Bribery, ethics and business morality

Whether it’s losing or making money, bending or ignoring accounting rules to iron out wrinkles and generally falling foul of legislation, the roll-call of names is like a who’s who of global multinationals.

Well publicised media reports included China accusing GSK executives of bribing doctors and hospitals to use company products.

Allegations of bribery were made against FIFA officials; Diebold, Kellogg Brown & Root parent Halliburton, Siemens and indeed HP subsidiaries in Poland, Russia and Mexico all reportedly paid significant fines for bribery. In HP’s case, it was claimed that in efforts to hide bribes, senior management in those regions set up subsidiary companies and funnelled money through a myriad of shell companies to fake contractors. BAE Systems was accused of offering gifts to Saudi officials in the form of cash, holidays and vintage cars.

Most if not all large and medium sized corporates have ethics, standards and compliance programmes and yet seemingly these are circumvented or prove to be inadequate. So why does this happen? Is it deliberate, unintentional or more brutally, inevitable, given a need to compete and penetrate or grow market share?

Bribery, oiling the wheels or to use e Mediterranean term ‘rusfeti’ (loosely, the practice of brown envelopes) is undoubtedly older than the oldest reported profession. In many countries, even today, it’s considered an inevitable cost of doing business. Ethics and compliance policies, even those set in stone therefore, would appear to be there more for public consumption and observation and are not cast –iron assurance; a shop window telling the world, yes, we are compliant, but only insofar as we practically can be.

Fines may appear large but undoubtedly pale to insignificance compared to the level of business and profit generated through ‘oiling the wheels’.

At which point does a gift or corporate hospitality over step the mark and become a bribe?

I recall many years ago a business trip to meet with a client with whom I’d spoken on many occasions and got to know quite well. The aim of the visit was to better understand his business and hopefully support it with higher credit and more favourable terms. The meeting that day actually went very well and he assured me my short stay in the country would be ‘pleasurable’. I paid no attention to his choice of word. I had consciously made a decision to support his business activity but had not made this known to him at the time.

That evening, while settling down in my hotel room, I arose to answer a door knock to be confronted by a very attractive lady offering her services, ‘as a favour to a friend’ she said. Being of the highest moral and ethical standing, I thanked her for the offer…. and foolishly declined.

I could have taken umbrage and delivered a stinging rebuke to the client but experience and knowledge of just ‘how things are done’ tempered any angst, allowing me to simply brush it off. If he’d known I was going to support, he could have saved himself the charge but acceptance of how business is conducted in some parts does prepare for such surprises. I certainly thought no more, or less, of the client as a consequence.

The varying levels of fraud or corruption appear to be measured or scaled by the value involved but the mere act of engaging surely is what ethics and compliance is all about. Why should the currency value contained within a brown envelope determine the level or severity of punishment or admonishment?

Is corporate hospitality effectively a reward for services provided or an inducement? Precisely where does the cut-off point occur or arise?

In some noted restatement of financials, mention was of a lack of control in one-sided journal entries. In simple terms, this means writing off values that directly improve the performance and profitability of a company, most often at the expense of clients.

A typical scenario in such instance would involve ignored client credit notes, client over payments and more generally, aged credit client balances. Credit balance accounts within a receivable ledger are deemed a liability and should appear correspondingly in the correct position on the balance sheet. Monthly statements showing credit balances should be posted to clients and clients more generally should be encouraged to utilise such credits to off-set future liabilities or a client refund if business is not forthcoming.

Writing off client credits increases the value of current assets (receivables), can distort VAT liability (if applicable) and the full written off value, classified maybe as miscellaneous income, is at a juicy full margin.

One major US owned UK business currently has contained within its terms and conditions, two clauses in relation to client credits even though its US terms do not.

One stipulates that if a client does not utilize a credit note within a twelve month period, the credit note may be cancelled without re-issue or future payment to the client. The other refers to unclaimed credit balance statements remaining on client accounts over the same period, indicating these will ‘forfeited’ by the customer who will have no longer have any rights or claims to such credit.

Lesson here for any business to ensure credit notes expected are properly received and utilized and any duplicate or over payment credit in their favour is refunded to them promptly.

When it comes to governance, ethics and compliance, the moral has to be if you claim to be clean or are required to be clean then make sure you are. Dodging the bullets and cherry-picking compliance is likely to catch you out and indeed make you a softer target.

Many tacitly agree greasing palms is often a necessity, part of doing business and readily acceptable in many countries but the conundrum for those legally obliged to observe governance and compliance is to stick to principles and not deviate. Whistle blowing is fine but it’s a post event and compliance and monitoring means just that, avoiding repetition.

Dodgy accounting practises are not necessarily ‘softer’ crimes or exclusively the domain of accountants.

As in politics and life in general, one is surrounded by double standards; they are a fact of life, an ever-present absurdity.