FCPA Compliance and Ethics Blog

September 26, 2014

West Side Story and GSK In China – Board Oversight and Tone in the Middle

West Side Story IIYesterday, I celebrated the anniversary of one of America’s cultural lows. But today, I am extremely pleased to open with exactly the opposite, that being one of America’s greatest gifts to the performing arts. For on this day in 1957, the musical West Side Story premiered on Broadway. There are so many facets to one of the great, even greatest, works of musical theater. Leonard Bernstein penned the score, Stephen Sondheim wrote the lyrics, Jerome Robbins choreographed the dance and the story was by Arthur Laurents, inspired by Romeo and Juliet.

There are many great songs, dances and moments in the play. Most of us (at least of my age) outside New York were introduced to the play via television where it ran for one showing in 1971. The show never toured until the 2000s. When I finally got to see the stage production I was absolutely blown away. I had never seen anything like and it and I will never forget the 5-counter point singing by Tony, Maria, Anita, Bernardo and the Sharks, and Riff and the Jets, as they all anticipate the events to come that night in the song Tonight’s Quintet. The show truly is one of America’s gems.

I thought about the continuing appeal of West Side Story as a musical and why the story continues to resonate with the American people when I continued to consider some of the lessons learned from the GlaxoSmithKline PLC (GSK) matter in China. Today’s areas for reflection should be the role of a company’s Board of Directors and the second is the ‘tone in the middle’. While we have not heard from the GSK Board on this case, it has become clear that the GSK Board was aware of both the anonymous whistleblower allegations and the release of the tape of the GSK China Country Manager and his girlfriend. One of the lessons learned from the GSK scandal is that a Board must absolutely take a more active oversight role not only when specific allegations of bribery and corruption are brought forward but also when companies are operating in high risk environments. Further how can a company move its message of doing business ethically and in compliance down the employee chain.

In a NACD Directorship article, entitled “Corruption in China and Elsewhere Demands Board Oversight”, authors Eric Zwisler and Dean Yoost noted that as “Boards are ultimately responsible for risk oversight” any Board of a company with operations in China “needs to have a clear understanding of its duties and responsibilities under the FCPA and other international laws, such as the U.K. Bribery Act”. Why should China be on the radar of Boards? The authors reported, “20 percent of FCPA enforcement actions in the past five years have involved business conduct in China. The reputational and economic ramifications of misinterpreting these duties and responsibilities can have a long-lasting impact on the economic and reputation of the company.”

The authors understand that corruption can be endemic in China. They wrote, “Local organizations in China are exceedingly adept at appearing compliant while hiding unacceptable business practices. The board should be aware that a well-crafted compliance program must be complemented with a thorough understanding of frontline business practices and constant auditing of actual practices, not just documentation.” Further, “the management cadence of monitoring and auditing should be visible to the board.” All of the foregoing would certainly apply to GSK and its China operations.

Moreover, the FCPA Guidance makes clear that resources and their allocation are an important part of any best practices compliance program. So if that risk is perceived to be high in a country such as China, the Board should follow the prescription in the Guidance, which states “the amount of resources devoted to compliance will depend on the company’s size, complexity, industry, geographical reach, and risks associated with the business. In assessing whether a company has reasonable internal controls, DOJ and SEC typically consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.”

To help achieve these goals, the authors suggested a list of questions that they believe every director should ask about a company’s business in China.

  • How is “tone at the top” established and communicated?
  • How are business practice risks assessed?
  • Are effective standards, policies and procedures in place to address these risks?
  • What procedures are in place to identify and mitigate fraud, theft, and corruption?
  • What local training is conducted on business practices and is it effective?
  • Are incentives provided to promote the correct behaviors?
  • How is the detection of improper behavior monitored and audited?
  • How is the effectiveness of the compliance program reviewed and initiated?
  • If a problem is identified, how is an independent and thorough investigation assured?

Third parties generally present the most risk under a Foreign Corrupt Practices Act (FCPA) compliance program and are believed (at least anecdotally) to comprise over 90 percent of reported FCPA cases, which subsequently involve the use of third-party intermediaries such as agents or consultants. But this is broader than simply third party agents because any business opportunity in China will require some type of business relationship.

