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Distant Dilemmas
Before sending executives on assignments in countries with questionable business practices, HR professionals must help prepare them for the ethical predicaments that may await them there.
No one is naïve enough to think that bribery, kickbacks and other corrupt business practices don't exist here in the United States. But it's also understood that such practices are, at best, unethical and, at worst, illegal -- not to mention potentially costly for companies caught engaging in them. But in some countries, bribes, illegal payments and other underhanded activities are simply an accepted part of doing business. And if recent statistics are any indication, the current recession is only compounding the problem. According to a recent Ernst & Young survey, half of the 2,246 respondents in major countries across Europe said they felt that one or more types of unethical business behaviors was acceptable, including 25 percent who thought it fine to give a cash bribe to win work. By country, that figure rose as high as 38 percent in Spain, 43 percent in the Czech Republic and 53 percent in Turkey. In the same survey by the New York-based business and financial advisory firm, more than half of respondents said they expect corporate fraud to increase over the next few years, with 54 percent of participants from Western Europe and 55 percent from Central and Eastern Europe expressing the same sentiment. While questionable business practices may become more accepted by workers in some places, governments in revenue-starved countries are focusing more closely than ever on violations of international anti-corruption laws and the accompanying fines that can be doled out. Expatriates can easily, even unwittingly, violate such laws, especially when they are relocated to a country awash in corruption. Corporate counsel may be aware of this growing concern, but experts say HR must take on an equally large role in preparing expatriates for the vastly different business environments they may find themselves in overseas.
Hard Lessons Some companies have discovered the hard way that the cost of an expatriate's unethical behavior can be steep. Consider Lucent Technologies, for example, the former telecommunications giant that merged with Alcatel to become Alcatel-Lucent, based in Murray Hill, N.J., in 2006. In 2004, the company fired four China-based executives for alleged violations of the Foreign Corrupt Practices Act. No arrests were made, but, as part of an intercession agreement reached with the United States Department of Justice in December 2007, the company agreed to pay $2.5 million in civil penalties and fines to settle the allegations -- which included making payments to Chinese government officials to travel to the United States and elsewhere for sightseeing and entertainment between 2000 and 2003. According to a suit filed in the United States District Court for the District of Columbia, the Securities and Exchange Commission alleged that Lucent spent upwards of $10 million in travel and entertainment expenses for about 1,000 employees of state-owned or state-controlled telecommunications businesses in China that were prospective or existing Lucent customers. The suit alleged that the foreign officials spent little or no time actually visiting Lucent facilities, and that the company improperly recorded the expenses in its corporate books. In December of last year, Siemens paid $1.6 billion -- the largest fine for bribery in modern corporate history, according to the New York Times -- in a settlement with the Justice Department and the Securities and Exchange Commission. As part of the settlement, Siemens also pleaded guilty to violating accounting provisions of the FCPA. The agreement came two years after midlevel executive Reinhard Siekaczek was arrested for his role in overseeing "an annual bribery budget of about $40 million to $50 million" to make payments to well-placed officials in countries such as Vietnam, Venezuela, Italy and Israel, according to the Times. The payments, Siekaczek told the paper, were "vital to maintaining the competitiveness of Siemens overseas. "It was about keeping the business unit alive," he said, "and not jeopardizing thousands of jobs overnight." Granted, Siekaczek's intentions, at least in his mind, may have simply been to keep the business afloat in trying times, by whatever means necessary. Regardless, say experts consulted for this story, it should be clear to expatriates that bribery and other corrupt practices are unacceptable, regardless of the setting or circumstances. HR must play a key role in hammering that message home, says Stewart Black, associate dean of executive development programs at INSEAD, an international graduate business school with North American offices in New York. "If you make the situation difficult enough, even 'ethical people' will make bad choices," says Black, who is also an affiliate professor of organization behavior at INSEAD, and the executive director of the INSEAD Center for Human Resources in Singapore. "Part of HR's role is to highlight the human, social [and] relational side of a situation. The more demanding the situation, the more careful the selection [of the employee to handle it] and the more intensive the training needs to be." The best companies decrease the likelihood of potential expats making "bad choices" in foreign countries by looking beyond their technical skills when evaluating them for overseas assignments, says William Sheridan, vice president of international human resource services at the New York office of the National Foreign Trade Council. "Smarter companies," he says, "don't rely solely on an employee's performance record in [his or her] home country -- or the employee's manager's recommendation alone -- but are aware that working in a foreign setting is different, and that social skills are as important as accumulated business skills, perhaps even more important. "Adaptability to new situations is critical," Sheridan says. "Often, the more adaptable employee will outperform a colleague who had higher job-performance ratings in the home country."
