There is not a week that goes by where we do not see a headline reporting some type of bribery and corruption scandal, or yet another example of unethical behaviour by an executive or politician.

After 35 years with the RCMP, and several years as the Compliance and Anti-Corruption expert with the Sensitive and International Investigations Unit, these types of headlines should not really surprise me. From the Panama and Paradise Papers to revelations of corruptions amongst company executives and politicians, it appears that the ugly spectre of corruption is being highlighted everywhere.

One could easily become jaded and cynical by these constant reminders of how some people let greed and a lack of integrity distort their moral compass.

Bombarded by continual headlines of corporate and government corruption, the general public cannot be blamed for their anger, distrust and frustration at such behaviour. These feelings are further fueled by the belief that those actively involved in corrupt conduct are not being made to account for their unethical and criminal behaviour.

Technology and a new generation of business leaders is leading us in the right direction

Contrary to the prevailing wisdom, however, I see this growing trend of headlines and scandals as a very good sign that we are on the right path to slowly change the culture and environment that has allowed corruption to thrive for so many years. The reality is that ten, even 5 years ago, we would not have seen these headlines. Those corruption scandals would have been buried, and the individuals involved would have continued to operate with impunity and without fear of public disclosure, let alone being prosecuted.

The very fact that that we now have high ranking public officials, senior corporate executives, and well-established companies being named, shamed and prosecuted for unethical behaviour is a clear sign that the fight against corruption is evolving in the right direction.

More aggressive enforcement action, new laws, as well as the growing demand for greater transparency and accountability around the world is having a visible impact.

Two key factors that are driving this change are the growing push-back from civil society, along with the power and immediacy of social media platforms. These platforms are empowering civil society to organize, and people to report instantly on corrupt and unethical conduct. Consequently, it has become much harder for public officials and companies to hide their corrupt activities or control the narrative.

In this new and changing environment, it is likely that the corruption headlines will continue for some time and we will see more disclosures similar to the Panama and Paradise Papers occur.

The millennial generation are also playing a critical role in changing the business culture. This next generation of business leaders are much less accepting of unethical behaviour, and crucially, are connected through social media with countries and people being victimized by corruption. As a result, those millennials are more likely to speak-up and report unethical and corrupt behaviour.

Organizations who fail to have a robust compliance program, which includes an effective whistleblowing program, will see millennials report wrongdoing to authorities or leak information to the web.

I have always warned managers that if I get a complaint of wrongdoing by an employee, they and their company have failed in implementing an effective anti-corruption compliance program and ethical business culture.

Having an anti-corruption compliance program does not necessarily mean that a company is ethical

Having a robust compliance program is a very important step in mitigating and managing corruption risk, but will invariably fail if it is not supported by a corporate culture that not only supports compliance, promotes integrity and ethical governance.

An ethical business culture is the foundation on which a compliance program succeeds. Compliance is the framework to tackle corruption while an ethical business culture is the foundation on which this framework operates. Organizations cannot control the integrity of individuals, but they can certainly influence it.

An organization’s culture influences the integrity of those employees that are either on the fence or would rationalize wrongdoing. This occurs when the culture promotes willful blindness, permits ignorance of policies and controls, or encourages the avoidance of those controls through unreasonable business goals and rewarding ‘success by any means’.

No controls, policies or compliance program can totally eliminate or prevent unethical people from getting involved in wrongdoing, but the absence of those measures greatly increases the capacity of wrongdoers to operate with impunity and fear of detection.

The absence of a robust anti-corruption compliance program:

• seriously increases risk and liability,
• depreciates M&A and joint venture value,
• potentially damages the brand,
• undermines and reduces trust and confidence,
• increases the potential for prosecution,
• and threatens sustainability

Protect your company by incentivizing ethical behaviour

On the flip side, the existence of a robust compliance program and an ethical business culture can not only prevent, detect and mitigate misconduct, but will markedly increase the chances of authorities going after the individual wrongdoers instead of the company itself.

In addition to an organization’s culture, business and thought leaders must also consider what role greed, selfishness, blind ambition, reckless need for recognition or even performance anxiety can play in the non-compliance rationalization process. These leaders must be pro-active and continuously diligent in their efforts to mitigate individual and organizational risks by exploring new, creative ways to recognize performance and incentivise ethical behaviour.

In this changing business environment insurance underwriters, development banks, financial institutions, venture capitalists, pension funds and a growing number of businesses and government agencies are looking at mitigating their risk and exposure to bribery and corruption. Having a robust compliance program and adopting ethical business practices is now becoming a competitive business advantage.

We need to raise the bar collectively and work towards creating an environment where compliance does imply integrity.

You can find more information on the CCEAC’s anti-corruption and ethics training here.

The post Today, compliance does not eliminate corruption – but that’s changing appeared first on Trade Ready.

After nearly 20 years of allowing facilitation payments, the Canadian government has repealed a section of its anti-corruption laws to eliminate the exception for facilitation payments. The revised law protects employees by making it clear that all forms of bribery are prohibited and will be sanctioned.

According to the finance and investing portal Investopedia, facilitation payments are made, generally to low-level government officials, “to smooth the progress of a service to which the payer is legally entitled, without making this payment.”

Under the 1998 Canadian Corruption of Foreign Public Officials Act, these payments were legal.

This regulation was similar to one included in the US Foreign Corrupt Practices Act of 1977, which excludes facilitation payments. But companies operate in a gray area here.

Most routine public processes do not automatically lead to the desired result, but include some kind of control. If the request for required documentation is not complete or does not comply with the process, for example, the approval is denied. This is a stumbling block, as countries with a higher perceived level of corruption often  have an inefficient bureaucracy.

A comparison of the 2014 World Bank’s Ease of Doing Business Index with the Transparency International Corruption Perception Index from the same year presented a correlation coefficient of 0.79, a strong statistical relationship. As a corrupt government official has no interest in making the process transparent, it is nearly impossible for the individual to understand whether a potentially missing document is based on process or has been invented by the official to provoke a payment.

Arm employees to handle bribe requests in high-risk areas

Employees traveling from countries with a lower corruption risk, such as Canada, to those with a higher risk are particularly vulnerable because they do not have experience handling such requests. This includes understanding how to avoid risky situations and how best, based on local culture, to decline the request.

If corruption has not played a role in the individual’s life, it may be difficult to connect their existing inner values such as integrity or honesty with the attitude “do not bribe.”

Business travel only offers limited opportunities to meet local employees or other citizens, especially when there is a language barrier. Clichés like “corruption is part of the culture” or “locals are happy with it” can be easily assumed. Corruption becomes perceived as a faceless crime, and the employee’s positive self-image is not challenged by this cognitive dissonance.

In most countries, facilitation payments are defined as classic bribery and a deviation to local laws. If an organization wants to be a good global corporate citizen, these payments must be forbidden.

Corrupt government officials often take advantage of gaps in knowledge and time pressure. Uninvolved employees who are unaware of the human cost of corruption, such as lack of infrastructure, inefficient public schools, restricted access to healthcare and legal impunity, are easily persuaded to pay the bribe. Companies are responsible for their employees. If they send them to places with public safety or health risks or corruption, they must be prepared for the potential risk scenarios.

Eliminating the gray areas

To ensure adequate behavior, companies not only have to inform employees about law, culture and business behavior, but their Ethics & Compliance Officers have to go a step further and motivate employees by explaining which regulations apply, and why.  This means detailing the relationship between bribery, slowed growth and poverty to develop empathy for the victims of corruption. Facilitation payments can speed up a process, which means the process for someone who does not make an additional payment becomes slower. An advantage for one always means a disadvantage for someone else.

