Managers are Chief Bribe-Givers

The OECD has published a new report analysing 427 concluded bribery cases over the last 15 years.  The results are striking.

• In 12% of cases, the CEO was aware of and endorsed the bribe;
• In 41% of cases, other members of management were aware of and endorsed the bribe;
• External intermediaries such as sales agents and distributors were involved in 41% of cases;
• 57% of bribes were paid in relation to public procurement and
• 41% of cases related to bribes paid in well-developed countries.

It is a surprise that bribery is a phenomenon of well-developed countries, but it is a shock that most bribery efforts are approved by mangers or the CEO.

The root causes of bribery have to do with behavioural and organisational risks such as leadership on ethos and values, actual leadership ethos and behaviour and incentives at all levels.  Organisational complexity may leave the board in a rose-tinted bubble, unaware of the extent to which operational units - which may share a language and a country or be in far-flung places - are very different from themselves. Failures in all these areas have their origins in the board, and we suspect that it will not be long before boards themselves are pursued by prosecutors.

All large firms concentrate on bribery as a risk issue.  But how many focus systematically on the root causes?

In our experience, even after the Financial Reporting Council  has made behavioural and organisational risks a board issue, too many Chairmen and Company Secretaries are reluctant to investigate the extent to which their risk management systems have a hole where behavioural and organisational risk should be.

Until they fill that gap, boards will continue to find themselves regularly surprised by the latest crisis to hit their firms.

We won't be surprised: one of the striking findings of 'Deconstructing failure' was that boards' 'inability to engage with important risks to the business' was a root cause of 85% of the crises studied. 


Anthony Fitzsimmons
Reputability LLP
London

Anthony Fitzsimmons is Chairman of Reputability LLP and, with the late Derek Atkins, author of “Rethinking Reputational Risk: How to Manage the Risks that can Ruin YourBusiness, Your Reputation and You”

Bribery and Boards

No-one doubts the GSK board had excellent ethics and good intentions, or that the company has an excellent set of values, but allegations reported in the Financial Times make alarming reading.

On 14 May, the FT reported:

"Police at the [Chinese] Ministry of Public Security said 46 suspects at GSK’s Chinese subsidiary had been identified as part of a “complete bribery chain” that funnelled money to hospitals, doctors and government officials between 2009 and 2012. Mark Reilly, a Briton who was head of the unit, ordered subordinates to offer the illegal payments, they said." 

On 27 May, the Serious Fraud Office in London “opened a formal criminal investigation into the group’s commercial practices”

The next day, the FT reported that GSK salesmen were demanding reimbursement of ‘bribes’ they had financed on GSK's behalf.

This isn't the first time GSK has been in trouble over sales practices.  In 2012 the company was fined $3 billion in the USA after admitting marketing medicines beyond their authorised uses, a case that also revealed "lavish junkets" for doctors.  At the time Sir Andrew Witty, the Chief Executive, said that the charges related to "a different era" at GSK and that he "had since taken remedial measures, including axeing all bonuses linked to prescription sales".

One likely root cause of the  problem is hinted at by Sir Andrew.  Late last year, he announced another overhaul of marketing practices, including an end to target-based pay for sales representatives, presumably those that weren't actually ended in 2012.  Those pesky incentives to meet sales targets can easily produce undesirable behaviour, as UK banks and energy companies know all too well from their mis-selling experiences.

But there is a deeper issue: the fact that the well-intentioned board clearly did not know what was actually going on in their company.  This is a widespread problem, about which we have written previously.  The danger is that boards live in a rose-tinted bubble divorced from reality.  For a variety of reasons they are too often the last to realise that something is seriously amiss even when there are people below them who are aware of the problem.

These are but two of the family of behavioural and organisational risks that afflict all organisations.  Regulators are beginning to insist that they are tackled before they cause harm.  This is no small challenge but there are practical  solutions.

Anthony Fitzsimmons
Reputability LLP
London

Anthony Fitzsimmons is Chairman of Reputability LLP and, with the late Derek Atkins, author of “Rethinking Reputational Risk: How to Manage the Risks that can Ruin Your Business, Your Reputation and You”