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Compliance Is The New Norm

Raymond Fisman, the Meyer Feldberg Associate Professor of Business at Columbia Business School, visiting professor at Harvard University, photographed at the Littauer Center, Harvard University, Cambridge, MA, April 25, 2006. © 2006 Shawn G. Henry • 978.283.3469 •

Raymond Fisman, left, is a professor at the Columbia Business School. In a commentary last week in Forbes titled When Corruption Is The Norm, he had this to say about Morgan Stanley’s compliance problems in China: “The . . . head office has taken the view that this was the rogue act of a rogue individual, and an internal investigation revealed that ‘questionable activity was isolated to a discrete set of real estate transactions in China.’ This is an unfortunate–yet all too common–reaction to revelations of corporate misdeeds.”

Professor Fisman says the alleged bribery and corruption by Garth Peterson at Morgan Stanley wasn’t deviant business conduct after all. Instead it was business as usual, not just at Morgan Stanley but at global companies everywhere. Siemens, he says, is another example of his thesis. His point is that our collective failure to see corruption as normal prevents us from dealing with it. “As long as the conversation focuses on catching deviants,” he says, “we’ll never have an open dialog on changing the norms that bear much of the responsibility.”

But is he right? Are bribery and corruption everywhere, as Professor Fisman thinks, but kept hidden from view? Was Morgan Stanley’s Peterson really a “typical banker put in a situation where bribe-paying was very literally the norm?”

Well, he’s partly right. Anyone doing business globally will acknowledge that bribery and corruption are common in lots of countries. Nigeria, Kenya, China, Azerbaijan, Indonesia, Iraq, Kazakhstan, Pakistan, Bulgaria, Romania, Malaysia, Russia, Mexico — they’re well known as red-flag countries. But it doesn’t follow that in all companies doing business in those countries, graft and sleaze are the norm. Yesterday over coffee, for example, a friend from the U.K. said, “As far as the FCPA is concerned, the battle for hearts and minds is over. Now everyone is concentrating on the tactics of compliance.”

We agree. Most of the business people we know genuinely want to do the right thing. That wasn’t always true. Not too long ago, executives and lawyers were still groaning about the uneven global playing field caused by the FCPA, and their view of compliance often ran from indifference to outright cynicism. But these days, company leaders and the rank-and-file usually want to comply. They get it — graft anywhere is bad for everyone.

Beyond that, most people can see that flouting the FCPA is a fool’s choice. Sarbanes Oxley raised the compliance bar. Today’s public-company boards of directors have a zero-tolerance, no-excuses attitude toward illegal business tactics. Internal and external auditors are harder to fool — really. And whistleblower hotlines are getting plenty of use, while FBI agents assigned to enforce the FCPA are always lurking. Even NGOs and the press are keeping a closer eye on overseas business practices.

Sure, enforcement around the world is uneven. Among the biggest economies, the U.K and Japan haven’t distinguished themselves, although pressure is building as more OECD members enforce their overseas anti-corruption laws. And yes, graft will never be extinct; there’s no shortage of corrupt officials, and some business people will take the crooked path no matter how much compliance training you give them. But companies tolerating bribery and corruption — like the old Siemens — can’t keep it hidden anymore. And those individuals still passing bribes to foreign officials to land business are simply doomed. Just ask KBR’s former star CEO, Jack Stanley.

Corruption may be the norm in plenty of countries. But the reaction we’re seeing from companies these days to high levels of corruption isn’t denial, as Professor Fisman suggests, but more and better compliance. And there’s nothing wrong with that.

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