Training, Training, Training Selecting an executive with a consistent moral compass and an ability to adjust is a good start to ensuring ethical behavior overseas. Pinpointing such employees requires some legwork on HR's part, says William Devaney, co-chair of the Foreign Corrupt Practices Act and Anti-Corruption Group at Washington-based business law firm Venable. "Look at their reviews, speak to their supervisors and speak to the employees themselves," Devaney says. "You want to try to identify the employee who will not take the expedient route over the ethical when faced with the challenge of dealing with corrupt bureaucracies." But, moreover, HR should be heavily involved in extensive training for these employees about to go abroad, experts say. First and foremost, HR must work closely with corporate counsel to ensure that expatriates understand the implications of the Foreign Corrupt Practices Act and other anti-corruption measures, Devaney says. The U.S. employee needs to understand that the FCPA, which addresses accounting-transparency requirements under the Securities Exchange Act and contains anti-bribery provisions, applies to individuals specifically, even when working abroad and/or working for a non-U.S. company or a non-U.S. affiliate, he adds. Such training should be conducted in person at least once a year, and should be overseen "by in-house counsel well-versed in the FCPA or outside counsel [with expertise on] the FCPA," Devaney says. "That way, the employees can discuss real-life [events] and walk through various situations that might present themselves [in other countries]. If live training is not possible, there are Internet training programs available that can be bolstered by training programs that management conducts." Executives overseas should be made aware they have a responsibility beyond themselves, too. "The [executive] also needs to understand that he, as well as the company, is responsible for the company's agents in the foreign country," Devaney says. "The employee must ensure that the local agents or contractors he is dealing with are not making corrupt payments. "This can be difficult in areas of the world where such payments are the norm," he says. "But turning a blind eye to the issue can cost the company untold millions in fines and expose the employee to criminal prosecution." HR, along with the general counsel's office, must also ensure "there is worldwide training, so that anti-corruption is a worldwide initiative and not something viewed internally as stopping at the U.S. border," he says. Most companies have a code of conduct that employees must be in compliance with wherever they do business, says Achim Mossmann, managing director of global mobility advisory services in KPMG International Executive Services practice, based in New York. However, some countries' practices may pose a dilemma to expatriates, he says. "For example, in some countries, gift-giving is seen as an acceptable way to 'move a transaction along.' Training can help employees understand what specific business practices to expect in certain countries and what behavior is acceptable in certain situations," he says. "Role playing, training scenarios and case studies can help employees understand acceptable gift-giving -- a $30 bottle of wine, perhaps -- versus what could be characterized as bribery or corruption -- a $1,000 cash payment." HR should play a sizable role in orchestrating local and global training for expatriates, Mossman says. Setting up a companywide program is typically done with help from outside vendors, he says, "to assist with the development and implementation of this type of training." When searching for a vendor to lead expat training, HR should develop a general outline explaining the type of training they would like to provide, issue a request for proposal and select a vendor capable of developing the necessary content and materials, he adds. The actual training can happen in two ways, Mossman says. The vendor can conduct in-person training or develop a Web-based training module. Or, after developing the program, the vendor "trains the trainer," in many cases an HR professional, who then delivers the training. "Many organizations like this model, because it allows them to hire someone from the outside with the expertise to develop the training content and materials, and then have an in-house HR professional who knows the organization conduct the training, which helps from a credibility standpoint." Thoroughly documenting that expatriates have received such training will help distance the company from the unscrupulous actions of a rogue employee, says Mossman, who advises HR executives on managing international-assignment programs. "In these scenarios, there are always two potential culprits -- the employee and the employer," he says. "The employer will need to show an investigating authority that it provided the employee with sufficient information and training as a first line of defense. Appropriate documentation can demonstrate that the employer has made sufficient efforts to ensure that the employee has received adequate training and information."
Monitoring the Situation There are clearly questions to answer and scenarios to consider before sending an executive on assignment to a country with corrupt business practices. But the company's -- and the HR executive's -- job isn't over once the expatriate gets on the plane. HR executives should stay in frequent contact with the recently transferred executive, Devaney says, and establish a support system that offers expatriates guidance in the event that ethical quandaries arise. "The company should have a hotline, where any anti-corruption questions or issues can be openly and, if necessary, anonymously discussed," he says. "If the HR executive sees any problems in the anti-corruption area, he or she should notify the general counsel's office immediately." "Without a sounding board," Black adds, "the expat is on his or her own. HR needs to be close enough to the employee that he or she feels comfortable enough to discuss questionable situations," he says, "without the immediate pressures of business results that are often implicitly or explicitly there in discussions of the same issue with line executives." The careful selection and appropriate training of expatriates is lacking at many companies, but even when both are done well, HR must still help keep a close eye on operations in countries with questionable business ethics, says Black. "To not have HR as a sounding board in a knowingly corrupt country is like deciding not to buy flood insurance when you are in an established flood plain," he says. Ultimately, he says, that decision could cost an organization millions of dollars, not to mention destroy the good will it has worked hard to create among its customers and public. "Trust me," Black says, "the International Herald Tribune does not care that the situation was almost impossible. They only care that an ethical lapse makes for a great story. "It takes decades to build up public trust and credibility, and it can take only minutes for it to go up in a toxic cloud," he adds.
January 1, 2010 Copyright 2010© LRP Publications |
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