In 2009, AON Ltd was fined £5.35million by the FSA for failing to take reasonable care to establish and maintain effective systems and controls to counter the risks of bribery and corruption. It had policies in place, but it was ruled that these policies were inconsistently implemented and inadequately monitored. It was the largest fine ever administered by the FSA.

As AON found, the challenge for an organisation is not the creation of appropriate policies and codes of conduct but what happens afterwards and whether they are implemented effectively. Just as a project can be judged to be effective only if its benefits are realised, so a compliance programme is successful only if the members or employees of an organisation adhere to it.

Proper implementation programmes have a proven value in courts of law. Regulations are increasingly including something called a “due diligence” clause which puts the onus on the individual or organisation to prove that they acted to prevent the activity happening – a move away from the “identification doctrine” which requires the law to prove that an individual is at fault (sometimes difficult, especially in a larger organisation where senior executives can be at some distance from the functional decision making). Clause 7 of the UK Bribery Act is an example of this due diligence clause:

“A relevant commercial organisation (“C”) is guilty of an offence under this section if a person (“A”) associated with C bribes another person intending – (a) to obtain or retain business for C, or

(b) to obtain or retain an advantage in the conduct of business for C.

But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”

The recent Dukes vs. Wal-Mart case in the US (the largest class action in history) provides further evidence of the value of enforcing written policy. The plaintiffs were required to prove that Wal-Mart “operated under a general policy of discrimination”, but the Court found no proof of this. Wal-Mart’s “announced policy forbids sex discrimination” and, importantly (as AON was unable to prove) they also had evidence that they implemented the policy. The court proceedings report: “as the District Court recognised, the company imposes penalties for denials of equal employment opportunity”.

Knowing that you have to make sure people do something is easy: the difficulty for many companies is striking the right balance between control and autonomy. A very controlled, process-driven environment is appropriate in some businesses, or in some specific areas of business such as food processing, but if you get too heavy handed in the wrong place, you’re stifling management autonomy, and imposing excessive and sometimes counter-productive restrictions and costs on operations. It’s really important to understand how the specific risks of infringement relate to each department, or country of operation and to adjust the response according to the perceived risk. Is this the sort of place where we are likely to be offered bribes? Is there a risk that we might have so few controls in place that gender discrimination could occur without penalty?

The ideal for any organisation is to create an environment or “culture” in which people habitually and naturally act in a way that is in line with company policy and the law, and where colleagues and managers support each other to do this.

It is hard to define the point at which a regular occurrence becomes a “culture”. Politicians and the media tend to use the word “culture” in a negative context – “a sick culture” (the Justice Minister discussing referral fees in personal injury cases), “a culture of phone hacking” (with reference to the News of the World), “no discernable, broadly embraced culture of safety” (Deepwater Horizon and the energy industry in general). Whether negative or positive, the word certainly implies that a particular behaviour is sufficiently widespread for it to be habitual and known about by everyone.

The question for companies is how to achieve a state where a particular positive behaviour becomes so engrained in the way of working that it can reasonably be assumed that no-one could be unaware of it. How to achieve this is dependent on the particular structure and operation of the organisation, but certain key elements are common to all organisations regardless of how controlled they need to be or the resources available to them: consistency of application at every level and in every market, effective and repeated communication of key messages, a form of monitoring or reporting mechanism and, finally, support from all levels of management.

Good compliance is not necessarily about being controlling, but about achieving the correct level of control so that business can operate effectively within the policy framework of an organisation and the law.

This blog was written by Caroline Bland

The Secretary of State has recently published guidance on the procedures that commercial organisations can put in place to prevent bribery.

The guidance sets out six principles, the fourth of which is the the need for “clear, practical and accessible policies and procedures”, at the heart of which lies an organisation’s code of conduct. The drafting of this principle was no doubt informed by a draft paper provided to Lord Bach by representatives of GC100, a group which brings together the senior legal officers of more than 85 FTSE 100 companies. Section 4 of the GC100 guidance states:

“Commercial organisations should have a clear and unambiguous code of conduct which includes an anti-corruption element, should publicise this code adequately internally, and should publish the code on its website”.

While consultation on the ‘adequate procedures’ guidance is currently taking place prior to its planned publication early next year, it can be assumed that the need for clear, practical and accessible policies and procedures will remain central to it.

Our survey, which covers 64 companies in the Energy, Pharma, Insurance, Banking and Defence sectors reveals great variation in quality of these codes of business conduct, from the very good to the very poor. Many cannot claim to be clear and unambiguous and are often hard to obtain.

