Corporations Slow to Respond to Anti-Corruption Law

NEW YORK ( TheStreet ) -- For companies seeking to grow and expand their business in emerging or challenging markets, the legal, financial, and reputational risks associated with corruption are decisive daily realities.

In a recent survey, Foreign Corrupt Practices Act (FCPA) risk ranked among the top concerns of the nearly 500 directors and general counsels surveyed. The FCPA is the U.S. law that prohibits individuals and companies from offering or giving bribes to obtain or retain business.

Yet only a little more than a third of general counsels think their board and management have done a good job with FCPA training and compliance, and two-thirds believe there's room for improvement. This misalignment of FCPA risk and response is a matter of immense concern for businesses as 2011 is shaping up to be another banner year in terms of enforcement.

For starters, we've seen the first FCPA trial and conviction of a U.S. company, Lindsay Manufacturing, along with 33 enforcement actions. In the last three months alone, regulators have concluded three major settlements with Bridgestone, Diageo, and Armor Holdings, a combined total of more than $58 million. The government's focus on prosecuting individuals continues unabated.

By all indications, the number of cases and severity of penalties -- including jail time for corporate executives from the C-suite on down -- will only rise.

At the Department of Justice, a reported 150 investigations are underway even as the team of Justice Department prosecutors and FBI investigators dedicated to FCPA prosecution rapidly expands. At the Securities and Exchange Commission, the departure of the much-heralded FCPA unit chief Cheryl Scarboro, who oversaw the famous SEC investigation of Siemens AG, has not slowed the pace of FCPA-related activity. Most believe that her successor, Kara Novaco Brockmeyer, will waste little time picking up where Scarboro left off.

Brockmeyer's background is indeed formidable. Prior to assuming her new role, she served as an assistant director in the enforcement division where she lead SEC investigations in a number of high- profile FCPA cases, including Halliburton, KBR, Technip, and ENI S.p.A.

On the regulatory side, Dodd Frank has dramatically changed the landscape by providing a compelling monetary incentive -- 10 to 30 percent of any amounts recovered on settlements of more than $1 million -- for whistleblowers to report suspected violations directly to the SEC. By all accounts , the reports of alleged wrongdoing related to the FCPA are already rolling in.

For companies, huge settlements are just the tip of the iceberg in terms of the cost to resolve FCPA cases. Legal fees, costs of internal investigation, and monitorship -- often imposed as part of a settlement --- add to already exorbitant price tags. Government investigations can also trigger expensive shareholder derivative suits that further damage a company's reputation.

In this environment of heightened attention to corruption, companies must ensure that they have policies, programs, and controls in place to detect and deter misconduct. But implementing procedures is not enough. A compliance program must be embedded in the company's culture. The desired effect is only achievable when the program is supported by clear and consistent messages from the top, and when business incentives for all employees, agents, and business partners support those messages.

Too often, efforts to curb dishonest business practices fail because communication is the key element that gets forgotten. Effective communication of the "zero tolerance" message is absolutely crucial to ensure that all who work for -- or can potentially inculpate -- a company understand the rules of conduct.

It is also a vital component of a successful business strategy. Given the huge financial investment companies are making in compliance, it is simply good business practice for companies to do all in their power to ensure that the organization is appropriately credited for its efforts by regulators, shareholders, rating agencies, and NGOs who impact corporate reputation.

Absent such communications, you lose both the regulatory and brand benefits of having a strong anti-corruption program in the first place.

Richard S. Levick, Esq., is the president and chief executive officer of Levick Strategic Communications, a crisis and public affairs communications firm. He is the co-author of The Communicators: Leadership in the Age of Crisis and Stop the Presses: The Crisis & Litigation PR Desk Reference, and writes for Bulletproofblog . Mr. Levick is on the prestigious list of "The 100 Most Influential People in the Boardroom," which is compiled by the NACD and Directorship Magazine. Reach him at rlevick@levick.com.
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