Friday Roundup
Burma with conditions, the SEC lawyer heading up the Wal-Mart inquiry, connections between foreign environmental crimes and corruption, FCPA Inc. marketing, adding to the Haiti Teleco Roundup, and a new entrant to the FCPA space. It’s all here in the Friday roundup.
Burma With Conditions
Yesterday Miller Chevalier released this informative alert concerning business opportunities in Burma. As noted in the alert, the U.S. Government recently “enacted measures that dramatically ease the Burmese Sanctions Regulations (“BSR”) that has been in place for over 15 years. On July 11, 2012, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) authorized new investments and the exportation of U.S. financial services into Burma for the first time since 1997 and 2003 respectively through the issuance of two new general licenses.”
As noted in the alert, on the same day that OFAC released the two new general licenses, the State Department published draft reporting requirements [here] relating to investment in Burma.” Pursuant to the draft reporting requirements, “any U.S. person whose aggregate investment in Burma exceeds $500,000” must provide information regarding, among other things, its policies and procedures as they relate to its operations and supply chain in Burma concerning, among other things, “policies and procedures on anti-corruption in Burma.” The State Department document specifically references the OECD Guidelines, Section VII. Combating Bribery, Bribe Solicitation and Extortion [here], and the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance.” [here].
It’s a bit ironic isn’t it. A company seeking to do business in Burma can obtain the necessary U.S. government licenses by disclosing its pre-existing FCPA compliance policies and procedures consistent with best practices guidance, but if any employee in its organization acts inconsistent with those policies and procedures without management or senior executive knowledge, the U.S. government may criminally prosecute the organization subject only to the non-reviewable, opaque, internal discretion of DOJ enforcement attorneys. See here for “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”
SEC Attorney Sees “The Spotlight As An Opportunity”
This recent Texas Lawbook article profiles Michael King (Assistant Director of Enforcement with the SEC’s Forth Worth office) reportedly heading up the SEC’s Wal-Mart inquiry. King is quoted in the article as saying he views “the spotlight as an opportunity.” Other lawyers quoted in the article stated as follows. “I think King is under tremendous pressure to make Wal-Mart the poster child for what happens when corporations violate [the] Foreign Corrupt Practices Act and then don’t self report.”
Am I the only one alarmed when a government enforcement attorney uses the word “spotlight” and “opportunity” in the same sentence?
An interesting tidbit discussed in the article is that King also headed up the SEC’s enforcement actions against Panalpina and Pride International (see here and here for prior posts). These enforcement actions, as well as others in the so-called CustomsGate actions, reached the outer bounds of the FCPA (and likely involved conduct Congress did not seek to capture in passing the FCPA) and it is likely the same result will occur in any Wal-Mart action as I discussed in this previous post.
FCPA Inc. Marketing
“Firms face increasing exposure to anti-bribery and corruption laws and regulations. Laws such as the Foreign Corrupt Practices Act (FCPA) have been in place in the U.S. for 35 years. Despite this length of time, each year shows increasing non-compliance and growing fines, penalties and judgments by the U.S. Department of Justice. […] The financial impact is more significant than the fine alone. Investigation and litigation costs can easily equal the cost of the fine itself. The firm must then also bear the weight of interaction with a corporate monitor to validate its compliance program for the next 10 to 20 years [really, show me an FCPA monitor or FCPA NPA or DPA that has a 10 to 20 year term] and report to the Federal government. Not to mention the reputation and brand impact that bribery and corruption has upon the firm. If the FCPA is not enough, the United Kingdom approved the U.K. Bribery Act (UKBA) legislation in 2010, which went into force in July 2011. This anti-corruption law brings broader scope and implications to anti-corruption compliance. […] This is the era of the corporate bounty hunter. Government is increasingly turning to insiders (e.g., employees), incenting them to report wrongdoing and non-compliance. […] In an era of increased scrutiny and judgments for anti-corruption, this is a significant concern that keeps executives, the board, legal and compliance professionals up at night.”