Laws, like corporate guidelines, fulfill an important task. Based on government’s opinion and its role representing the population, laws define adequate behavior and how to sanction violations. It is imperative that laws be as strong as necessary to protect individual rights, and as non-bureaucratic as possible. Efficient laws draw thin red lines that separate the adequate from the non-adequate and eliminate gray areas. Individuals can act and live safely inside this space. Less efficient laws enlarge gray areas and limit the individual’s safe space. Based on these premises, efficient laws (and corporate guidelines) are ethically justified.

On October 30, 2017, the Canadian government eliminated the gray area in its anti-corruption law and drew this type of red line when it repealed the exception for facilitation payments.

The change is more of a protection than a limitation for employees. No longer do they have to interpret potential mixed signals from management to understand what is expected of them because all forms of bribery are forbidden and sanctionable. If they are faced with a situation in which a government official requests such a payment, they can refer to the law and decline the payment while keeping the discussion short.

Overnight changes will challenge organizations

After nearly 20 years, the law’s repeal is a sudden, but relevant change. For a company that did not sanction facilitation payments in the past and allowed them as an option for their employees, this creates a risk, because human behavior is difficult to change overnight. Experience has shown that not all individuals are willing to adapt or are capable of adapting to major change. The organization has to accept that certain employees will have to be dismissed and some will leave on their own. To accomplish the change as smoothly as possible, the company will have to educate its employees through planned communication and interactive workshops.

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I attended Your Future in Global Markets – 2017 International Business Conference in October at the beautiful Hilton Lac-Leamy, in Canada’s National Capital Region. When it came to preparing for the future of international business, this event definitely delivered!

The conference covered current and future challenges for trade, the complexities of global business, industry trends, and future impacts of international business on operational functions within organizations.

The lineup of speakers included a mix of world-renowned subject matter experts, small and large business leaders, and certified international trade professionals. The topics discussed assisted with my professional development goals to learn about new tools, emerging trends and best practices. The panel format of several sessions allowed for opposing views to be expressed and a rich conversation to develop, which was also dynamic – just like the field of international trade.

For me, the biggest take-away was the advice and sharing from those who had been there, done that, and shared their international trade experiences. The highlight was the keynote address by OMX Founder and Dragon on Next Gen Den, Nicole Verkindt, who talked about her first foray into the world of international trade and some of the complexities she had to overcome.

I thoroughly enjoyed the anecdotes and candid recounting of knowledge gaps and lessons learned.  After all, there are always lessons to be learned.

My favourite anecdote was that of a young Ms. Verkindt arriving in the Dominican Republic, with little knowledge of local business practices and wondering why the goods that her company had frantically produced in the country were not leaving the dock. It was only after a private meeting with the Minister of Customs for the Dominican Republic that the shipment left the dock. On an interesting side note, I understand that this anecdote became material for the keynote presentation the following day “A View from both sides: Why corruption happens and real strategies to protect your people and business”.

The conference reassured me that the advice I share in both private industry and as a FITTskills instructor is on point. One central conviction that particularly stood out for me is that international trade research, including a thorough understanding of the risks involved and the preparation of a plan to mitigate those risks, is a fundamental component of a successful international business strategy.

Preparing for the challenges and opportunities of tomorrow

In addition to the key messaging, here are the top three resounding themes that recurred throughout the conference:

1. We must embrace the digital economy

If we don’t embrace the digital economy, we will be left behind. We must learn about disruptive innovations  in international trade and adopt new ideas or trends early.

When we talk about digital marketing, for example, we are not simply referring to Search Engine Optimization (SEO). We are referring to fully leveraging the power of the IoT and big data to provide an exceptional customer experience and enhance inbound marketing efforts.

We’re talking using machine learning algorithms to make sense of overwhelming amounts of data and deliver customized content in order to create a better customer experience, whether your customer is in your local market or around the globe.

Assembling your A-team of talented professionals in a wide variety of areas may make this early adoption easier.

2. A focused approach is paramount for SMEs

I had a colleague that liked to use this analogy: small business tackling global market expansion is akin to boiling an ocean in contrast to boiling a few pots.

Rather than trying to take on every possibility at once, you need to do your research, learn what you need to know, narrow down your markets and focus on one or two target markets at a time.

3. The future looks bright in Canada and elsewhere

Nicole Verkindt mentioned “It’s Canada’s time!”

Peter Hall, EDC Vice President and Chief Economist, backed up that sentiment with his concise analysis of global issues for Canadian exporters. In many economic circles, experts believe that the ideal time to expand internationally is now. Throw your lifejacket on (prepare) and jump on that ship before it sails without you.

I was truly proud and inspired to be among such a fine network of international trade professionals. The breadth and wealth of knowledge that was shared both formally and informally was very impressive.

And one more thing was made abundantly clear – in international trade, the future is bright!

The post 3 things I learned from the thought leaders at Your Future in Global Markets 2017 appeared first on Trade Ready.

Canada has joined the United States and two other countries in sanctioning corrupt officials of foreign governments and violators of international human rights. On October 18, Canada enacted the Justice for Victims of Corrupt Foreign Officials Act, also known as the Sergei Magnitsky Law.

The new law enables the government to impose sanctions against foreign nationals responsible for gross violations of international human rights and significant corruption by preventing their entry into the country, freezing their assets, and restricting their financial transactions.

Magnitsky background

The United States passed similar legislation in 2012 targeting Russian individuals, and expanded the reach of that law in 2016 to include individuals all over the world. Forty-four people have been banned from the United States under the 2012 authorization. Similar laws permitting asset recovery or banning entry to human rights abusers exist in the United Kingdom and Estonia.

Sergei Magnitsky was a Russian tax lawyer who, while conducting investigations on behalf of his UK client, the Hermitage Capital Fund—once the largest private equity firm investing in Russia—uncovered over USD 230 million in corporate tax fraud. The fraud—carried out with the help of government officials—was accomplished by illicitly taking ownership of several of Hermitage’s Russian investment holding companies, then surreptitiously using them as vehicles for fraudulent tax rebate claims. After testifying against the government officials involved in the scheme, Magnitsky was arrested, denied medical care, beaten, and died in prison in 2009.

Targeted sanctions being imposed

The Russian government has called the new law “a deplorably confrontational act blatantly interfering into Russia’s domestic affairs,” and has promised retaliatory measures, including travel bans on certain Canadian nationals. But the law’s scope is not limited to Russia: the Justice for Victims of Corrupt Foreign Officials Act recognizes the global scope of corruption and human rights violations, and is therefore global in reach.

Sanctions may be imposed on any foreign national who has grossly violated the human rights of those who seek to expose illegal government activity, or who fight for their human rights and freedoms.

Sanctions may also extend to foreign nationals who act on behalf of a foreign state “in a matter relating to” such human-rights violations. The law also targets government officials and their agents for acts of significant corruption, including bribery, as well as those who provide assistance or support for such activities. The Governor-in-Council can issue orders or regulations to identify specific foreign nationals and to effectuate the seizures, prohibitions, and restrictions allowed under the Act.

Canada has since imposed targeted sanctions on 52 individuals, including 30 Russian nationals and Venezuelan President Nicolas Maduro.

Canadian companies advised to ‘due diligence’

As individual foreign nationals are formally identified, engaging in proscribed transactions with any of them—including transactions involving property, finance, or financial services—can give rise to criminal liability, including imprisonment for up to five years or a fine of up to $25,000. Companies should also keep in mind that the group of foreign nationals covered by the new law (and others like it) extends beyond Russia to other countries where violations of international human rights have occurred.

This new law, which has received cross-partisan support in Parliament, is a clear demonstration that Canada takes any and all necessary measures to respond to gross violations of human rights and acts of significant foreign corruption. – Minister of Foreign Affairs Chrystia Freeland

In conducting compliance-related global due diligence, Canadian companies should therefore be attentive not only to the potential for corrupt activity, but also to whether the person or entity in question has had any involvement in human-rights violations carried out by government officials, their agents, or other individuals.

