FCPA Compliance and Ethics Blog

May 18, 2015

The Thrill is Gone: On the Intersection of CSR and the FCPA

BB KingYes indeed the thrill is gone as BB King died last week. While I cannot aver he was the bluesman ever as Keith Richards would say that was Robert Johnson, or he was even the greatest bluesman during my lifetime as Muddy Waters lived until 1965, he was certainly the most well-known and prolific bluesman I ever heard and therefore he had the greatest influence on my passion for the blues than perhaps any other. My favorite BB King song is Mannish Boy and album is “Live in Cook County Jail” which I was introduced to in law school by a law school buddy and his wife who hailed from Chi-town. So even though BB King is dead, his music and name will live on forever.

Somehow it seems fitting that the legacy of BB King inform today’s blog post which is about the intersection of Corporate Social Responsibility (CSR) and anti-corruption laws such as the US Foreign Corrupt Practices Act (FCPA) and UK Bribery Act. Last week I had the opportunity to visit with Alison Taylor, who is the Director of Energy and Extractives for BSR, for a podcast on the FCPA Compliance and Ethics Report. BSR is a global non-profit business network and consultancy dedicated entirely to sustainability that works through its 275 member companies and assists with sustainability and CSR issues. BSR does one on one consulting, grant funded research and collaborative initiatives, all to aid in bringing people together to solve problems that no single company can solve on their own.

Taylor has spent quite a lot of time studying organizational psychology looking at the organizational dynamics of corruptions and looking at what are the organizational culture characteristics of corrupt organizations. So before we got to her specific expertise in CSR, I asked her about some of her observations regarding the organizational issues that can lead to a high risk of corruption. We began with how excessive local autonomy can lead to corruption issues, where Taylor believes that a high corruption risk can derive from a “lack of oversight from headquarters leaving local leadership with a very, very heavy position with authority and ability to control and limit the information coming out of that team. You have an archetypal corrupt team in a remote location, very far from head office, with an autocratic command and control leader, very high pressure, unrealistic incentives, and then strong information boundaries, so a strong incentive not to share meaningful information with the rest of the company. Often very high performing, often getting very good results, but that is a melting pot of corruption risk, in essence.”

A second area where Taylor has seen corruption risks increase is where high pressure and high rewards can work to undermine business ethics and compliance. She said, “What you can end up with is, and this is something that hits sales people in remote environments in particular, is that these sales people are on the ground. They’re in Angola, they’re in China, they’re in a high-risk market. They’re being told simultaneously, “Whatever you do, don’t pay bribes. But whatever you do, grow your business by 20 or 30% this year, and we don’t really care how you do it.” Then what will happen is that that individual or that team will make a calculation about what the company considers more important. That’s where you see the [high] corruption risk. What I’m really saying is that companies are not aligning their strategies, their goals, their incentives, with their corruption checks and balances. It’s leaving employees with mixed messages.” While all of this might seem self-evident, I found her next observation quite interesting and one that is not always considered in an anti-corruption compliance program. It is that if you have a robust compliance program, and your internal messaging is not consistent, “Then you are, in parallel, incentivizing employees to have to meet sales targets that may not be realistic, given the characteristics of the external environment.”

Taylor tied these two concepts of strong local control and high pressure together in her next point. Where a company may have a very autocratic command and control structures and high pressure to meet sales goals, “The leadership is very demanding, very high pressure, telling the team “If you don’t meet these targets, your job is under threat.” There is a strong limit of bottom up information so people are discouraged from sharing their problems and sharing the pressures that they may be under, often so the leadership can maintain plausible deniability. That can play very heavily into oversight dynamics between the center and the region.”

We next turned to the intersection of CSR and anti-corruption programs such as those based on the FCPA’s Ten Hallmarks of an Effective Compliance Program and UK Bribery Act’s Six Principals of Adequate Procedures. I found Taylor’s initial comments telling as she stated, “if I were to say one thing about CSR and anti-corruption, it’s that those two conversations need to be brought together a lot more closely.” In other words, as in many areas of complimentary compliance issues Taylor has found that CSR programs and compliance practitioners tend to be siloed and do not interact enough. She went on to add that, “I think what we’ve got going on is that the anti-corruption department and the CSR department aren’t speaking the same language and aren’t talking about the same things. There needs to be a lot more thinking about what is appropriate from a community investment point of view and whether that violates anti-corruption standards.”

Taylor advocated companies stepping back and looking at CSR in conjunction with compliance in a more holistic approach. She stated, “There’s obviously a lot of, just the different language and the different thinking going on. Sometimes there will be some communication, but it most often takes the form of the compliance due diligence process and background checks slowing down the CSR team. What I think is really needed, is for companies to take a giant step back and look at their entire strategy.”

She also observed that “CSR programs, particularly in terms of community investment, community development, particularly for extractive companies, and particularly in high risk markets, they’re not exclusively in high risk markets, are an absolutely key part of the company managing its non-technical risk and maintaining a social license to operate, which is absolutely critical. The cost of community processes to extract its companies absolutely astronomical.”

Taylor’s thoughts and ideas resonated strongly with me and I would recommend that any Chief Compliance Officer (CCO) or compliance practitioner’s out there go do some checking into your company’s CSR initiatives to see if any are outside the US and would have FCPA implications. You may well have written a charitable donation tract into your FCPA compliance policy and procedures but your CSR program or initiative may be implemented separate and apart from your department. If you do have functioning CSR initiatives, you should review them for FCPA implications. You should also review your oversees operations to see if they meet any of the high risk criteria that Taylor identified to see if there are Red Flags which you may need to clear or simply greater FCPA risk management tools you need to put in place. While you are at it, listen to BB King Live in Cook County Jail on YouTube or download it from iTunes, slap on your headphones and enjoy some of the greatest blues ever created.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com. © Thomas R. Fox, 2015

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