The Survey Results

As with 2009 Morgan Stanley maintain the top position but this year are joined by Lilly and Co, taking part in the survey for the first time. Both companies scored an impressive 49 points out of 50. Close behind were BAE Systems with 47 points, Standard Chartered with 46 and Rolls Royce with 45. The pharmaceutical sector averaged 37 points, whilst the average for the oil and gas sector was just 29. Numerous companies scored below half marks. The full results can be obtained from info@i2a.co.uk

This blog was written by Alan Holroyd

In an article in last week’s Sunday Times Andy Wales, head of sustainable development for SABMiller argues that there has been an appreciable shift in the boardroom towards a mindful approach to responsibility, away from philanthropy and onto improving the quality of life for workers and the local environments. This effect of this is that NGOs, who in the past had campaigned against these big corporations, are now working in partnership with them. An obvious example is in the area of climate change which is as much a risk to business as to the people. SABMiller are working hard to understand the risks of water scarcity as “[we] know that most of the water used to make a product such as a pint of beer is not used in the brewery itself but rather to grow the crops such as barley that go into the beer.” In understanding global climate change they can project the effects this will have on their business and start taking mitigating steps and have “established the “Water Futures” partnership with WWF to build practical schemes to protect the watersheds that our business, local communities and ecology all depend on.”

The cynics among us may suggest that this is simply self-interest; the main focus is in cutting costs and keeping the business afloat through changing times, and if that means there is a positive benefit to the local people, then so be it.  However here Andy Wales goes on to provide the example of BAA advocating back in 2002 that air travel be included in the EU carbon cap trading scheme. As of 2012 it will. Similarly “at the Copenhagen summit last year the global airline industry presented a goal to cut its net emissions by 50% by 2050.” We feel that when a whole industry is looking to take these measures, there is a real sense of unity rather than protectionism. Perhaps this has been brought on by a new generation of people who have grown up more environmentally and socially ‘aware’, now affecting decisions in the Board Room.  We’re seeing social responsibility becoming integrated into long-term business decision-making. Whether you have a cynical view or not, it may be that such a potent combination will make more of a difference than the combined effects of governments’ policies.

This blog was written by Oliver Jevons

The company recently admitted that, in a deliberate policy to maximise profits, executives from Octel  bribed officials in Iraq and Indonesia with millions of dollars to carry on using tetra-ethyl-lead (TEL), an anti-knocking agent for gasoline, despite its health hazards.  The firm’s Lebanese agent, Osama Naaman, was extradited and agreed this week to plead guilty and co-operate with US prosecutors.

It appears that the US authorities may seek extradition of Paul Jennings, the former Chief Executive of Octel, to face the corruption charges.   Dennis Kerrison, Jennings’s predecessor, also risks further proceedings against him.

Jennings stepped down in March 2009 and is now Financial Director of the waste firm Biffa.  The Biffa Board may be feeling concerned that its finances are in the hands of someone who is alleged to be involved in one of the worse bribery cases in the UK in recent years.  Biffa is no doubt ready to cope without him if he has to spend time away from his job answering questions from US prosecutors.  Kerrison is now living on his wine estate in South Africa.

Jennings says he is unable to comment due to the ongoing investigations.  Kerrison says: “I have not authorised any bribes, backhanders, or other illegal or dubious payments”, while Innospec says: “Innospec admits its former chief executive officer … approved payment of the kickbacks.”

It’s difficult to conclude very much from this whole sorry affair, but if you are a business leader, here are three questions to think about:

• Are you being proactive enough?
  Innospec’s claims that it has changed its company and removed former management who were involved may be legitimate.  However, these claims made after the event somehow ring hollow; the business case for proactive investment in effective standards and compliance programmes should now be clear.

  i2a reviewed the Innospec ‘code of ethics’ published on its website, which we found compares unfavourably versus leading examples.  The document reads as though it has been written by lawyers with little thought to how the rules will be translated into the behaviours of people – without changing behaviours you don’t have effective compliance.

• Is your business compliant?
  The defence of ‘I have not authorized bribes, backhanders, or other illegal or dubious payments’ is unlikely to be accepted.   Neither is the fact, as is often the case, that the bribes are being paid by third-parties/agents an excuse.  Business leaders are now obligated to ensure business is being conducted to high ethical standards and in a manner compliant with current regulation.  And just to make it more difficult, this regulation is changing rapidly.

• Do you know what you are acquiring and who you are hiring?
  A number of businesses have inherited problems through acquisition or from previous management.  There is an increasing need to conduct ethical due diligence on acquisition targets and on individuals that join an established leadership team.

This blog was written by Andy Tomkins.

“It is imperative that BP promptly provide to the United States government and the public all data and information” regarding the spill.

