Ethics In An Unethical World

business ethicsFred Davidson was stifling in the unbearable heat of a midsummer’s day in 2002. Temperatures in the corrugated steel warehouse hovered around 100 degrees. Weeks earlier, Energold Drilling, a global drilling solutions company that operates 270 rigs in 24 countries across the Americas, Africa and Asia, had imported several drill rigs into the country. The rigs were now blanketed in a fine layer of dust. For nine hours straight, the customs agent ticked off one supposed problem after another with the rigs’ components—none of them actual regulatory infringements.

It was a test of wills between the two men. “It was not a lot of money he wanted, but in no way were we going to set a precedent,” says Davidson, who is Energold’s CEO and a director on its board. “If I was going to shed a few pounds of weight in that warehouse, he was going to shed a few pounds with me.”

Finally, the customs agent backed away from his unspoken expectation of a payment and released the rigs. “I had sent a clear message that we would never solicit preferential treatment for a bribe,” Davidson says. “Some companies just pay it, figuring it’s the cost of doing business and they won’t get caught. But it’s a slippery slope.”

This slope remains just as slippery in 2019 and is a growing risk for corporate boards of directors at fast-growing global companies. Not only is corruption a financial disaster for the companies they serve, it can dig into their own personal pockets. “Board members, as individuals, may be held civilly and criminally liable if they lack knowledge ‘about the content and operation of the (company’s) compliance and ethics program,’” says Pamela Passman, citing boilerplate from the U.S. Department of Justice. Passman is the CEO of the Center for Responsible Enterprise and Trade (CREATe), a non-governmental organization promoting anti-corruption best practices.

Aside from financial liability, board members have a responsibility to ensure that business strategy and the objectives of the company’s anti-bribery program are aligned, says Passman. “The challenge is that global oversight of bribery and corruption is complex, and there’s a limit to what boards can review,” she adds. The price for companies that downplay these risks has never been higher, says David Montero, author of Kickback, a history of corporate corruption. “Federal law enforcement agencies both in the U.S. and abroad are showing greater determination to crack down on corruption,” he explains. “Fines also are mounting, with the Justice Department pocketing more than $11 billion since 2006. Now, more than ever, board members should be apprised of the corruption risks involved in global expansion.”

A GROWING CONCERN

It is now 42 years since the Foreign Corrupt Practices Act (FCPA) came into law in the U.S., yet bribery continues to be the “cost of doing business” in many countries worldwide. The United Nations estimates that corruption eats up some 5 percent of the world’s GDP, a shocking figure. The most crooked places on Earth to do business are Somalia, Syria, North Korea, Venezuela, Iraq and Haiti, and the least corrupt are Denmark, New Zealand, Finland and Singapore, according to Transparency International’s 2018 Corruption Perceptions Index, the leading indicator of public sector bribery on a country-by-country basis.

It’s the countries in between that give pause for consideration. India ranked 78th of the 180 countries on the list, tied with Ghana and Burkina Faso. Argentina ranked 85th, and China and Serbia shared an 87 grade. Although Vietnam’s economy is soaring, the country ranked a dismal 117 in a tie with Pakistan. What about the U.S.? It was ranked 22nd, sandwiched between France and United Arab Emirates. The U.S. received a score of 71 on a 0 to 100 scale in which 0 is most corrupt and 100 is least. Somalia, at the bottom of the list, received a score of 10.

To be sure, FCPA, and FCPA-like laws in places like the UK, Brazil and Canada, and the equally punitive provisions of the OECD Anti-Bribery Convention, ratified by 43 countries, have had an effect. These varied regulations prohibit companies and their representatives from influencing foreign officials with payments or rewards to receive preferential treatment in obtaining or retaining business.

Civil and criminal sanctions for anti-bribery violations are significant and sobering. As directors know, FCPA authorizes the U.S. Securities and Exchange Commission to bring civil enforcement actions against company officers, directors, employees and stockholders. If determined to have committed the violation, they must disgorge the ill-gotten gains, pay substantial civil penalties and may even be imprisoned. Sixteen companies paid a record $2.89 billion in 2018 to resolve FCPA cases.

“We’ve seen significant reduction in bribery-related crimes by U.S. companies in the past dozen years,” Montero says. “For roughly 30 years, FCPA criminalized commercial bribery overseas, but enforcement was laughable. The Justice Department had one full-time prosecutor, literally the same guy from 1977 to 2005. No one gave the law much thought.”