One of the major failings of the GSK Board was that it apparently did not understand the actual business practices that the company was engaging in through its China business unit. While $500MM may not have been a material monetary figure for the Board to consider; the payment of such an amount to any third party or group of third parties, such as Chinese travel agencies, should have been raised to the Board. All of this leads me to believe that the GSK Board was not sufficiently engaged. While one might think a company which had received a $3bn fine and was under a Corporate Integrity Agreement (CIA) for its marketing sins might have sufficient Board attention; perhaps legal marketing had greater Board scrutiny than doing business in compliance with the FCPA or UK Bribery Act. The Board certainly did not seem to understand the potential financial and reputational impact of a bribery and corruption matter arising in China. Perhaps they do now but, for the rest of us, I think the clear lesson to be learned is that a Board must increase oversight of its China operations from the anti-corruption perspective.

GSK Chief Executive Officer (CEO) Sir Andrew Witty has certainly tried to say all of the right things during the GSK imbroglio on China. But did that message really get down into to the troops at GSK China? Moreover, did that message even get to middle management, such as the GSK leadership in China? Apparently not so, one of the lessons learned is moving the Olympian Pronouncements of Sir Andrew down to lower levels on his company. Just how important is “Tone at the Top”? Conversely, what does it say to middle management when upper management practices the age-old parental line of “Don’t do as I do; Do as I say”? In his article entitled, “Ethics and the Middle Manager: Creating “Tone in The Middle” Kirk O. Hanson, listed eight specific actions that top executives could engage in which demonstrate a company’s and their personnel’s commitment to ethics and compliance. The actions he listed were:

  1. Top executives must themselves exhibit all the “tone at the top” behaviors, including acting ethically, talking frequently about the organization’s values and ethics, and supporting the organization’s and individual employee’s adherence to the values.
  2. Top executives must explicitly ask middle managers what dilemmas arise in implementing the ethical commitments of the organization in the work of that group.
  3. Top executives must give general guidance about how values apply to those specific dilemmas.
  4. Top executives must explicitly delegate resolution of those dilemmas to the middle managers.
  5. Top executives must make it clear to middle managers that their ethical performance is being watched as closely as their financial performance.
  6. Top executives must make ethical competence and commitment of middle managers a part of their performance evaluation.
  7. The organization must provide opportunities for middle managers to work with peers on resolving the hard cases.
  8. Top executives must be available to the middle managers to discuss/coach/resolve the hardest cases.

What about at the bottom, as in remember those China unit employees who claimed they were owed bonuses because their bosses had instructed them to pay bribes? Well if your management instructs you to pay bribes that is a very different problem. But if your company’s issue is how to move the message of compliance down to the bottom, Dawn Lomer, Managing Editor at i-Sight Software, provided some concrete suggestions in an article in the SCCE magazine, entitled “An ethical corporate culture goes beyond the code”, where she wrote that that the unofficial message which a company sends to its employees “is just as powerful – if not more powerful – than any messages carried in the code of conduct.” Lomer suggested that a company use “unofficial channels” by which your company can convey and communicate its message regarding doing business in an ethical manner and “influence employee behavior across the board.” Her suggestions were:

  1. Reward for Integrity – Lomer writes that the key is to reward employees for doing business in an ethical manner and that such an action “sends a powerful message without saying a word.”
  2. The three-second ethics rule – It is important that senior management not only consistently drives home the message of doing business ethically but they should communicate that message in a short, clear values statement.
  3. Environmental cues – Simply the idea that a company is providing oversight on doing business ethically can be enough to modify employee behavior.
  4. Control the images – It is not all about winning but conducting business, as it should be done.
  5. Align Messages – you should think about the totality of the messages that your company is sending out to its employees regarding doing business and make sure that all these messages are aligned in a way that makes clear your ethical corporate culture clear. 