The letter gave BP a 24—hour deadline to post all sampling and monitoring plans, video, reports from its contractors and results of its internal investigations – a deadline BP now stands accused of missing.

“All information should be posted on a publicly accessible website,” the letter said, adding that the public and the US government were “entitled to nothing less than complete transparency.”

BP is caught in a PR nightmare; I cannot think of a previous example where the entire world could watch on a live stream an environmental disaster for which BP is, rightly or wrongly, being blamed. Live stream of leaking oil.

In January we wrote ‘social media is the new punk rock’.  It shares its lack of respect for the established order, disruptive tendencies and its uncontrollable, viral nature with the 70’s cultural phenomenon. The US Government has certainly got the message. Forcing BP to put more information into cyberspace presents BP with a hydra; a story it cannot manage and is being forced into feeding combined with the viral and distorting effects of social media. The monster will tear away at BP’s reputation, encourage additional claims and drain its communication and legal resources. In the battle with BP over liability for the effects of the spill Salazar letter to Hayward – 15th May the US Government has discovered the power of a new weapon – transparency.

This blog was written by Alan Holroyd

Lloyd Blankfein admitted that Goldman Sachs should take public opinion into account when making business decisions.  He said: “We have to do a better job of striking the balance between what an informed client believes is important to his or her investing goals and what the public believes is overly complex and risky”.  Many people feel Mr Blankfein has arrived at this conclusion somewhat reluctantly; after all last year he believed that Goldman Sachs was “doing God’s work”.

And of course the UK public has now had its say, although the message is still being de-coded.  Trust has been a big issue in this election, partly because of the expenses fiasco which so damaged the reputation of politicians, but also because of the lack of honesty about the country’s problems and the solutions necessary to solve them.  Engagement with members of the public became a series of staged media events; true opinions were only revealed to forgotten microphones that remained on.  How many of the electorate believe their politicians are listening?

At i2a, we think that engagement with the public creates insight and understanding that can be used for competitive advantage.  We’re somewhat surprised by the evident reluctance to engage when there is so much to be gained from doing so.  There is an opportunity space where corporate capabilities can help meet society’s expectations in a positive way.  Such opportunities are valuable because they help re-enforce a sense of purpose for staff, they promote long-term thinking, help establish common vocabulary, help to attract and retain the best talent and, sometimes, can lead to new revenue streams.

If you want to realise the full value from engagement you have to want to do it for the right reasons and do it in the right way.  You must be authentic and build the capability to respond.  Effective engagement is based on strong organisational values and requires the right process and organisation to deliver.

Effective engagement may also be necessary to comply with legislation.  The Companies Act 2006 requires Directors to have regard to ‘the likely consequences of any decision in the long term’ and ‘the impact of the company’s operations on the community and environment’.  To deliver against these, and other, requirements, companies have to have the right quality of dialogue with the stakeholders affected by their operations.

So we make the following plea to business: engage more and respond better to your stakeholders.  Don’t do so reluctantly; seize the opportunity!  It really is good business.

This blog was written by Andy Tomkins

The report suggests that the introduction of new banking rules governing capital adequacy and banking liquidity could in fact reduce liquidity in the market place.  PwC estimates that the measures could reduce economic growth by 2%, despite forecasts for GDP increases of 1% in 2010 and 2% in 2011, pushing the economy back into recession.

It seems that the report was commissioned by major UK banks including Barclays, HSBC and the Royal Bank of Scotland.  It has yet to be completed, but according to Sky News was intended to be circulated in Whitehall after the election.

When questioned about the report last week, Gordon Brown was adamant that reform had to take place.  “Businesses are telling me every day that they need a better deal from the banks and the recapitalisation of the banks and a proper system of remuneration … is absolutely crucial to the future of British industry.”  He said that countries were working together to make sure that banking reforms had international agreement, adding:  “We are taking the right decisions and the messages to the banks is they will have to pay back every single penny they have received from the government.”

Liberal Democrat shadow chancellor Vince Cable was also quick to dismiss bankers’ warnings, arguing: “Given the scale of the bailout the financial sector has received from the taxpayer, this kind of scaremongering from the City is simply whingeing.”