So writes AccuitySolutions in a recent white paper titled “Addressing Anti-Bribery and Corruption Compliance.”
The solution, why of course ComplianceMAX and the Anti-Bribery and Corruption Solution “a flexible compliance management platform. The Solution eases the compliance burden by delivering operational effectiveness, human and financial efficiency and agility to compliance processes. The solution enables a firm to manage anti-bribery and corruption programs including monitoring and enforcing policy through workflow management; screening and tracking of high-risk entities and relationships; reporting and communicating compliance issues; and ensuring a state of readiness for inspections and audits.”
Next.
“The US FCPA and UK Bribery Act are far-reaching acts; they reach deep into the organization, leaving almost no part of the business untouched. The acts are taken very seriously both by governments, as well as by the general public. There is little empathy to bribes in the general public. This makes non-compliance, more than many other acts, a reputational risk in itself.”
So writes BWise in a recent white paper titled “US FCPA and UK Bribery Act.”
The solution, why of course The BWise GRC [Governance, Risk and Compliance] Platform “with a best-in-class method to address corruption and bribery, and achieve company-wide compliance and transparency.” (See here).
Next.
Another entrant into the FCPA insurance market (see here and here for previous posts).
Navigators recently announced (here) that “its Navigators Pro division has introduced “Side A Global InNAVation,” a directors and officers (D&O) liability policy to address emerging global risks. This new policy offers dedicated excess coverage for individual directors and officers for specific non-indemnifiable claims, including where the company they serve is insolvent. The policy provides coverage for civil fines and penalties, where insurable by law, when they are assessed pursuant to Section 308 of the Sarbanes Oxley Act of 2002, the Foreign Corrupt Practices Act, the U.K. Bribery Act or similar laws.”
Finally, an informative white paper (here) by FTI Consulting Technology titled “E-Discovery Strategies for International Anti-Bribery Investigations.” The paper discusses the “complexity of issues that may arise during an international anti-bribery investigation” such as data privacy laws, blocking statutes, secrecy laws and ill-defined privilege rules” that are a “common feature of an FCPA investigation.” And by the way “FTI Technology helps clients manage the risk and complexity of e-discovery” and collaborates with clients to develop and implement defensible e-discovery strategies with keen focus on the productivity of document review.”
It truly is an FCPA world.
The Lacey Act Meets the FCPA
The Lacey Act prohibits trafficking in wildlife and plant products in violation of foreign law.
Arnold & Porter attorneys Marcus Asner, Samuel Witten, and Jacklyn DeMar write in “The Foreign Corrupt Practices Act and Overseas Environmental Crimes: How Did We Get Here and What Happens Next?” (Bloomberg Law – see here) as follows.
“Environmental regulation by any country creates a series of touch points between the private sector and government authorities, any one of which may provide an opportunity and a temptation for an unscrupulous employee or agent of a company to seek to corruptly influence a government official. Opportunities for corruption occur, for example, from the moment officials decide how to regulate local natural resources through laws and regulations; how and when they decide who may harvest resources and in what amounts; how permit requests are reviewed; and how local laws are actually enforced in practice. Each point of contact creates an opportunity for offering or making bribes or otherwise seeking improper influence.”
The authors further state as follows. “Though there is no explicit statutory link between the Lacey Act and the FCPA, the possibilities are endless: Potential bribe takers in forestry and fishery schemes could run the gamut from the police, to forestry and fishery officials, to guards, to regulators, to customs and export officials, and even to officials at state-owned companies. All of these are government officials within the meaning of the Foreign Corrupt Practices Act. While there has been no public case charging both Lacey Act and FCPA violations thus far, we believe such investigations may well be just around the corner, and, in any event, responsible companies should do what it takes to protect themselves from the risks.”
Haiti Teleco Roundup
This recent post summarizing the expansive Haiti Teleco related enforcement actions has been updated to reflect Patrick Jospeh’s recent 366 day sentence. Joseph, an alleged “foreign official” at Haiti Teleco previously pleaded guilty to money laundering conspiracy in connection with the bribery scheme. As noted in this recent Wall Street Journal Corruption Currents post by Chris Matthews, Joseph was also ordered to forfeit nearly $1 million.