The post New Magnitsky Law adds level of compliance scrutiny for Canadian companies appeared first on Trade Ready.

A leading expert on business ethics, Richard Bistrong is the founder and CEO of Front-Line Anti-Bribery LLC. After spending the first decade of his career as an international sales VP, his career took a turn when he pleaded guilty to violating the FCPA and served 14.5 months in prison. His valuable assistance as an international law enforcement cooperator paved the way for a transition into full time work in anti-corruption efforts. With his unique perspective, he is now an award-winning consultant, writer and speaker on current front-line anti-bribery and compliance issues for businesses and organizations around the world.

Richard will be leading an instructive and eye-opening discussion on how to mitigate one of the uglier aspects on international business at Your Future in Global Markets on October 4^th – bribery and corruption. As one of the world’s leading compliance experts with a truly unique perspective on these issues, we’ve asked him how companies can do better to protect their people and their organizations from corruption.

Listen to the full interview here:

Richard Bistrong – The gaps in your compliance program and how to fill them

You have a unique perspective when it comes to corruption and compliance efforts. What has that taught you about corruption in international business, and how to identify and mitigate it?

Well, Pamela, thank you for the question, and thank you for the opportunity to chat a little bit today. Firstly, people who work on the front lines of international business like I did are far away from home, working in remote offices or even from their hotel rooms, and often thinly supervised. And this is what my experience as a 10 year international sales vice president taught me the hard way, and what some of the challenges are today:

When it comes to anti-corruption compliance efforts and ethics programs, they don’t always make sense on the front lines of international business, particularly where local cultures might appear to conflict with the rules.

Think about the environment in which people work today – who are they talking to on a daily or weekly or quarterly basis? They are talking to their supervisor or their regional manager, and they are talking mostly about commercial objectives. They’re talking about business success, meeting their quota, their forecast and their bonus plan. So those are the conversations that you’ll find most among a commercial workforce. So how does a compliance program, or an ethics initiative make sense as a partner to those tasks at hand?

I think for people who are in the home offices or well-staffed and supervised regional offices, compliance doesn’t look that complex. What are the problems here, what’s not understood? But, for those who are forward-based, working in the field, compliance might not look so simple. The program might appear to have gaps, be contradictory. Maybe the compliance program and those messages seem to conflict with the unspoken messages of incentive systems. So I always ask from the field perspective, do anti-bribery compliance programs just look like a business partner to success? And are they geared and calibrated to the tasks at hand?

Corruption’s ‘Perfect Storm’

Can you tell us more about how international business people find themselves in the position to rationalize bribery? What is the “perfect storm” for corruption?

I didn’t ever wake up in the morning and say, “how am I going to violate the FCPA today, or how am I going to violate international bribery conventions?”

People are out there in the field thinking “how do I execute on my commercial objectives?” There are some very strong winds that can tip people in the wrong direction.

I’ll talk about a few of these in my session at Your Future in Global Markets.

Corrupt conversations are typically camouflaged using many interesting and colourful words from ‘taking care of people’ to ‘paying tolls’. Recently there was a leader at the World Bank who said he heard of a situation where the farm bribes were referred to as ‘sunshine payments’ or ‘chocolates’.

These conversations and these colourful words used to describe bribery are happening all over the world, often in remote regions, where people aren’t thinking they are within the earshot of international law enforcement or their company’s compliance programs. So the first rationalization is often, “I won’t get caught”. For those that are interested in social psychology theory, they call that optimism bias.

On the other side of that storm, are people who might not jaywalk when they’re back home, who are good, honest hard-working people. I’m often asked “When you were basically breaking the law, conspiring to bribe people for a decade, did you ever lose any sleep over it?” This is still tough to talk about, but I did it because I was ethically numb to the consequences and implications of my decisions. I wasn’t spending my nights on the Transparency International website. I wasn’t thinking about how bribery and corruption robs whole societies of governance, of human rights, of social and economic development. I wasn’t thinking about the consequences to my employer, and regrettably, not to myself and my family.

What was I thinking about?

I was thinking “who’s losing here?” I was in the defense business, and I wasn’t pulling layers out of a bullet-proof vest. The end-user was always getting a world class product. Maybe the company would have to hire workers to manufacture the order, creating more jobs. The company is happy.

They make the sale, I get my quota, my forecast, my bonus, the intermediary moves on to the next sale, and the public official who, in many parts of the world are paid at poverty wages, get a little something to make ends meet. So from the field perspective, as difficult as it is to say this, I looked at it as a win-win. Who’s getting hurt here?

There’s a wonderful book called Sidetracked by Professor Francesca Gino at Harvard, and she wrote a really interesting paper that talks about how, when we think our unethical actions benefit others, we come to think of them as morally acceptable and maybe even altruistic. So for me, over those 10 years traveling from nice business class lounges, hotels and restaurants, I wasn’t thinking about the wider consequences of my behaviour. And I certainly wasn’t thinking about the consequences when I looked at my incentive programs, which were very heavily geared to a win above all else. In many parts of the world I thought of my commercial success as a zero sum game to executing on my FCPA training. I thought,

What does my management really want? All of this FCPA paperwork I’ve signed, or success? Because where I’m sitting, I can’t deliver both.

So those are a few things professionals on the front lines of international business encounter. But just to make this clear – this isn’t an exercise in ethical spinning. I wasn’t forced to break the law. I didn’t need to bribe to be successful. And while I shared these rationalizations and justifications, it’s in no attempt to deflect responsibility on other people or other organizations. I wasn’t a fall guy. There’s only one person who was responsible for Richard Bistrong going to prison and that’s Richard Bistrong, and I paid the consequences for that.

I think that’s all really relatable, which is what’s so interesting about your story and why it’s so important to hear from people with your perspective,  people who have been under pressure, and faced opportunities to cross a line. It provides a lot of insights into what the challenges are and why you can’t just say “here are the rules, don’t break the rules,” and everything just goes smoothly from there.

Let’s remember these multi-nationals and the people who write these compliance programs, they’re living and working in what we call the ‘green zone’.  But the people who are responsible for executing on commercial objectives are often working in the ‘red zone’. We should consider what this all looks like from their perspective.

Creating an environment for ‘courageous conversations’

What are some things that organizations of all sizes can do to mitigate corruption within their organization?

In other words, how can a corporation insure that the front line international business teams are highly successful and rewarded both individually and corporately while embracing an anti-bribery program and ethic? – Richard Bistrong, FCPA Blog

The first thing to look at with any compliance program, is what’s happening in the world right now. We always have change in our external environment  – for example, countries like Brazil are going through dramatic societal change. This is not an issue that’s fixed, it’s ever evolving and compliance programs need to evolve with it. This means that every program is going to have gaps. It’s going to have weak points. And that’s the whole goal, discovering what compliance leaders can do to lean in, and listen to get to what they don’t know. If you want to try to mitigate risk, who knows how to do that better than the people who are working in the middle of it? So, what successful compliance leader will do is say,

Even with a well-intentioned program, we might get it wrong, there might be a gap.  And no one would see that quicker than the people that are in the field. So where there’s a problem, come talk to us about it. Let’s unpack that together.

If you think that your incentive system and your forecast is drowning out the voice of compliance you need to be able to recognize that and act on that. You don’t want your front line staff trying to figure out what the company really wants. You don’t want them to try to untangle what they think are conflicts between commercial objectives and compliance, you want them to talk to you about it as the compliance leader.

You want your employees to hear “don’t assume anything, and let’s unpack those challenges together. Because if we do it together, we’re going to help you, we’re going to fix that problem. We’re not going to put you back in the field where it’s unresolved. Just don’t make that decision on your own.”