The GSK case will be in the public eye for many months to come. Both the UK Serious Fraud Office (SFO) and US authorities have open investigations into the company. Just as the five counter-point singing or the rooftop symphonic dance scene to the song America demonstrates the best of that art form; you can draw lessons from GSK’s miss-steps in China now for implementing or enhancing your anti-corruption compliance program going forward now.

And while you are ending your week of considering GSK and its lessons learned for your compliance program, crank up your speakers to 11 and listen to some five counter-point singing the movie version of the Tonight Quintet, by clicking here.

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, 2014

August 3, 2011

3 Countries, 3 Approaches, 1 Powerful Bribery Act

Ed. Note-today we are pleased to host our the newest addition to i-sight.com, Dawn Lomer for a guest posting. 


As the implications of the News Corp scandal wend their way across the pond with a real possibility of US charges being filed, the global reach of anti-corruption legislation becomes more and more evident. A UK, US or Canadian company has to be concerned not only about abiding by the laws of its own country, but also the laws of any country under whose jurisdiction some of its activities may fall. This is especially true today, in light of the new UK Bribery Act, with power to prosecute some foreign companies for bribery that takes place anywhere the world.

At the same time, there’s considerable pressure, from the OECD for example, for countries with weak anti-corruption legislation and enforcement to step up to the plate and take responsibility for preventing and prosecuting corruption on a global scale. Canada has come under recent scrutiny for its weak anti-corruption laws and dearth of prosecutions.

Canada Tackles Corruption

This criticism may be about to change, however, says Anthony Cole, a UK lawyer practicing in Calgary with Christine Silverberg, retired Chief of Police and lawyer of the firm Wolch, Hursh, deWit, Silverberg & Watts.  He cites the establishment of two RCMP overseas anti-corruption teams inOttawaandCalgaryas a positive sign for strengthening anti-corruption measures in the country. “This is especially so in light of the statement by representatives of those teams that they have over 20 active investigations,” he says.

Cole compares the situation in Canada to that of the UK several years ago, when law enforcement agencies in the UK, led by the Serious Fraud Office, realized that the UK Proceeds of Crime Act, and in particular the civil recovery powers created under that Act, could be a powerful tool in tackling corruption.

Long Arm of the UK Bribery Act

“The new UK Bribery Act will provideUKlaw enforcement authorities with a far more effective means of ensuring the successful criminal prosecution of companies and individuals who engage in, or indeed fail to prevent, bribery overseas,” he says.

“It will be interesting to see whether the Proceeds of Crime Act will continue to be used frequently in overseas bribery cases, or whether the favored approach will be to prosecute solely under the Bribery Act whenever possible. I think that, at least initially, there will be a desire to use the new Bribery Act, but what happens in the long term will probably be determined by the success of the prosecutions in the early stages of the Act being in force”, says Cole.

US is the Global Champion in Anti-Corruption

A fundamental difference between theUKandUSlegislation governs overseas corruption: in contrast to theUS, the UK Bribery Act is not restricted to the corruption of public officials, but also applies to purely private sector bribery. “In this regard, its scope is significantly wider than the US Foreign Corrupt Practices Act (FCPA),” says Cole. “That said, theUShas a remarkable track record in handling overseas anti-corruption cases, and is, at present, the unquestioned global champion in the fight against corruption. The means through which theUShandles such cases, though, is different.”

Cole explains that most overseas corruption cases handled by US authorities do not result in criminal convictions following trial, but rather are dealt with as civil violations or are resolved by plea agreements or deferred prosecution agreements at a very early stage.

“The favored approach ofUSlaw enforcement agencies dealing with corporate overseas corruption cases seems to be to encourage self-reporting and an early plea or settlement by the corporation, resulting in a huge fine or disgorgement, but often allowing the corporation the opportunity to issue a face-saving joint press-release with the relevant law enforcement agency,” he says. Law enforcement agencies, in this way, can secure a high-profile victory without committing vast resources to each case, so they can deal with a much larger number of cases.

