegation of prostitution against Mark, there really was only one inference that could be drawn from the evening’s activities.   I then counseled Carl on the receipt of “red envelopes,” and the negative inference of corruption that could be drawn from the act of accepting one in front of colleagues.  He explained that it would be insulting to refuse it when given, to which I replied that the obligation that it created, in Chinese culture, was one that would be difficult to ignore, and that there were diplomatic ways to handle the situation in the future, such as letting the benefactor know that you plan to give the proceeds to a charity in the joint name of the benefactor and the recipient.  If done at the time of the gift, with thanks for the gesture, but not accepting the gift personally but on behalf of others such as a charity, it creates a positive outcome for both, with no residual obligation on the recipient’s part.  He thanked me for the feedback, acknowledging that he never thought that such a gesture would result in a hotline call.

It’s such a fine line to cross between counsel, and confrontation.  When placed in a position of preserving the public trust of the company, I take my job seriously.  People tend to keep their distance from compliance professionals, perceiving us as the “corporate cop,” and you simply don’t get a second chance to make a first impression.  My “style” of active listening – drawing others out, asking probing questions – can sometimes come across as confrontational, especially if they are already pre-disposed to see those of us in the compliance function as a “cop.”  Yet once individuals have an opportunity to work with me a bit more, they realize I am simply probing for their thoughts and feelings to get a better understanding what is behind their assumptions and beliefs. When they realize my intentions are simply an attempt to gain a deeper understanding, they appreciate that I allow them the opportunity to find their own way, and make their own mistakes.

Knowing this about myself, I was acutely conscious of the delicacy of the situation before me – Mark had accepted a red envelope (as had Carl), and there was also an allegation of impropriety on a personal front, that, if true, would devastate Mark’s family if it were to become known.  While I didn’t want to ignore the inquiry for the sake of harmony in the hallowed executive suite, I knew that if I tempered back my probing ever so slightly while practicing a great deal of restraint (even though I may have already known the answer to my question), to allow others to naturally progress through their analysis, I will limit the opportunity for maladaptive behaviors such as avoidance or blatant denial. I had to carefully manage how strong I came across at the outset in dealing with him – both his and my career were on the line.  Even the best-intentioned compliance professionals can be the victim of “management override.”

It was clear that the matter of the red envelope was a simple matter to resolve through appropriate counseling.  The amount at issue had a US dollar value of less than $15 – it didn’t even meet the threshold for our gifts and entertainment policy.  But the inference of prostitution, combined with a red envelope, was a different matter.   There was an object lesson to be learned here.  Add to that the complexity of the rumor mill at corporate that Mark had “gone native” I now faced a counseling session of epic proportions.  Dare I delve into the loss of trust (at corporate) in Mark’s personal attributes as a leader for “going native,” weaving my concerns into the allegations of corruption and prostitution, or leave well enough alone, and simply stick to the facts?  Would I be doing Mark a service by somehow threading in to our conversation the lack of confidence percolating about the water cooler, using the hotline call as an example of leadership accountability?  Should I even engage in such a conversation? At another, more sophisticated company, I might have called upon the organizational effectiveness team to help tackle the thorny issue, but I had no such resource here.   What I faced was the President of one of the company’s largest operating divisions with a crumbling personal reputation, and the company reeling from the scandal of an FCPA violation on his watch, compounded by personal conduct that left little room for interpretation.  I was compelled to act, and I had the whole Board of Directors watching my every move.

“Mark, we have a problem” I said when he entered my office the next week, arriving from Shanghai for a mandatory business meeting with the CEO in advance of the announcement of the annual earnings.  “Please come see me when your meetings with Don are done today – there’s a hotline call in which you are implicated in some misconduct that we need to discuss. I’ve asked Pauline to carve out some time on your calendar for us to meet here in my office where we can have some privacy.”  Later that day, Mark decided that meeting with me didn’t warrant his attention, a fact I was clued into by Pauline when he asked her to make dinner plans for him and cancel his meeting with me.   That raised yet another red flag, clearly signaling that Mark believed he was insulated from my scrutiny.   In a rare move of executive arm wrestling (which I am loathe to employ except when given no other choice), I called the CEO, and told him I needed to clear the hotline call allegations against Mark, but Mark did not seem to believe our  meeting was important, and I would appreciate his “influence” with Mark so we could put this to rest.