And I think when compliance leaders can show that, for lack of a better word, humility or humanity, it’s really encouraging the workforce to speak up when they do think there’s a problem or a conflict. When you have ambassadors, where compliance leaders feel like they are the champion for the commercial workforce, and people in the commercial workforce think of themselves as compliance ambassadors as well, those weak points are always getting mitigated and they’re always getting raised up and addressed. From a communications standpoint that is critical.

Is it important to empower potential whistleblowers within an organization? Are organizations doing this successfully today?

Let’s talk about whistleblowing in a wider sense. It takes a village to deliver international goods or services. Think about all the people involved. You have sales order processing, people in logistics, accounts receivable and finance, and people who are wide and deep in the org. chart.

I always like to ask, do these people – no matter where they are – feel like they are a part of the ethics and compliance team? If someone gets a piece of paperwork, even if it’s from their supervisor, and something doesn’t look right do they feel empowered to hit the pause button and to speak up about this? Or do they feel like they’re just a small gear in a large machine, and “who am I to make issue of this”?

It’s about more than just whistleblowing, it’s courageous conversations. Being able to talk about problems where you see them.

Some recent surveys have demonstrated that people down in the org. chart don’t feel like they’re compliance ambassadors – but they are such a wonderful ethics and compliance resource.

Compliance leaders really need to think holistically about all the people who might touch international goods and services when they think about their anti-bribery and compliance efforts, just like they need to encourage people in the commercial workforce to speak up when they see an issue. Even to the point when they can say, “You know what? If you do speak up and you hear that we’re upset, that actually means that it’s a good conversation, because you’re sharing something with us and we’re fixing a problem together.”

I think companies have a long way to go to really be encouraging that in a wider sense than just whistleblowing.

It sounds like that would have to originate from and really permeate the entire company culture.

That’s exactly right. It has to go wide and it has to go deep to people within an organization who are all working for the same company, but they’re not necessarily on the same team organizationally. They’re in different divisions. It has to span support functions.

What resources are out there that can help organizations of all sizes set up successful compliance programs?

There are so many of them. There’s a proliferation of publicly sourced material out there, including videos and compliance organizations offering programs and certifications. I don’t think there’s any single source of information, but in a way that’s a good thing because there’s so much data and thought leadership out there that it’s a little bit overwhelming right now.

So compliance leaders really need to focus on where they think their program needs a little bit of support, and then to do the online searches and ask within their networks to find out what the best sources of that information might be.

And really take advantage of those on the front-line within their organization.

That’s the wonderful part about how much the whole compliance field has evolved right now. There’s really some wonderful, incredible thought leadership. And it’s one of the things I love about the work that I do now. It’s anything but static. It’s changing and it’s getting richer and deeper year after year.

Richard, thank you so much for taking the time to chat with me about this. It’s so great to hear from people who have different perspectives on this, who have been involved on the front lines and are watching compliance issues evolve and giving people and organizations the tools to tackle often complicated issues. We are really looking forward to hearing you talk about these issues and others at Your Future in Global Markets October 4^th!

It’s a pleasure, and our panel is going to be really interesting. We’ve got Kristine Robidoux who has extensive experience as both in-house and external counsel and has had involvement in some really interesting anti-bribery cases in Canada. And we’ve got Sgt Pat Poitevin from the RCMP with the enforcement perspective, and we’ve got my perspective. So I think we’re going to have a lot of different perspectives on this issue up in the National Capital Region, and I am super excited to see you up there!

The post How to protect your organization from the “Perfect Storm” of corruption – A Q&A with FCPA expert Richard Bistrong appeared first on Trade Ready.

So when you’re doing this research, where do you start?

These are my top 6 rankings (you’ll need to look for sector/industry numbers, too) to get you started in your research.

1. Corruption Perception Index

Transparency International’s Corruption Perception Index gives you a good first look at one of the most critical issues in Latin American markets and a key barrier to trade. The levels of corruption vary greatly across the region, and therefore may be an important factor in narrowing in on potential options.

Uruguay tops the index with the lowest perceived corruption in Latin America (21^st in the world, just below Japan) and Chile comes in close behind at 24^th. At the other end of the scale, Nicaragua at 145^th and Venezuela at 166^th are near the bottom of the global index. While the index cannot cover every specific situation you may encounter, it gives you a general idea of what working in these countries will be like. The more corrupt a country, the riskier and more costly for you as an exporter.

2. Ease of Doing Business ranking

The World Bank comes up with its Ease of Doing Business ranking every year. Again, this can help you see which countries you might want to prioritise when developing your strategy, and which to leave for later – or at least which countries to plan more or fewer resources for. Mexico, Colombia and Peru top the ranking in Latin America.

Careful with this ranking, though. As it clarifies, “A high ease of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm”, but it can’t cover every aspect of running and growing your business once it’s started!

3. Largest multilatinas

The America Economia Multilatinas ranking evaluates the global strength of Latin American-based multinationals, and ranks them based on their perceived ability to expand their influence and their business around the world. It’s useful because it will show you which countries produce the companies with the greatest global impact, which could be already doing business closer to you than you think.

Sometimes our clients base their decisions on the presence of certain companies or lack thereof, either because they are competitors or because they are complementary, or even buyers. If you look at the sales figures of these companies and other numbers, you will also quickly see the potential of different markets. By analysing their behaviour, you’ll generate a lot of useful market intelligence too.

4. Population size

It’s not uncommon for foreign businesses to disregard the size of Latin American markets in terms of population, and underestimate a region of 600 million people. The CIA World Factbook, which provides some very useful data on every country in the world, produces this world population ranking.

But before you check it out, can you guess which the four most populated Latin American countries are? Population numbers can definitely be used as a proxy for the size of the economy, as well as the size of your potential market, whether B2C or B2B.

5. GDP per capita

Size is not everything, and anyone working in B2C will be looking to see the income levels of people in each country. Even in B2B, you will want to know what sort of country you’re dealing with, so GDP per capita is a good statistic to look at.

This ranking, also by the CIA World Factbook, is a good place to start. However, averages always hide certain realities – so if you want to see how income is really spread, check out the Gini coefficient stats from the World Bank, which measure levels of inequality and wealth distribution.

6. Democracy Index

Many exporters are understandably concerned about the political situation of the countries where they do business. While some are mainly focused on corporate responsibility, or fear for the stability and future of their business, others may simply not want to travel to a country lower on this list out of a feared lack of personal safety for their staff.

If you want to learn more, take a look at the Economist Intelligence Unit Democracy Index. The resulting ranking is rather handy when starting to paint a picture of Latin American markets.

Rankings are a great way to start your research

I wouldn’t rely solely on statistics or rankings, but they should definitely have a place when researching Latin American markets, particularly if these markets are totally new to you. Rankings will start highlighting some opportunities and flash some concerns. You will start spotting some patterns as to where the best exporting opportunities are as well. I hope they help in your future global business endeavours!

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Stewart Henderson has travelled across Africa many times as the chairman of the Eastern Africa Association, a non-lobbying group of 400-plus investors based in Nairobi, Kenya who share information about politics and economics.

Over the course of his extensive travels, he learned that the best way for entrepreneurs are enter the East African market is to begin in Kenya and then fan outward with their offering to other states. More significantly, he says, they need to identify a niche market.

The latter point may seem obvious. Yet in daunting sub-Saharan Africa where, quite bluntly, it’s a “hell of a big challenge” to do business, it’s sometimes overlooked amid the market entry excitement.  The product or service being promoted must be “wanted and needed.”

“People will come to Kenya and say, ‘Wow, there’s a big market for shoes here,’ because they see all the children without shoes,” he said in a phone interview. “The reason they don’t have shoes is because they can’t afford shoes; it’s not because there aren’t any shoes.”