FCPA Monitor
Rajat Soni recently launched FCPA Monitor (here). FCPA Monitor examines news and cases about the Foreign Corrupt Practices Act and the UK Bribery Act of 2010. Soni is an attorney with several years of experience conducting global internal investigations related to the FCPA. He has worked on large FCPA investigations including those arising from the UN Oil-for-Food Program and Siemens AG.
*****
A good weekend to all.
“The FCPA – A View From The Hill”
At the Oil and Gas Supply Chain Compliance conference yesterday in Houston (see here), Todd Harrison (Chief Counsel, Oversight and Investigations, Energy and Commerce Committee, U.S. House) gave a presentation titled “The FCPA – A View from the Hill.”
Harrison provided his personal views on FCPA reform, specifically the “currents on the Hill” regarding the issue and a “sense of what Congress is thinking about in terms of changing” the law. Harrison stated that until recently, the FCPA has not been a “tremendous focus on Capitol Hill” and that even against the backdrop of recent efforts to reform the FCPA “there is not a lot of momentum on the Hill for changes to the FCPA.” However, Harrison stated that it “usually takes a lot of time to get things rolling and for legislation to come to fruition” and that changes to legislation often take place over 2-3 Congresses (each with a two year term) because there a lots of discussions with various stakeholders.”
[As a historical aside, the last period of major FCPA substantive reform occurred in the 1980’s and that process took 8 years from the time the first reform bill was introduced until President Reagan signed the Omnibus Trade and Competitiveness Act of 1988 which contained FCPA amendments at Title V, Subtitle A, Part I.]
Harrison next spoke of the “very prominent setbacks” the DOJ has recently suffered, most notably the Africa Sting cases, and that in light of these setbacks there was indeed “momentum gaining to make changes to the FCPA.” However, Harrison said that the New York Times Wal-Mart article “changed the tide and mood entirely.”
During the Q&A, I asked Harrison generally as follows – “I know that Capitol Hill is a political institution and body, but explain why the Wal-Mart investigation should impact FCPA reform, after all, Wal-Mart is now one of approximately 125 companies under FCPA scrutiny and it is debatable whether the Wal-Mart payments at issue even violate the FCPA.” (see here for the prior post).
Harrison said that as a “practical matter, public opinion matters, what happens in the real world matters” and that the atmosphere surrounding FCPA reform after the Wal-Mart article has made it “harder for different groups to advocate” for FCPA reform. Harrison acknowledged that this perception “does not have a whole lot to do with the underlying facts” of the Wal-Mart matter, but that “public perception and pressure on government institutions” matters.
As to substantive FCPA reform, Harrison focused mostly on successor liability issues, which he called the Chamber’s number one reform issue. However, Harrison said that this concern was hypothetical because as a “practical matter the DOJ has not been bringing prosecutions under this theory.” During the Q&A I asked him whether anyone on the Hill is actually reading the enforcement actions because recent DOJ or SEC enforcement actions based on successor liability theories include Alliance One, General Electric and Watts Water Technologies. In response, Harrison backtracked and said “no one has come to me about those particular cases” and that “none of these particular cases have become prominent on Capitol Hill.”
In short, Harrison’s personal view was that there is not a “wave of support or pressure to make actual legislative changes regarding successor liability.”
In response to a question, Harrison did not have any insight as to the timing of expected FCPA guidance. He stated that his “personal guess is not anytime soon.”
Friday Roundup
Checking in on Wal-Mart, an enforcement action that flew under the radar from beginning to end, a guilty plea in the U.K., and is sex a thing of value? It’s all here in the Friday roundup.
Wal-Mart
Various reports this week reported on the expansion of Wal-Mart’s FCPA probe. As many readers know, this is hardly surprising as most FCPA inquiries result in the “where else” question as indicated in this prior guest post. Even if the enforcement agencies do not actually ask the “where else” question, a company knows it will eventually be asked and will thus likely conduct a broader review of certain other FCPA high-risk jurisdictions not part of the original inquiry on its own initiative and to demonstrate to the enforcement agencies its committment to compliance and its cooperation.
