China Bribery Crackdown Underscores the Need for Stronger Compliance Programs and Risk Assessments

Recently, the Chinese government reported that GlaxoSmithKline (GSK) would agree to pay almost $500 million in fines to settle allegations of bribery, and that some former GSK employees would receive prison sentences. While this announcement is newsworthy, it is only the most recent in a string of government official bribery allegations in China and elsewhere.

Many companies think that something like this could never happen to them. However, the recent GSK announcement is difficult to distinguish from other allegations and settlements in the United States under the Foreign Corrupt Practices Act and also in the U.K., with its Serious Fraud Office’s investigation of violations of the UK Bribery Act.

This case and others like it demonstrate that this can and does happen—even to companies with mature compliance programs and resources.

Damage to Reputation Is Hard to Undo

Warren Buffett has been quoted as saying, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”As a case in point,one of the major impacts beyond financial penalties in high-profile cases is often the loss of a company’s hard-earned reputation.

Once a company’s name and reputation are linked with a serious compliance failure, it often falls victim to copycat investigations. While there may be a debate about whether this is fair and whether all allegations can be proven, the negative fallout and impact on a company in terms of resources can be huge. The damage to a company’s reputation is already done even before the allegations are proven or settled.

The greater danger may be the loss of future business opportunities, particularly if the company serves the U.S. or other governments. In some cases, allegations of bribery, fraud or other misconduct, if proven, may make a company ineligible for future business for a period of time. The allegations may also give a company a “black eye” that makes customers less interested in doing business with it.

The True Costs of Compliance Failures Go Well Beyond Dollars

The most direct costs of compliance failures are the fines and the penalties paid to settle a matter. In addition, the cost of investigating claims and modifying compliance programs can be significant.

The recent Walmart Mexican real estate investigation is a prime example of this. The associated annual costs reported in the Walmart annual and quarterly reports are in the hundreds of millions of dollars. And these are sunk costs at this point, regardless of whether the allegations are ultimately proven.

Less obvious costs associated with these high-profile matters are the hours spent by employees, especially the C-suite and the board on damage control, investigations, depositions and other distractions. These are hours that could be better spent on strategic planning and operational efficiency, which benefit both employees and stakeholders.

Five Steps for Mitigating Bribery & Corruption Risk

What can you do to inoculate your company from the possibility that one day you open the paper to find a headline alleging that your company has endorsed or ignored a scheme of bribery and corruption?

  1. Conduct a risk assessment, especially with respect to bribery.
  2. Use automated, data-driven third-party due diligence to reduce the likelihood of engaging unscrupulous agents.
  3. Have clear policies and code of conduct language that addresses company policy on gifts and anti-bribery—and conduct serious training to support it.
  4. Have readily available hotlines for reporting and investigating misconduct.
  5. Conduct an external risk assessment of your program to expose gaps and promptly mitigate them.

Each of these elements can have a strong impact on identifying weaknesses and plugging the gaps before an issue makes it to the desk of a regulator and the front page of a newspaper. When implemented together, these five steps can lead to a stronger, more effective anti-bribery compliance program.

Chat with a solutions expert to learn how you can take your compliance program to the next level of maturity.

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