In another scenario, he said, foreign companies surveying the East African region for viable business prospects may venture to Ethiopia and see a massive banking opportunity to resolve time-consuming letters of credit. “But the point is, Ethiopians don’t want foreign banks. Full stop,” Henderson noted.

A tricky market with huge promise

Many countries are forecasting little to no population growth for decades to come. In contrast, according to Leland Clegg, president of the Africa Business Portal:

Sub-Saharan Africa is the new Asia of this century.

He says that the region represents a “huge opportunity in growth in markets and labour supply.” Africa is predicted to boost its portion of the international workforce from 10 percent to 37 percent by 2100, according to an IMF report issued this year.

Moreover, the major East African economies have strong GDP projections which are “much higher than the rest of Africa and much higher than in the developed world,” Clegg said. East Africa has not been as negatively impacted as neighbouring countries by the decline of commodity prices, he pointed out. And overall, Africa’s exchange rates have made it appealing for North Americans to import African goods.

For Canadian companies, the region is certainly worth exploring. In 2015, Canadian two-way merchandise trade with East Africa was $401.9 million according to Ryan Ward, a senior trade commissioner (Eastern Africa) based at the High Commission of Canada in Kenya. He noted that the IMF declared three markets in East Africa are among the 10 fastest-growing economies in the world: Tanzania (fifth, 7.2 percent growth); Ethiopia (sixth, 7%); and Djibouti (ninth, 6.7%).

East Africa’s prospects are greatest in the energy, construction, IT and agricultural sectors, with opportunities varying by country, Clegg added. Although oil is not as abundant in East African states as in other resource-rich areas of the continent, current investments in renewable energy sources such as solar, hydro and clean energy variations such as natural gas are likely to grow dramatically.

On the technology side, Clegg said Kenya has led the way in a continent that basically skipped telecom lines and moved directly to mobile, adding that the country is “much more advanced in mobile banking than the U.S.”

East Africa also offers possibilities for food manufacturers – but not for all players in the agricultural industry, cautioned Henderson. He said maize and other types of big farming are impeded by the lack of suitable land, especially in Kenya which is comprised mainly of desert.

Henderson is also involved with an organization that makes high-end cooking oil from avocado pears and sells it to Europe. He said food companies linked to specialist, niche markets requiring the high-altitude weather of Kenya to grow their crops are best positioned. He further noted that macadamia nuts are a promising product in the country, which are often grown by contract farmers with high literacy rates, no tolerance of pesticides, and the ability to satisfy European standards.

Kenya is a hub for all of Eastern Africa

 Without a doubt, Henderson argued Kenya must be the starting point for companies formulating a market entry strategy to East Africa. He adds that “if it’s going to work, it will work here.” He suggested setting up operations in Mauritius for tax reasons, creating a head office in the Kenyan capital of Nairobi for administrative purposes, and from there assessing whether the product or service may be exported to nearby Tanzania, Uganda or Rwanda.

The allure of Kenya is based on high growth, first-world infrastructure, banking and auditing systems, and the capitalist leanings of its largest ethnic group.

The country’s physical infrastructure has improved dramatically, with new highways and road improvements, a planned railway line, better internet connectivity and rising power generation capacity, he explained.

He also noted that the cost of power is declining as wind generation and other renewable sources come online, and these developments have created big opportunities for foreign firms involved in geothermal energy – from “consulting engineering all the way to on-the-ground operating.”

In other East African countries, opinion is mixed on the possibilities versus the roadblocks. Although gold projects in Tanzania, for instance, are established and faring well, “gas is very much in its infancy, with speculation in oil as well,” said Henderson. In his view, the major challenge is that socialist Tanzania is struggling with how to exploit its gas reserves and “make proper money out of it.”

Uganda, too, has its share of problems, he said. President Yoweri Museveni, at the helm since 1986, has been in power for too long and he and his family are interfering in the oil and gas industry. The country is considering building a pipeline to Tanzania, but that will take years.

Yet Ward said he spends much of his time attending trade shows in East Africa and offering Canadian companies a sense of how countries like Rwanda and Ethiopia have grown over the past decades, and deserve more attention.

How to compete without falling into the corruption trap

Global firms navigating Sub-Saharan Africa also “must decide what level of corruption they’re prepared to tolerate,” Henderson suggests. If local players believe a new entrant will pay, “they then have ways of delaying things.”

Companies embarking on a new venture in East Africa should dispatch expats on the ground to manage operations in a way that reflects their corporate culture.

Further, he dismissed the “half-hearted idea” of using a facilitator to move goods: “People say, ‘I can get a container out of the port; I can get a facilitator to get it out for me. I don’t bribe anybody.’ Rubbish. The facilitator bribed somebody in the port.”

There are some new channels available to help manage the local uncertainty, though. The aim of the Africa Business Portal is to connect North American small and medium-sized businesses wishing to enter the African market.

The organization has 100 advisers on both continents “who are committed to play by the rules,” and provide them with “large-company resources,” said Clegg, whose initiative was launched in October 2015 after seven years in development. The experts include multinational executives, former ambassadors, NGO executives and educators, as well as service providers such as attorneys, accountants, logistics people, and specialists in energy and agriculture.

Moreover, Canadian companies may turn to the country’s Trade Commissioner Service for free access to expertise and networks, added Ward. “At the most basic level, our trade commissioners help clients understand their potential in a given market, connect them with qualified contacts in the right organizations, and provide support if clients run into problems,” he noted, adding that his team also organizes business missions and trade shows.

Once set up in East Africa, Henderson said North American firms will vie with the region’s traditional trading partners of India, Europe and the U.K. Yet “China is the one you’ve got to watch,” he warned, as the Asian country is investing in large infrastructure projects such as railway lines and bringing in their own people. “You’ll often find your competition will have no scruples on bribery and paying people better deals.”

Canada, however, has a different take on China. “Rather than looking at Chinese companies as competition, we are increasingly seeing them as potential partners,” said Ward. The bulk of Canadian companies are SMEs and lack the capacity to take on major infrastructure projects.

This is why they should seek out subcontracting opportunities with “select Chinese companies already active in the region,” he advised. On the energy infrastructure side, for example, a number of East African states are interested in building major pipelines to facilitate the movement of crude oil – an opportunity for Canadian companies impacted by the downturn of the domestic oil and gas industry, Ward noted.

In Ward’s experience, the greatest impediments to Canada’s trade with the region are an outdated perception of Africa and a reliance on traditional markets. “The growth numbers speak for themselves,” he said. “If Canadian companies don’t take advantage of the opportunities presented by these expanding economies, other countries will.”

The post Navigating on-the-ground complexity to benefit from East Africa’s greatest potential appeared first on Trade Ready.

The art of reaching true agreement with a foreign distributor is a delicate dance. At the beginning, the relationship is full of possibilities and enthusiasm. Both companies want to reach agreement and get down to the business of selling things as soon as possible.

But, when it comes to negotiating international distribution agreements there is a lot of room for error, which can lead to some major hiccups and ultimately cost your business time, money and customers.

Here are the top ten misconceptions floating around out there, and the solutions to protect your bottom line in distribution agreements.

Myth #1: We don’t have time for a contract – we need to get busy selling!

Many companies will only do a legal agreement if their legal department insists on it, and if they don’t have a legal department, it probably won’t happen.

Even companies with written agreements may think of the contract as something to be done at the end of the negotiations—a necessary evil to tidy up the little details, but that delays getting on with the business at hand.

But they’re missing a great opportunity: the contract negotiation process ensures the parties truly have clarity and consensus, and as an added benefit, builds the all-important relationship between supplier and distributor.

Through the contract negotiation process, a good international lawyer helps reveal gaps in understanding that are never an issue in domestic negotiations, and coaches and guides the parties to a better partnership. Working through small conflicts as part of the negotiation builds trust as they gain confidence they can successfully work through inevitable disagreements.

