Importance of leadership and culture for ABMS
There are many reasons why companies engage in corrupt practices; to win contracts, to speed up service delivery, to gain or retain political influence and so on. Nevertheless, all corrupt practices, in the end, are about gaining more money and more power. When justice is served the opposite happens. Share prices plunge, and leaders lose their power. Looking just at 2017, there are bribery cases worth discussing in detail.
Samsung Group’s third-generation leader, Jay Y. Lee has been accused of bribing Choi Soon-sil, a friend of former President Park Geun-Hye. Following Lee Kun-hee’s (Jay Y. Lee’s father), heart attack in 2014 it has been calculated that Jay Y. Lee would need to pay $6 billion in tax bills to be able to inherit his father’s shares and maintain control of Samsung. The company’s leaders have a standing history of tax aviation but up to now, the white-collar crimes have been pardoned by Park Geun-Hye and other South Korean’s Presidents. The easier option was to pay a bribe to orchestrate the merger of two divisions: Samsung C&T Corp., which is dedicated to construction and trading, and Cheil Industries Inc., which owned several entertainment properties. Upon completion, the merger would have given the Lee family more power over the entire Samsung Group.
Now that the plan was looking very promising, Jay Y. Lee used a living bribe to execute it.
“The form of the alleged bribe was Vitana V, an $800,000 thoroughbred show horse, plus $17 million in donations to foundations affiliated with the friend, whose daughter was hoping to qualify for the 2020 Olympics as an equestrienne.” (Bloomberg, 2017).
Following the investigation, the situation took a significant downturn and Jay Y. Lee was sentenced to 5 years in prison. Chung Sun-sup, Chief Executive of research firm Chaebul.com said “The five-year sentence was low given that he was found guilty of all the charges. I think the court gave him a lighter sentence, taking into account Samsung’s importance to the economy.” It is, however, one of the longest given to South Korean business leaders.
As for stock prices, they fell more than 1% the day after Jay Y. Lee was arrested and then a similar amount after the verdict. Samsung Group’s profit was not hurt but South Korea’s new liberal president, Moon Jae-in, has pledged to rein in the chaebols, empower minority shareholders and end the practice of pardoning tycoons convicted of a white-collar crime.
Another example of a company where corruption could equal to company culture is (or was – more on that later) Rolls-Royce plc. Between 2000 and 2013, the company conspired to violate the Foreign Corrupt Practices Act (FCPA) by paying more than $35 million in bribes through the third party to foreign officials to secure contracts. The Department of Justice (DOJ) reported that in Thailand, Rolls admitted to using intermediaries to pay approximately $11 million in bribes to officials at Thai state-owned and state-controlled oil and gas companies that awarded 7 contracts to Rolls-Royce during the same period. The way business was conducted in Kazakhstan, Azerbaijan, Angola, and Iraq did not differ. The corrupt practices were spread globally.
An event that coincides with the above is the appointment of Sir John Rose as Chief Executive of Rolls-Royce (1996 – 2011). In 2003 and before the company’s criminal activities came to the light, Rose was knighted. After the engineering giant admitted in a deal with US prosecutor that it had made corrupt payments, Labour is calling for Rose to lose his knighthood. Sir John Rose insists that he did not know of the corrupt practices. Let’s say that is the truth, did he not fail as a leader simply because of that?
As a result of the scandal in 2016 Rolls-Royce has suffered the biggest financial loss in its history. Other factors include Brexit and drop of pound value, but the £671 charge for the penalties the company paid to settle bribery and corruption charges with Serious Fraud Office (SFO), the DOJ, and Brazilian authorities left a hole is Rolls’ accounts. Since then the company has a new management, and if their praised cooperation with SFO is an indication of the company’s culture shift, Rolls should not be in the news due to corruption scandals.
Failed leadership is the obvious reason for the above bribery cases. ISO 37001:2016 Clause 5 Leadership outlines what is required from the top management in order be obtain ISO 37001:2016 Anti-Bribery Management System Certification. Information in ISO 37001:2016 standard is divided by verbal forms use; unsurprisingly shall indicate a requirement, should a recommendation, may a permission and can a possibility or capacity. Leadership is crucial for an anti-bribery management system to be effective and all points under Clause 5 Leadership are ‘shall’ requirements.
As illustrated in the standard: “For a compliance management system to be effective the governing body and top management need to lead by example, by adhering to and actively supporting compliance and the compliance management system.” Management has a number of other responsibilities which are outlined in the standard. There are responsibilities which are more obvious than others such as “ensuring that the anti-bribery management system, including policy and objectives, is established, implemented, maintained and reviewed to adequately address the organisation’s bribery risk” (5.1.2. a) and “deploying an accurate and appropriate resources for the effective operation of the anti-bribery management system” (5.1.2. c). There are also requirements which are not so obvious but just as important; “promoting an appropriate anti-bribery culture within the organisation” (5.1.2. h) and “promoting continual improvement” (5.1.2. i). These requirements highlight that obtaining ISO 37001:2016 certification is not just a box ticking exercise (contrary to what critics like to say). In order to obtain the certificate, a company needs to illustrate that compliance to anti-bribery is integrated within their business model and crucially, their culture. In practical terms that means that the tone at the top needs to align with ABMS and the message needs to be understood from the boardroom to the factory floor.
Leadership is one of the core seven elements of ISO 37001:2016. The remaining elements; the context of the organisation, planning, support, operation, performance evaluation and lastly improvement, will be discussed in the future. Watch this space.
ISO 37001:2016 Anti-Bribery Management System certification is offered under CRI Group’s ABAC® Centre of Excellence, an independent certification body established for Anti-Bribery Management System training and certification, Compliance Management System and Risk Management System certification. The program will be tailored to your organisation’s needs and requirements. For assistance in developing and implementing a fraud prevention strategy, contact ABAC today or get a FREE QUOTE now!
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- Bloomberg (2017) https://www.bloomberg.com/news/features/2017-07-27/summer-of-samsung-a-corruption-scandal-a-political-firestorm-and-a-record-profit
- Chaebul (2016) http://chaebul.com/chaebul/eng/engnews/eng_news_list.jsp?section=0000000106
- Financial Times (2017) https://www.ft.com/content/1b62c007-e846-3feb-b23f-2eae5f180fd7
- Reuters (2017) https://www.reuters.com/article/us-samsung-lee/samsung-leader-jay-y-lee-given-five-year-jail-sentence-for-bribery-idUSKCN1B41VC
- Web archive (2016) https://web.archive.org/web/20091224225422/http://www.rolls-royce.com/about/who_are/management/board/rose.jsp
- US Department of Justice (2017) https://www.justice.gov/opa/pr/rolls-royce-plc-agrees-pay-170-million-criminal-penalty-resolve-foreign-corrupt-practices-act