This blog was written by Naomi Honey

• Total was charged with corruption over the Iraqi oil-for-food project.  Christophe de Margerie, the Total Chief Executive, was one of a number of people indicted
• Three UK board members of French infrastructure company Alstom were arrested in dawn raids on suspicion of bribery, corruption, conspiracy to bribe, money-laundering and false accounting
• The US chemicals group Innospec was fined £12.7 million in the UK after admitting to bribing Indonesian officials
• Four China-based executives of mining giant Rio Tinto were jailed after admitting to bribery and espionage charges
• BHP Billiton is in talks with the SFO and the SEC about possible corruption involving bribery of foreign government officials at some of its exploration projects, thought to be in the Democratic Republic of Congo and Cambodia.
• Goldman Sachs stands accused of fraud and creating deals that were bound to fail and is now under investigation by the SFO and SEC

All of the companies involved have compliance programmes and codes of conducts in place.  In some of the examples, the specific incidents took place some time ago and the company concerned will no doubt argue that it has strengthened its internal procedures since this time.  Nonetheless each example is at best embarrassing and at worst presents a material risk to the on-going business of the organisation.  Why do individuals behave contrary both to the law and often their own company’s code of conduct?

i2a’s research indicates that the most common reasons for individual lapses are situational, i.e. they arise from the situation the individual finds themselves in, rather than from an intent to break the rules from the outset.  Here are some of the common reasons for situational lapses:

• An individual is unaware of the rules and/or of his/her responsibility to enforce them.  Despite the growth of Compliance Officers and corporate Codes of Conduct in large enterprises, engagement with employees about the issues is still limited.  In these cases, compliance becomes a tick-box exercise and employee behaviours don’t change.
• An individual feels pressured to act unethically because of the behaviour of others.  Culture plays a big role and examples of “it’s OK to do this; we have always done things in this way” are prevalent.  Peer pressure is powerful and may be less direct or obvious that managers think.
• Individuals will often weight tangible, short-term gains much more heavily than distant, abstract harm.  So, for example, acting to meet this year’s sales targets, and earn the appropriate bonus, seems worthwhile because ‘no one will know about X and it’s less important anyway’.  People need to better understand the actual risks and rewards involved.
• Individuals override their own ethical judgements and defer to the corporate rule book.  Codes of conduct, when implemented poorly, can weaken employees’ abilities to exercise their own ethical judgments.  This leads to the “it doesn’t actually say I can’t do this in the code” type of thinking.  Codes of conduct, or equivalent documents, can never legislate for all eventualities.  Effective compliance is based on strong corporate values and understanding the ethical principles.

We at i2a know that achieving effective compliance extends far beyond a code of conduct.  It depends on linking corporate values with employee behaviours, everywhere and everyday.  It’s not easy to achieve, but the rewards make the journey worthwhile, and the costs – both financial and reputational – of getting it wrong are increasing every month.  No Chief Executive wants to be part of next month’s headlines.

This blog was written by Andy Tomkins

The bill is expected to receive Royal Assent by Monday 12th April, following seven years of drafts and redrafts.

The main provisions were passed through unchanged, including the corporate offence of failing to prevent bribery.  The Conservatives’ challenges continue, with an insistence on further consultation with the business community and consideration of a Government advisory service to give guidance on the new law’s requirements.  Should The Conservatives win the upcoming election, business may call for these measures, and for delayed implementation of some areas of the legislation, such as the corporate offence provision.

The new law makes businesses’ internal anticorruption procedures and policies more vital than ever.  The race is on to ensure they are sufficient to comply with the impending legislation, with failure to do so running the risk of exposing the board to the consequences.

i2a Consulting can help your business clarify not only that the correct policies and systems are in place, but ensure that they are truly embedded throughout your organisation.  For more information about how we achieve this, see the compliance section of our website or get in touch at talk@i2a.co.uk.

This blog was written by Naomi Honey

Part of the debate centred on proposed amendments that would allow facilitation payments that were ‘reasonable in amount’, ‘customary in the situation’ or the ‘only reasonable alternative in the situation’. The latitude for subjective interpretation of these phrases is clear and the amendments were sensibly withdrawn. In this respect the UK bribery bill is tougher than the US Foreign Corrupt Practices Act which allows small ‘facilitation payments for routine government action’.

The rejection of the proposed amendment is likely to ensure the Bribery Bill is taken very seriously, not just by UK companies, but, crucially, by individuals representing those companies.

In the recent past I transited through a Latin American country in order to return to London. My incoming flight was delayed, leaving me just a few minutes to make my outgoing flight. I was asked by an airport official to pay $30 cash for an ‘express exit visa’. Not wishing to spend the night in the airport I complied; under the FCPA that would, I believe, be OK. Under the UK Bribery Bill it would, very probably, be an offence. Such events are, I think, pretty common for international business travellers and as such the UK Bribery Bill becomes very personal.

Although I don’t believe the UK authorities will be interested in pursuing such relatively petty events, the fact that the bill makes individuals in business think before they act is surely welcome, even if it does mean occasional inconvenience.

This blog was written by Alan Holroyd.