Myth # 2: How we found our distributor is totally separate from our contract

Many may ask: what does that have to do with the distribution contract?

It matters because the best foreign distribution agreements start long before sitting down with a written document.

A supplier with a distributor recruitment process has thought pretty carefully about its objectives for its distribution business. These objectives can be clearly articulated, which leads to discussions with distributors that are more productive for both companies. They see mutual interest right from the outset of the relationship (or the lack of real interest becomes clear very quickly).

The contract negotiation process is consistently smoother when suppliers do a lot of the contract pre-work by thinking carefully about what they want in their distributors, envision what a great distributor looks like, and then go find those distributors.

Due diligence also helps create better agreements because it weeds out distributors that are bad fits long before wasting time finding that out through a painful contract negotiation process.

Myth # 3: Contract templates are great, because that way we can skip the legal review costs.

Templates are a great place to start. But they are only the START, and should not replace competent legal review.

These days, it’s easy to find templates on the internet. You can purchase them online, or obtain them from colleagues, trade associations, or government agencies. Even most lawyers will admit they start with a document repurposed from somewhere. Make sure the one you use fits your situation.

Some questions to ask to ensure you’re starting with a good template:

Do I have an agent or a distributor? The legal agreements for the two types of arrangement are totally different. If you pull a “distribution agreement” off the internet, but you have an agent, you’re not even starting with the right kind of agreement.

Does the template cover all the key points? Make sure your template is comprehensive.

Does it adequately address services or software? Distribution templates are typically product-focused, and may not address related service and software issues. Today, there is often a service component to many product sales. For example, is installation required for your products? What about trouble-shooting, maintenance, upgrades, and warranty repairs?

Second, templates are NOT a substitute for competent legal review

Used wisely, a good template can facilitate the negotiation process. Unless you’re very experienced with legal agreements, however, you’ll benefit immensely from having a qualified lawyer review the document with you.

Agreements without legal review often omit important provisions. Many are worded poorly and the interpretation is subject to dispute.

Myth #4: We Can Just Have Our Local Contracts Lawyer Review Our Agreements

Just because a signed contract says something doesn’t make it so.

When you have a contract with a foreign distributor, you now have two completely different legal systems—yours, and that of your distributor. The contract interpretation becomes much more complicated and much less predictable. Expert legal advice is needed to sort out the rules that will apply, and how they will apply.

Balancing all this is complicated, and depending on the amount at stake, requires not only an experienced international attorney in your home country, but selective consultation with their counterpart in the distributor’s country. And the lawyer in the distributor’s country cannot be just any local commercial lawyer, but a lawyer who also is experienced with cross-border transactions.

For these reasons, you should NOT have your international distribution agreement reviewed by the local lawyer who helps your company with other business, even other contracts—unless they also happen to be an experienced international lawyer, which is unlikely.

Myth #5: We hope our foreign distributors don’t hand out bribes, but if they do, it’s really not our problem.

Most companies today know that foreign bribery is bad and  illegal. They may have heard of the U.S. Foreign Corrupt Practices Act (FCPA), or the UK Bribery Act, and other similar laws.

But there are plenty of companies that export using distributors still don’t understand that they can be held accountable for bribes their distributors make. Maybe it’s because it seems far-fetched that a completely independent company like your distributor can put you at risk for their actions. Maybe it’s because it seems unlikely your distributor or you will get caught.

Whatever the reason, the truth is: more and more companies are finding themselves subject to FCPA enforcement because of their distributor’s bribes.

According to the U.S. government, here’s what every U.S. company needs to do with their foreign distributors to avoid liability:

• Conduct thorough due diligence, which may include regular background checks and investigations on distributors.
• Include anti-bribery language in all distributor agreements (which presumes you must have written contracts) that clearly allows you to terminate if you discover bad behavior.
• Train your distributors (as well as your employees who interact with them) regularly on anti-bribery compliance.
• Clearly understand how your products are reaching the end customers and confirm if there are any other intermediaries.
• Prohibit use of sub-distributors, agents, or other intermediaries by your distributor unless you have investigated appropriately and provided written approval.
• Make sure your distributors’ customer margins, and any other compensation you pay them, are reasonable and customary.
• Have controls in place to make sure any red flags are raised and addressed.
• Have your internal audit or finance function monitor this program regularly.
• Document everything that you verified, as well as how any issues or problems were investigated and resolved.

By the way, bribes are still pretty common in many countries. So make sure you get good legal advice when exporting so that you can assess bribery risks and create an anti-corruption program that works for your company.

Myth #6: Two extremes: We never give exclusivity unless forced to, or, we give exclusivity freely.

Virtually every international distributor will ask for (or insist on) exclusivity. A frequent question in contract negotiations is whether you can or should give it to them. It’s an issue worth weighing carefully.

There is no single rule about granting exclusivity. It depends on the geography, local laws, what is customary in your industry, and practical business considerations.

The best we can do is set out some of the most common factors to consider.

Does local law permit the type and extent of exclusivity you are considering?

When granting exclusivity, it is expected to have minimum purchase requirements. You will still want to understand which these will be enforceable under local law, especially regarding “take or pay” minimum purchase provisions.

If a distributor insists on exclusivity, but is unwilling to agree to enforceable minimums, think long and hard before moving forward with this partner.

You will also need to weigh the practical and business considerations. In some cases, you may have no real choice on exclusivity. If there are only two qualified distributors in a market and your competitor already works with one, you have limited negotiating leverage.

Are you are willing to invest in the distributor, and vice versa?

Ensure that you contract allows you to terminate exclusivity without terminating the entire agreement. 

Understand clearly the local law requirements for terminating exclusivity, including the grounds for termination and whether any payments will be due.

Myth #7: If We Set Aggressive Deadlines to Finalize Our International Contracts, We’ll All Stay Focused and Get it Done More Quickly!

Negotiating a cross-border agreement flat out takes a lot more time to negotiate than the same agreement within your country, or between a U.S. and a Canadian company. Expecting negotiations to move at the pace of a typical domestic agreement is almost guaranteed to result in disappointment and frustration.

This concept is simple on its face, but in reality is often very difficult for some to accept. The reasons these agreements take so much longer varies. Time zone differences and language issues definitely play a role. Differing cultural expectations, though, usually have a larger impact. To effectively negotiate great distributor relationships in the international arena, you need to get a bit zen. Negotiating styles vary widely from country to country, and you must accept that your distributor is not going to change their culture suddenly to meet your arbitrary timelines.

It helps a lot to relax, and just enjoy the process of seeing the many different styles of negotiation. Getting frustrated will not force your foreign partner to be more like you!

In the end, continuing to build a good relationship with the distributor is most important – if you have that, you are much more likely to have a productive business partner and a better agreement than by simply rushing to meet artificial deadlines. And you may also need to help educate your own bosses to help manage their expectations.

Myth #8: We don’t need to spell out operational details in the contract—that’s business stuff, not legal!

Operational issues generally make or break client-distributor relationships. And the time to think through and discuss them is during contract negotiations. If the parties have detailed discussion and put their agreement in writing, there tends to be fewer issues later.

Here are some of the most common sources of disputes, and some questions to consider:

Investments: How many people will the distributor dedicate to selling and supporting your products? What kind of skill sets do they need? Do you want the right to interview, veto, or replace these people? When there is turnover of personnel, how quickly should these positions be filled, and what recourse should you, the manufacturer have, if the positions aren’t replaced? Which of you will pay for product training, congresses to promote your products, or the creation of localized marketing materials?

Forecasting & Demand Planning: There is nothing worse than having your distributor provide you an aggressive sales forecast, and you purchase or make products based on this forecast, only to find the orders never come. The reverse is equally bad: the distributor suddenly wants lots of unforecasted products shipped immediately, and you don’t have them available.