This June 12th letter from Elijah Cummings (D-MD, Ranking Member, House Committee on Oversight and Government Reform) and Henry Waxman (D-CA, Ranking Member, House Committee on Energy and Commerce) to Wal-Mart CEO Michael Dukes references that Wal-Mart’s review has expanded beyond Mexico to also include Brazil, China, South Africa and India. Indeed, the letter references that Wal-Mart is “conducting a worldwide assessment of the company’s anti-corruption policies” something Wal-Mart indicated it was already doing. In short, Wal-Mart’s FCPA inquiry is following a typical path.
In the letter, Cummings and Waxman again express disappointment as to Wal-Mart’s cooperation in their own Congressional probe. For more on Cummings and Waxman’s interest in Wal-Mart, see this prior post (and links therein).
Meanwhile on the civil litigation front, a 12th lawsuit has been filed in the wake of April’s New York Times story. As noted in this release from the New York City Comptroller, New York City Pension Funds filed a shareholder derivative action in the Delaware Chancery Court alleging “that Wal-Mart’s officers and directors breached their fiduciary duty to the company and its shareholders by failing to properly handle credible claims of the bribery allegations and attempting to cover up details of the scandal.”
Under the Radar
This post from March 2011 highlighted how criminal charges against Manual Salvoch flew under the radar in that the DOJ did not issue a press release announcing the charges and the enforcement action appeared to escape coverage elsewhere. Salvoch is the former CFO of LatiNode and was charged in connection with payments to Hondutel (see here – according to the charging documents a state-owned telecommunications company in Honduras responsible for providing telecommunications services in Honduras). The Hondutel payments also resulted in criminal charges against Jorge Granados (the founder and former CEO and Chairman of the Board of LatiNode), Manuel Caceres (a former Vice President of Business Development) and Juan Vasquez (a former senior commercial executive).
This prior post highlights the sentences of Granados, Caceres and Vasquez.
Last week, Salvoch was sentenced by Judge Paul Huck (S.D. of Florida) t0 10 months in prison and 3 years of supervised release. Just like the beginning, the end of the Salvoch enforcement action also flew under the radar.
The final sentencing scorecard in the LatiNode individual prosecutions is thus as follows.
Granados – 46 months
Caceres – 23 months
Vasequez – 3 years probation
Salvoch – 10 months.
U.K. Plea
Previous posts (here and here) discussed charges on both sides of the Atlantic against Paul Jennings, the former CEO of Innospec. Earlier this week, the U.K. Serious Fraud Office announced (here) that Jennings pleaded guilty to the following charges: “Two allegations of conspiracy to corrupt in that he gave or agreed to give corrupt payments to public officials and other agents of the Government of Indonesia (between 14 February 2002 and 31 December 2008) and Iraq (between 1 January 2003 and 31 January 2008) as inducements to secure, or as rewards for having secured, contracts from that Government for the supply of its products including Tetraethyl Lead by Innospec.”
As noted in this previous post, in March 2010, Innospec resolved enforcement actions on both sides of the Atlantic based on the same core set of facts.
Thing of Value?
At its core, the FCPA’s anti-bribery provisions require “anything of value” to a “foreign official” to “obtain or retain business.”
This recent Reuters story concerning an employee of Oracle’s business unit in Singapore has a “foreign official” (the former head of the city-state’s anti-narcotics agency) and the article describes that the thing of value was provided to the “foreign official” as “an inducement to help further the firm’s business interest.”
The thing of value?
Sex.
Can sex be a thing of value under the FCPA’s anti-bribery provisions? I guess it depends, it’s a factual issue.
On that note, a good weekend to all.
Friday Roundup
Chevron and others get the front-page treatment, the Aguilar prosecution is officially over as well, some additional FCPA compliance survey data, Wal-Mart civil suits continue to pile up, and Chinese state-owned enterprises continue their global M&A push, it’s all here in the Friday roundup.
