Can business strategy in itself be a red-flag of corporate corruption?
In one word, yes
, and I discuss how in a recent guest blog (May 19, 2014) in Ethic Intelligence's "Experts Corner."
I ask, if strategy is pulled back at the C-Suite, does it expose an executive message of strict anti-bribery compliance, while the economics of the sales forecast and corresponding personal incentive packages speak to a "win over everything else" mentality?
A gap in the debate
As I shared in the Q and A, I am concerned about the lack of discussion with respect to the corruption risk that front line international sales and marketing personnel face. Specifically, I draw attention to how corporate business strategy can directly contradict, through sales growth plans and incentive compensation packages, the messages of anti-bribery compliance. Such a situation leaves the sales force to decide "what does management really want, compliance or sales?" While in past writings I have discussed "compliance as bonus prevention" in the context of incentive compensation, in the Q and A with Ethic Intelligence, I discuss the role of business strategy as a stand alone red-flag, of which compensation is a sub-set.
I am not alone
While I might have thought I was alone in expressing this concern, I recently came across an article by Professor Mak Yuen Teen, published in the Singapore Business Times on May 21, 2014, but also on his blog Governance for Stakeholders, titled "Plausible deniability and graft by MNCs." By way of background, Professor Mak is an Associate Professor of Accounting at the NUS Business School, Singapore. For his full (and impressive) CV, see here.
In his article, Professor Mak first calls attention to the recent reports of GSK bribery in China, and GSK's public reaction as calling the conduct "outside of our processes and controls..." (The Guardian, July 22, 2013). However, Professor Mak goes onto demonstrate the reporting relationship between Mark Reilly, former head of GSK China (and subsequently charged by Chinese officials), and his supervisor, Abbas Hussain, President of Europe, Emerging Markets and Asia Pacific, who is part of the "corporate executive team of GSK." As Professor Mak states, with this relationship "direct involvement in the scandal has moved up the chain of command of GSK." However, notwithstanding the discussion and relevancy of the "rouge employee" GSK script, there is a far more interesting element to Professor Mak's writing as relating to corporate strategy.
"Did you wake up from a 10-year nap?"
Professor Mak references an on-line comment to the GSK allegations as above, and asks "whether he (GSK CEO Andrew Witty) and the board ought to have at least asked some probing questions when GSK China was reporting strong sales growth over the years proceeding the scandal." And that is where compliance gets separated from the reality of international sales growth. Clearly, GSK executives were aware of two basic facts:
There was a robust anti-bribery program in place at GSK, as referenced in public statements. Professor Mak makes reference to a 29 page anti-corruption document, and Tom Fox discusses the GSK Corporate Integrity Agreement (here).
There was high sales growth in China.
Therefore, was it in fact what I have called a "zero-sum" game of compliance and sales? Could those two factors have co-existed? In other words, and I don't think is unique at all to GSK, "was it a case of don't ask, don't tell," at the C-Suite, as Professor Mak remarks. When the regional sales numbers were reported into management was it all "high fives," or did someone ask "hey, how did you get there?" I would ask the same of those who read this, who have been in those rooms, when the sales figures are shared. What is the message?
Professor Mak focuses on complex multinational corporations (MNCs), where corporate executives are separated from the front line of sales by a deep and wide organizational chart. He asks, "should only executives such as Reilly take the fall while senior management and the board escape accountability..." and "can they really claim that they did not know what was going on...?" I completely agree with Professor Mak, in that it is a long way from the C-Suite, where compliance programs commence, to the front line of international sales and marketing; however, does that distance justify the escape from accountability in not challenging the "reporting of strong growth in markets well known for corruption."
Professor Mak thinks not, and makes a compelling case, which is reflective of my own view. I repeat his conclusion in its entirety and in bold (just to make sure you get the message):
"It is time for senior management and boards of MNCs to stop hiding behind business conduct codes and anti-corruption and compliance programs, and a "plausible deniability" defense, and address more fundamental questions about the benefits and costs of doing business in highly corrupt countries, their business practices, and how they reward, retain and promote their employees." From my perspective, it would appear that the "default" for compliance and sales growth in low integrity countries, remains "zero-sum."
Maybe it is time that GSK listen to its own Chief Medical Officer James Shannon whom I referenced in a prior post, when he stated (in an interview with Reuters) that "sometimes you have to step backwards to move forward.." and that it is time for "an entire rethink about our business practice."