Serious Bribery as a Serious Crime

The settling of bribery and corruption cases by what might be described as plea bargaining, and the frequent  use of civil settlements of civil recovery proceedings (which might involve a joint press-release), was adopted by the Serious Fraud Office in the UK, says Cole, but it received withering criticism from one of the UK’s most senior criminal judges, who appeared to suggest that the criminal justice procedure applied to perpetrators of serious bribery should be no different  from that applied to burglars or rapists. The Serious Fraud Office vowed to change its practices, reflecting the preference of the English Courts to see serious bribery and corruption dealt with by criminal process, rather than by civil process and plea bargaining, as appears to be favored by US authorities.

Dawn Lomer the Corporate Journalist at Customer Expressions, developers of i-Sight investigative case management software. With 20 years of experience as a writer and editor in Canada, the Caribbean and the Middle East, she brings a global perspective to the subjects she covers. She joins Lindsay Walker in writing for the company’s blog i-Sight.com.

Ed. Note-The prior post of this blog incorrectly miss-spelled the name of the author. The correct spelling is Lomer.

August 1, 2011

The Benefits of Investigating Employee Complaints

Filed under: compliance programs,Investigations,Lindsey Walker — tfoxlaw @ 1:46 am

Ed. Note-today we are pleased to host an article by our colleague from north of  the Border, Lindsey Walker of i-sight.com. 

Managers can’t sit with their hands over their ears chanting “lalala I can’t hear you”. Ignorance is far from bliss when it comes to workplace misconduct. Ongoing misconduct such as fraud, theft, discrimination and other activities can lead to an unsafe workplace, as well as significant costs to an organization. Failure to address employee complaints about any of these activities can only cause more trouble for you and your organization.

Ignoring Complaints

I came across the article, “Careful Investigation of Internal Complaints May Reduce Fraud Exposure,” written by William H. Maruca, Esq. and Carl J. Rychcik, Esq. Partners at Fox Rothschild LLP for Becker’s Hospital Review. The article discusses the number of incidents that were reported internally before an employee filed a lawsuit:

“A recent study by theNationalWhistleblowersCenterfound that 89.7% of employees who eventually file a lawsuit, such as a False Claims Act case, initially reported their concerns internally, either to supervisors or compliance departments. In other words, a lawsuit was only filed after the employee failed to get satisfaction from the employer’s handling of the issue.”

The numbers above send a loud message to employers – investigate employee complaints! The article goes on to explain:

“Many of these cases could potentially have been mitigated and/or prevented by (1) having a sufficient internal compliance program in place, and/or (2) carefully investigating any complaints and reacting appropriately. Taking some simple steps before a lawsuit is filed can ultimately mean the difference in preventing litigation and/or saving significant money.”

Investigations are Key

Here are 5 reasons why you should always investigate internal complaints:

1. Investigations help organizations prove that they take their code of conduct and other workplace policies seriously by enforcing rules and consequences.

2. Investigating employee complaints allows you to find out whether or not a violation of the company’s policy has in fact occurred. Should a lawsuit arise or the government gets involved, you’ll be better prepared to handle inquiries if you investigated promptly and secured necessary evidence.

3. Investigations can be expensive, as we’ve learned with cases likeAvon, but lawsuits aren’t cheap either. Investigating employee complaints helps reduce risks and keeps your reputation intact. Companies have been rewarded for being cooperative and taking initiative by conducting internal investigations. Companies that fail to investigate are often slammed in the media and criticized by the public for their lax approach to misconduct.

4. Encouraging internal reporting helps you detect misconduct in its earlier stages. The sooner you investigate, the sooner you put an end to the misconduct reported. For fraud cases, this is particularly important, as stopping fraud sooner results in less money lost to fraud.

5. Investigating employee complaints allows you to identify patterns of misconduct and take the necessary steps to prevent it in the future. If you find that a significant number of investigations deal with sexual harassment, then you might want to take that as a sign that more time needs to be spent on that subject during employee training. Use the information from investigations to guide employee training and revamp policies, emphasizing on the problem areas identified by employee complaints.

Lindsey Walker can be reached at LWalker@customerexpressions.com.

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