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FCPA Violations and Corporate Management Sweeps

It would be interesting to study how companies respond to FCPA violations.  A study on when all the dust settles — after the company discloses FCPA violations, conducts an internal investigation, confirms improper payments, fires those employees responsible, settles with the government and pays a fine – would be particularly interesting.

When all the dust settles, what changes, if any, occur at the corporate board and at senior management?  The answer will depend on the scope of the violations.  If the violations are systematic, meaning in numerous markets, involving a variety of products or services, it is safe to say that systematic deficiencies will require a major transformation in corporate governance.  This could result in a new chairman/chairwoman of the board, new board members and a new management team.

On the other hand, if the violations were more isolated, narrowly committed without involvement or avoidance by the board or management, then it is likely that changes to the board and/or senior management will be more limited.

Contrary to this distinction, should the nature and scope of the violations dictate such dramatic differences in personnel changes?  Some could argue that in the localized violation someone higher up in the company, at both the board and senior management level, was responsible for the conduct and failed to catch it.  For that reason alone, changes at the board or senior management should occur.       

The internal investigation provides important facts and insights into corporate compliance failures and the need for structural changes.  Also, the investigation can provide a clear picture on who should stay and who should go. 

It is no wonder that companies resist the need for an internal investigation unless absolutely necessary to protect the company.  In many cases, senior management will create obstacles to outside counsel conducting a fair and full internal investigation.  Senior managers fear loss of their jobs.  That is when the board needs to step up and play a role in protecting the company. 

Too often, board members defer to senior managers, or play no active role in making sure that senior managers are not obstructing the internal investigation.   When board members “conspire” with senior managers to limit the internal investigation, it is likely that they will both lose in the end.  Even if they are “successful” in frustrating the internal investigation, it is likely that the facts will eventually come out, especially in today’s enforcement environment with the presence of whistleblowers and False Claim Act relators.

FCPA violations can sometimes even be a “blessing” in dis guise – in that they unmask serious risks and violations which have not yet been discovered in other risk areas.  It is easy to imagine that a compliance failure in the FCPA area may also reflect serious compliance deficiencies in related areas such as money laundering, export/sanctions controls, environmental regulations, and health and safety issues. 

A company may be able to leverage one violation to prevent other violations in the related area.  This discovery may require the company to act quickly to remedy the problem, make serious and significant changes to the board and senior management, and improve overall compliance, all to the benefit of the company and its shareholders.

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2 Responses

  1. Most corporates proudly wear imposed penalties like a badge of honor – partially relieved they have settled and proud they have put in place whatever is needed to make the force go away. The ones who have not been penalized yet somehow tend to be envious about the “lucky” ones. Needless to say this attitude trickles down to the rank-and-file…

  1. August 10, 2012

    […] is based will continue to develop. Tom Fox takes a look at the Pfizer settlement. Mike Volkov wants to study how companies respond to FCPA […]