Logistics and Supply Chain: When are rush or air freight shipments appropriate? How long are manufacturing lead times? How are product shortages rationalized? Will the distributor incur penalties in their customer contracts if delivery is delayed? What shipping metrics will you use?

Reporting and Business Reviews: Will there be an agreed business plan? Will there be quarterly business reviews? Will there be minimum purchases, and how and under what circumstances will they be adjusted? What metrics, besides minimums, are you expecting your distributor to meet? Do you expect sales tracings reports? If so, how often, and in what format?

After-Sales Support: How will returns and repairs be handled? What tasks are the distributor able to handle? Should they receive special training to do certain after-sales support activities? Will the manufacturer or a third party handle? How quickly can repairs be done? When is replacement appropriate?

Take the time to discuss these and any other relevant operational detail with your new distributor. Memorialize these in your contract. Think of your distribution contract less as a document you pull out of the dusty files when things have gone wrong, and more like a blueprint for governing your distributor relationship.

Myth #9: We don’t spend much time negotiating termination, because it will spoil the enthusiasm.

No one (except, of course, the lawyers) want to think about how to end a relationship when it is only just beginning and full of promise. However, most agreements eventually end, and that’s why it’s worth spending time thinking about termination—especially while the relationship is amicable.

You should always plan for termination in the context of how you would transition to a different distributor or your own stand-alone sales office. (It’s always easier to torch and run from the market, but the reality is that you should think hard about entering a market if you think that’s how it will end.)

Goodwill payments: Make sure you clearly understand any goodwill payments that may be due on termination. Think about how long-term customer contracts and government tenders should be managed to avoid disruption to the customer.

Inventory: Think through how the distributor’s existing inventory should be handled. Consider buying back some or all the inventory (other than maybe excess no-move inventory) to essentially buy their goodwill so that your brand isn’t ruined.

Product registrations and other key files: If you’re in a highly-regulated industry, think through how all the registration documents and files should be handed over. This can significantly shorten your new partner’s time to market, and may be worth a generous payment to your old distributor.

Customers: Ultimately, protecting your brand is about making sure the end customers are happy or at least accommodated. Agreeing that your distributor will provide a list of customers and key contract terms will allow a much smoother termination.

Myth #10: We’ve Invested So Much Time in This Relationship – We Can’t Give Up Now!

Whether in contract negotiations or in a long-term business relationship, human psychology is definitely at work.

Companies often feel like they’ve invested so much already that they need to slog through and finish the negotiation or continue the relationship.

All too often, suppliers keep distributors around whose poor results suggest they should be replaced. If you are clear about your exit strategy (even if that strategy evolves over time), it will guide you to a decision about whether it’s time to put in place a direct sales force, find a new distributor, or leave a market altogether if certain results aren’t met over a specific time.

Similarly, having a backup plan (again, it’s OK if that plan morphs over time) helps you keep you’re your walk-away point clearly in focus. If you don’t have Plan B, human psychology again will come into play, and you’re likely to settle for sub-par results because making change is hard and requires focus.

Having a Plan B is especially important in emerging markets. Huge currency fluctuations, political unrest, and sudden regulatory changes can happen, and the market that was once attractive no longer is. But it’s also important almost everywhere in today’s business environment, where technology changes, mergers and acquisitions, and factors have accelerated the pace of change. Being flexible and adaptable is one of the most important attributes for success in global markets.

Your distribution business will be more successful if you always keep your walkaway point in mind, and know when it’s time to pull the plug, regardless of the investment made already—that’s a sunk cost that can’t be recovered. Know when you want to exit, and how you want to exit by being prepared with a backup plan.

This article series originally appeared in Global Trade Magazine. You can view the series here.

The post Debunking the top 10 myths about international distribution agreements appeared first on Trade Ready.

For all of the benefits international trade can bring—profit, stability, development, peace—it can also serve as a channel for humanity’s worst impulses. This happens, for example, when the legitimate apparatus of trade is hijacked for personal gain by public officials who hold the keys to market access, and who are willing to condition that access on the payment of a bribe.

From low-level customs officials guarding the ports of entry, to high-ranking government ministers able to effect preferential policies quid pro quo, the political leadership and the civil service of a country have a tremendous capacity to influence trade. They can either help the market system operate freely and fairly, or subject it to devastating exploitation by criminals and kleptocrats.

Those who engage in international trade need to understand the different political and social environments in which they operate—including the varying likelihood of being confronted with corrupt demands by public officials.

For reasons both ethical and pragmatic (given the severe legal consequences of paying a bribe), business organizations need to be prepared to resist such demands. And adequate preparation requires knowledge of the nature and extent of the specific risks in each country.

A tool for understanding business bribery risk

The 2016 TRACE Matrix is the latest tool businesses should have in their arsenal to understand and confront the challenges of fighting bribery in international commerce. It provides a snapshot of the factors that make it more or less likely that someone doing business in a given country will be asked by a government official to pay a bribe.

The combination of these factors can be thought of as reflecting a kind of public-sector commer­cial health for the country—just as an individual’s health might be reflected in a chart of his or her vital signs. The relevant numbers (e.g., body tempera­ture, pulse rate, etc.) are measured objectively, but care must be taken in deter­mining their significance, reaching a diagnosis, and setting an approp­riate course of treatment.

The TRACE Matrix groups its bribery-related “vital signs” into four domains:

1. The first domain includes factors directly affecting companies’ engagement with public officials: the amount of government contact typically required in conducting busi­ness, the degree to which bribes are considered a normal part of the process, and the extent of business regulation. The numeric values associated with these factors can give you an indication of the opportunities, expectations, and leverage that govern­ment officials are likely to have in seeking illicit payments from your company and its representa­tives.
2. The second domain gauges the government’s own efforts to rein in corruption, addressing the extent to which bribery is legally proscribed and the effectiveness with which those laws are enforced.
3. The third domain addresses government transparency, both in terms of legislative and executive processes, and financial disclosures required of government officials and civil servants. The issue is whether information is available that would allow the public to monitor official behavior and thereby discourage improper rent-seeking.
4. The fourth domain speaks to the ability of the public to make use of such transpar­ency, as gauged by factors such as press freedom and the strength of civic institu­tions.

These four interlocking domains present a picture of the various conditions that keep corruption in check or allow bribery to thrive.

They do not provide certainty about whether or how bribery demands will be encountered, any more than an annual physical check-up will tell me with certainty whether I’m going to suffer a heart attack in the coming year. But, when carefully interpreted, they can clarify what areas might warrant particular attention and preventive measures.

How the TRACE Matrix works

The Matrix arrives at its numbers by aggregating information from a variety of reliable sources, including surveys conducted by institutions such as the United Nations and the World Bank. The inputs are standardized, a series of comparative and predictive statistical techniques are applied, and the results within each domain are expressed on a scale of 1 to 100. An overall risk score for the country is then calculated based on a combination of the four domain scores.

This objective approach to calculation yields numbers of a certain precision. But the significance of those numbers needs to be understood in context, and they require a certain amount of interpretation to be truly meaningful—just as with an individual’s precise blood pressure, cholesterol level, or body-mass index. In general, lower numbers represent a lower bribery risk than higher numbers. But, one shouldn’t be preoccupied with small differences at the expense of attention to the story the collection of numbers can tell.

How does Canada score?

As an encouraging example, we can look at the 2016 Matrix report for Canada.

The coun­try receives an overall score of 28 out of 100, which is considered low-risk. But what accounts for that low risk? With respect to companies’ engagement with domestic officials in Domain 1 (score: 28), the Matrix reveals “a low degree of government interaction, very low expectation of bribes, and a low regulatory burden.”

The anti-corruption legal regime of Domain 2 (score: 20) is characterized as providing “a very high quality of anti-bribery laws and a moderate quality of anti-bribery enforcement.”