Mark’s impatience with me when he arrived at my door later that day was bristling like a porcupine backed up against a tree.  “Did you have to call Don about this?” he asked – “You’ve made me late for a dinner meeting.” “Don already knows the nature of the call, as does the entire Board of Directors.  I would have thought you’d jump at the chance to clear your name as a trusted executive in this company.  Am I wrong?” I asked.  Mark’s ego deflated instantly, as he realized that my request to meet with him was not something he should have taken lightly.

I told Mark I realized he was busy, and if he was open and honest with me, we should be done in time for him to still make his dinner meeting with friends.  But I had some things that needed to be cleared up, things that couldn’t wait.   I asked him to recall any dinner meetings he had in a particular city during the first week of February.  At first, he did not remember any meetings, then recollected a meeting when I reminded him about a train ticket expense entry.  I asked him if there were any gifts exchanged at the meeting and he answered no.  I then asked him if there was any entertainment provided at the meeting, and he said that he and the business partner went into the Karaoke bar that was attached to the hotel after dinner to do some shots and continue their conversation.  I asked him to explain why there was no hotel charge reported for that trip. His first response was “there isn’t?” Then he replied that the charge had been direct billed to the company.  So now I had, from Mark, an admission that he had frequented the Karaoke bar (a brothel), a denial of receiving the red envelope, and a missing hotel charge.

Here’s where pushing too hard can backfire while using the appropriate amount of tact and diplomacy can save the day.   I reminded Mark of his responses to me, and then outlined the hotline call allegations. I told him that I had witness statements that he had received a red envelope from the business partner, and that the hotline call also claimed he had engaged the services of a prostitute.  I told him it was troubling that he had visited the Karaoke bar with the Chinese business partner, and that after reviewing all his expenses for that month, including direct billings, there didn’t appear to be a hotel charge for that evening, leading me to draw a conclusion of impropriety on his part.  I then pulled out the red envelope I had just received from the executive witness from under a pile of papers on my desk, and asked him if it looked familiar. The color drained from Mark’s face instantly.  Mark retracted his earlier statement and said “Oh yeah! I remember now – Carl and I got one, but the amount was so miniscule I didn’t think about it. In fact, I just handed it to some woman on the street that had a kid with her the next day.  But I never slept with a prostitute!”  “Did you, or did you not, go into the karaoke bar with the business partner, Mark?” I asked.  He nodded yes, but again, denied sleeping with a prostitute.

I explained to Mark that I wasn’t there to judge his personal conduct, but others were.  I explained to him that being a leader put him under a microscope, and every act he took would be weighed and judged by those he had a responsibility to lead.  I told him I understood his lack of concern over the red envelope, but witnesses to the event could not determine how much the envelope contained, and that the appearance of impropriety, given all the facts, led his team to lose trust in their leader. The hotline call was the result. I also told him that actions such as this would give corporate pause to think about whether or not he was losing touch with things that mattered to us here in the States.   I relayed to him the same advice I had given to Carl, concerning the receipt of gifts from business partners, but also told him drinking shots during business meetings is never a good idea under any circumstances.

No, the allegation of engaging a prostitute was never cleared.  The Board felt that the Shanghai team would benefit from a greater corporate presence, and my trips to Shanghai became a monthly occurrence starting the following month, while I slowly but surely restored our Shanghai staff’s confidence in the executive leadership team.   Within 6 months, Mark was asking to be placed in a position in the States, and instead, a shipping container was secured to ship his personal effects back home upon his termination.  Yes, appearances do matter….

Who are the Two Tough Cookies? 

Tough Cookie 1 has spent the more than half of her 20+ legal career working in the Integrity and Compliance field, and has been the architect of award-winning and effective ethics and compliance programs at both publicly traded and privately held companies.  Tough Cookie 2 is a Certified Internal Auditor and CPA who has faced ethical and compliance challenges in a variety of industries and geographies and recently led a global internal audit team. Our series “Tales from the Crypt: Tough Choices for Tough Cookies” are drawn largely from real life experiences on the front line of working in Integrity & Compliance, and personal details have been scrubbed to protect, well, you know, just about everyone… 

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