How to explain it? Beam Suntory’s 2018 FCPA civil settlement with the SEC went so well. The SEC praised the company’s cooperation and took into account its good behavior. And yet in 2020, when Beam Suntory finally resolved criminal FCPA charges, the DOJ brought faint praise and heavy criticism, citing the company’s “inconsistent and, at times, inadequate cooperation,” among other transgressions. What went wrong?
The DOJ said last week it wasn’t crediting any part of Beam’s 2018 SEC settlement, even though it was essentially the same case with the same facts. Why? Because “Beam did not seek to coordinate a parallel resolution with the department.” Has the DOJ ever said that publicly in another FCPA case? I don’t think so.
There was more. The DOJ said it gave “partial credit” for cooperation during the investigation. But Beam Suntory didn’t receive full cooperation credit because of “positions taken by the Company that were not consistent with full cooperation, as well as significant delays caused by the Company in reaching a timely resolution and its refusal to accept responsibility for several years.”
Beam also failed to discipline certain individuals involved in the misconduct, the DOJ said.
How did Beam Suntory reach an apparently routine and favorable FCPA settlement with the SEC in 2018, but in 2020 go so far off the rails with the DOJ?
One explanation points to cultural tensions inside Beam Suntory.
The Financial Times wrote about post-M&A “culture shock” at the company. A lengthy analysis in June 2016 was headlined: “Beam Suntory: A volatile Japanese-U.S. blend.”
The FT said,
Just months after Suntory’s $16 billion takeover of U.S. spirits maker Beam in 2014, the chief executive of the Japanese whisky group dropped a bombshell. The quality of the Kentucky-made Jim Beam bourbon could be improved, he suggested, if its distillers employed a Japanese process called kaizen. Matt Shattock, the chief executive of Beam, cringed at the proposal made by his counterpart, Takeshi Niinami. It was seen as a direct affront to the formula perfected by the Jim Beam family over two centuries.
“The tensions continued for months with Mr. Niinami, on more than one occasion, slamming his fist on a table and walking out of talks in frustration, according to people briefed about the meetings,” the article said.
The difficulties after Suntory’s acquisition of Beam “highlight the pitfalls that have paralyzed many Japanese owners faced with running newly acquired overseas companies,” the article said.
Did cultural tensions paralyze Beam Suntory’s initial handling of the FCPA criminal case?
Anyone familiar with FCPA enforcement would understand how the SEC and DOJ typically bring parallel civil and criminal cases, and resolve them at the same time. But would executives from Japan, who probably had little experience outside Asia, have known that? Maybe not.
For them, perhaps the idea of resolving civil (administrative) charges without admitting or denying the SEC’s findings was easy enough.
But was it a step too far for Japanese executives to cooperate with prosecutors in a criminal case, when that meant accepting responsibility for lawless behavior that occurred in Beam’s part of the company years before Suntory bought Beam?
Lawyers, too, can hold starkly different views about how to respond to a criminal FCPA investigation. A senior attorney from Austria said to me not long ago, “The concept of cooperating with prosecutors doesn’t exist in a lot of parts of Europe. It’s impossible to understand the American way of voluntary confession and cooperation. Our practice is to admit nothing and fight the prosecutors on everything.” I’ve heard similar thoughts from lawyers in Asia, and from Japanese lawyers in particular.
That culture gap among executives and lawyers partly explains why non-U.S. companies have always dominated the FCPA Blog top ten list. Failing to fully cooperate with the DOJ is a common feature of the biggest FCPA enforcement actions.
(For the record, Beam Suntory Inc. is an American company incorporated in Delaware and headquartered in Chicago. Although it operates as a subsidiary of Suntory Holdings of Osaka, Japan, for purposes of the recent FCPA enforcement action, it’s considered American.)
Another culture-related factor that might have contributed to Beam Suntory’s apparent paralysis in the early stages of the criminal case is executive turnover.
Two years after Suntory’s 2014 acquisition of Beam, most of the original Beam management team had left.
“Losing the head of international, the U.S., chief marketing officer, production, human resources and CFO cannot happen without some impact,” Donard Gaynor, a retired senior executive at Beam, told the Financial Times. “This is what makes acquisitions so difficult.”
Could culture shock have contributed to an executive exodus that in turn impaired Beam Suntory’s efforts to resolve the criminal FCPA case?
Very interesting analysis!
I would like to hear more.
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