Kazakhstan Customs Inquiry
In yesterday’s Wall Street Journal, Christopher Matthews and Joe Palazzolo broke a story (“Oil Giants Launch Bribe Probes”) about an apparent investigation regarding Kazakh customs issues involving members of Karachaganka Petroleum Operating BV (“KPO”) including Chevron Corp. and Eni SpA, as well as a logistics arm of Deutsche Post AG, DHL, which handles freight shipments for the group. (For more on KPO see here). According to tips discussed in the WSJ article, the “KPO joint venture authorized DHL to bribe Kazakh customs officials to ignore paperwork irregularities that could have delayed shipments.” The WSJ article discusses “the difficult choices companies face operating in developing countries” and notes that, according to a knowledgeable source, when KPO logistics officials ordered DHL representatives to “stop payments to customs officials” in March 2011 the “customs inspectors found problems with virtually very KPO shipment” and “nothing was cleared to pass” until DHL resumed the payments.
Payments in connection with foreign customs, licenses, permits and the like have been fertile ground for FCPA enforcement activity, although as noted in this recent post in connection with Wal-Mart’s potential FCPA exposure, it is an open question in many cases whether the conduct at issue is the type of conduct Congress sought to capture in passing the FCPA.
In 2007, Chevron resolved an enforcement action (here) involving Iraqi Oil for Food conduct and in 2010 Eni (and related entities) resolved an enforcement action (see here for the prior post) involving Bonny Island, Nigeria conduct. In addition, as highlighted in this recent post, Eni is also reportedly under investigation concerning its conduct in Libya.
Aguilar Conviction Vacated
This recent post highlighted the official end to the Lindsey Manufacturing prosecution. The prosecution of Angela Maria Gomez Aguilar, who was tried along with the Lindsey defendants, is officially over as well. As noted in this previous post, Aguilar (a purported agent of Lindsey Manufacturing) was granted a judgment of acquittal after the DOJ’s case as to one substantive count of money laundering, but the jury convicted her of one count of money laundering conspiracy. After the conviction, Aguilar negotiated an agreement with the DOJ for a time-served sentence and immediate release from custody. Following Judge Matz’s dismissal of the indictment last December based on numerous instances of prosecutorial misconduct (see here for the prior post), Aguilar obtained an agreement from the DOJ to stipulate to a motion vacating the one count of conviction, an agreement which took effect upon the DOJ’s recent decision not to further pursue its appeal.
As noted in this recent release, Judge Matz this week signed an order vacating Aguilar’s conviction. In the release, Aguilar’s counsel, Stephen Larson (Arent Fox – here) stated as follows. “The government overreached in its efforts to press this case. It is bittersweet whenever a prosecution is terminated for misconduct. Although Ms. Aguilar is greatly relieved by Judge Matz’s decision to end this ordeal, it is tragic that it was permitted to go this far. I am pleased that the Department of Justice has recognized as much by opting not to pursue its appeal in this case.”
Kroll’s 2012 FCPA Benchmarking Report
This post discussed recent FCPA survey data. Add Kroll’s recent FCPA Benchmarking Report (here) to the list.
As noted in the Report, the study was “designed to take the pulse of corporate compliance officers at U.S. based multinationals and to provide benchmarks for the current state of anti-bribery preparedness.”
Survey results that caught my eye include the following.
“Sixty-nine percent of all respondents said their companies were either moderately or highly exposed to bribery risk; this number jumps to 100 percent in the pharmaceutical industry and drops to 46 percent in the financial services industry. […] 85 percent believe [such risk] will increase or stay the same in the future.”
“Fifty-three percent of respondents said their compliance departments have increased their budgets in the last year; 49 percent said they have increased hiring; and 22 percent said they have experienced a centralization of compliance decision-making.”
“The most frequently cited challenges to anti-bribery compliance include the inability to anticipate regulators’ next moves (21 percent) and ensuring that employee training is taken seriously and is used when a risky situation presents itself (20 percent).”