The transparency reflected in Domain 3 (score: 30) skews in favor of procedural openness, with “very good governmental transparency and [only] moderate civil-service transparency/health.”

The country’s outstanding capacity for civil oversight in Domain 4 (score: 13) is derived from its “very high degree of media freedom/quality and a very high degree of social development.”

Comparing overall risk scores across different countries can give you a rough sense of which ones carry more or less bribery risk.

Examining the reasons for the risk scores is more likely to give you a meaningful understanding of the actual conditions you are likely to face there.

Used judiciously, the TRACE Matrix can help you take appropriate precautions to avoid becoming complicit in bribery wherever you may trade.

The TRACE Matrix is publicly available here.

The post This tool could be your company’s answer to reducing bribery risk in international business appeared first on Trade Ready.

The value of having an organisational whistleblowing process

Recently, whilst lecturing to business and economics students at University of Surrey, I tested their knowledge and recognition of worldwide whistleblowers. Interestingly, but unsurprisingly, most of them recognized Edward Snowden, less so Julian Assange. None of the students recognized or knew any of the remaining twenty whistleblowers projected onto the screen.

Why is this relevant?  The way that individuals frame whistleblowers is significant to how organisations and broader society engage with the topic of whistleblowing.  In my experience, the prevalence of focusing and reporting predominantly on whistleblowers such as Snowden, Manning and the leaker Assange has resulted in organisations kicking the issue of whistleblowing to the curb.

Fewer than one in 10 corporations polled around the world (7.1%) said that whistleblowing was a priority for their organisation in 2015, and even fewer (6.5%) said it was a current priority. Whistleblowing has become an emotionally charged hot potato, with a resulting reluctance to engage with it.

But there’s something worse than a hot potato.  It’s the fire that rages when a whistleblower elects to speak out publicly. If penalties and fines are not bad enough, there is often a large and immediate drop in stock prices, financial performance suffers for years thereafter, and executives are shunned.  There is also a serious liability risk for company boards and management.

The biggest loss, however, is reputational. Attempts to ‘manage the truth’ through PR, communications or specialists typically fails, and people immediately see the deception.

Are corporate leaders burying their heads in the sand?

Investigations into corporations – and sanctions against them – have increased dramatically in recent years. Global antitrust fines in seven key jurisdictions in 2015 (including the U.S., EU, Japan, Brazil and South Africa) surpassed $4.2 billion – a 10% rise over 2012. In the U.S. and UK, companies in certain regulated sectors, such as financial services, are now required to have whistleblowing policies.

A robust whistleblowing policy and process can help insulate a company from criminal sanctions. It gives the business the opportunity to investigate wrongdoing internally and deal with it properly before the regulators get involved. If a company is charged with a corporate offence, it can make the defence that it had adequate procedures in place.

However, if a company has a non-existent, outdated, or inadequately communicated internal whistleblowing process, the laws are on the side of the whistleblower. This is especially true if they disclose externally, opening the company up to corporate criminal charges.

Why do whistleblowers speak out publicly?

The most common reason a whistleblower will disclose externally is an inadequate and weak internal process. In these cases, a whistleblower often won’t have an existing or well-known internal whistleblowing process to follow, and will have observed that previous internal disclosures have resulted in retaliation and/or job losses.

Research by PCAW in the UK show that many whistleblowers (44%) raise a concern only once, and a further 39% will only go on to raise their concern a second time. The overwhelming majority (83%) will only try internal options once or twice and then give up. There is therefore a small window of opportunity to address wrongdoing internally.

Regulators and policy-makers are homing in on the important link between a good corporate culture and ethical corporate conduct. A robust, independent whistleblowing process that makes employees feel comfortable about reporting wrongdoing is a critical asset in building a positive, ethical culture that supports strong corporate outcomes.

However, the challenge for many organisations is that there is currently little evidence-based information to guide them in developing best practice whistleblowing processes. Therefore companies are largely dependent on guesswork to develop a process that will actually work and which will have the confidence of staff, management and the board alike.

Attention needs to turn to what new legal and governance standards must contain to best support internal, regulatory and public whistleblowing. This is a necessary first step in changing the mindset that whistleblowers are destined to suffer, no matter what.

My 14 step roadmap to building and managing an internal whistleblowing process:

Most employees ensure they understand their rights, such as leave entitlements, benefits and pay. However, it is also essential for employees to recognise whether the whistleblower protection system in place applies to them, and if so to what extent.

Individuals who disclose often do not recognise themselves as whistleblowers, attributing their actions of detecting and disclosing information as falling within the scope of their workplace duties and responsibilities. It’s therefore important for employees to know how the internal whistleblowing policy and process has been invoked in the organisation. Here are the most important steps to remember:

1. Encourage the raising of concerns.
2. Maintain the confidentiality or anonymity of the whistleblower (unless explicitly waived by the whistleblower).
3. Ensure thorough and timely investigations of whistleblowers’ disclosures.
4. Manage whistleblowers’ expectations.
5. Keep the whistleblower in the loop of the investigation, from beginning to conclusion.
6. Produce accessible annual reports recording the number of disclosures, steps taken and remedial action taken.
7. Have enforceable mechanisms requiring an investigation into a whistleblower’s retaliation complaints within strict, short time frames (including a process for disciplining those who retaliate against them).
8. Have enforceable mechanisms in place to restore whistleblowers who faced retaliation to their previous positions and statuses within strict, short time frames.
9. Communicate that employees do not have to follow the internal chain of command.
10. Clarify the difference between major misconduct (illegal), employee concerns (illegitimate – bullying, discrimination) and pro-organisational input. All are significant when ‘joining the dots’. Build filters and categories into the whistleblowing process. See the Whispli mechanism as an example.
11. Ensure the process allows the organisation’s own employees (including self-employed workers, trainees and volunteers) in addition to suppliers and customers, to make internal reports of concerns of wrongdoing or irregularities.
12. Ensure that the circumstances in which an external report may be submitted are made clear.
13. Regularly promote the process in clear and understandable terms.
14. Regularly evaluate the reporting process and internal approach to dealing with disclosures.

Appreciate that relying on a whistleblower to disclose misconduct requires a courageous behaviour which is not innate.  With this in mind:

Keep the process alive

• Communicate the reporting process on the organisation’s intranet and on its website, but also ensure middle managers communicate the process in face-to-face meetings. Employees are more likely to listen and discuss compliance and ethical issues within their own groups.
• Focus on positive action – publish stories about demonstrated ethical behaviours to clarify corporate expectations beyond adherence to rules and regulations. For example, how the company reinstated an employee who was unjustly fired by a manager for blowing the whistle or speaking out.
• Build acknowledgement for speaking up into the measure for performance appraisals, reward accordingly and make it public.
• Break down whistleblowing challenges into real-life decision points – as opposed to detailing generic reporting protocols.
• Personalise the process by providing the names of individuals involved in the whistleblowing process, not just their roles or positions. You’re asking people to behave outside social norms, so make it easy. Humanise it.
• Provide training that focuses on what to do, rather than what not to do.
• Brand and promote the importance of whistleblowing separately – do not mix this up with other messages.
• Address employee attitudes and underlying concerns toward whistleblowing and how reports are handled, instead of increasing process awareness only.

A whistleblowing process forms part of an open culture. A whistleblowing process is more than just adopting regulations for reporting; it is driven by behaviour, requiring continuous training.

In some circumstances, a culture of anxiety itself can qualify as wrongdoing that affects the public interest; certainly if it involves serious mismanagement, or the systematic intimidation of employees. The management of the organisation can either be the driving force behind a culture of anxiety, or a contributor by turning a blind eye to it.

Alternatively, an organisation’s management can promote an open culture by valuing and respecting critical and courageous conversations between management and employees, from the top of the organisation right down to its lowest ranks.

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