“Seventy-nine percent of respondents characterized their compliance efforts as a strategic advantage in addition to being a strong defensive tactic.”
“[T]he weakest link among survey respondents was how they handled third party relationships. While 99 percent of respondents said they had anti-bribery provisions for employees in their companies’ codes of conduct, that number fell to 73 percent when compliance officers were asked about anti-bribery provisions for third parties. […] The scope of [FCPA risk by using third parties] is exacerbated by the fact that approximately three in four U.S. companies (77 percent) report that they partner with foreign companies to do business abroad. Thirty-seven percent of respondents said they do business with between 100 and 1,000 third parties; 27 percent said they work with between 1,000 and 10,000 third parties; and 17 percent said they work with between 10,000 and 100,000 different third parties. A small number said they worked with more than 100,000 different third parties.”
It’s a third-party world.
The Report was based on responses from “139 senior corporate compliance executives from companies ranging in size from $100 million to over $10 billion in revenues per year” who were interviewed by phone from July 2011 to February 2012. Survey respondents were drawn mainly from four industries: financial services, IT/telecommunications, energy, and pharmaceuticals.
The report was published by Kroll Advisory Solutions (here), a company that assists clients mitigate and respond to risks, including FCPA issues.
Wal-Mart Civil Suits
One of my earliest Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico.
Sure enough.
Wal-Mart’s recent quarterly SEC filing stated as follows.
“The Company is a defendant in several recently-filed lawsuits in which the complaints closely track the allegations set forth in a news story that appeared in the New York Times on April 21, 2012. One of these is a securities lawsuit that was filed on May 7, 2012 in the United States District Court for the Middle District of Tennessee, in which the plaintiff alleges various violations of the U.S. Foreign Corrupt Practices Act (the “FCPA”) beginning in 2005, and asserts violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, relating to certain prior disclosures of the Company. The plaintiff seeks to represent a class of shareholders who purchased or acquired stock of the Company between December 8, 2011, and April 20, 2012, and seeks damages and other relief based on allegations that the defendants’ conduct affected the value of such stock. In addition, eleven derivative complaints were filed in April and May 2012, in Delaware and Arkansas, also tracking the allegations of the Times story, and naming various current and former officers and directors as additional defendants. The plaintiffs in the derivative suits (in which the Company is a nominal defendant) allege, among other things, that the defendants who are or were directors or officers of the Company breached their fiduciary duties in connection with oversight of FCPA compliance. While management cannot predict the outcome of these matters, management does not believe the outcome will have a material effect on the Company’s financial condition or results of operations.”
Chinese SOEs
This recent post focused on China SOEs and provided links to data and analysis concerning the ever increasing global push of Chinese SOEs. Yesterday, the Wall Street Journal ran an article titled “China Buys Overseas Assets” that discusses a recent report from A Capital, a private equity firm based in China and Paris (see here for A Capital’s report). As indicated in the article, “China’s overseas investment surged in the first quarter [of 2012] to $21.4 billion as state-owned companies snapped up resource-related assets around the globe.” According to the report, state-owned companies accounted for 98% of all deal value in the first quarter, a new high.
*****
A good weekend to all.
The Silver Lining
No company invites or welcomes a Foreign Corrupt Practices Act investigation or FCPA scrutiny. Timely, costly, distracting, you name it, it’s all there.
Yet, in my experience conducting many FCPA investigations during my practice career, I was always struck that, at the end of the process (whether that process ended with a voluntary disclosure and enforcement action or no disclosure but the company internally implementing remedial measures), company executives came to appreciate (or at least more easily accept) what was learned during the process.
It’s the silver lining of FCPA investigations and scrutiny.
Company executives involved in or advised of the investigation learn more about the company’s business in foreign countries, how the company operates in foreign countries (whether through agents, distributors, etc.), the people who run the business units and make the key decisions, who supervises these people, and whether effective internal controls are in place. During the stress and strain of the process, company executives (assuming they themselves are not culpable) grow closer and develop a deeper trust of each other. The company’s committment to FCPA compliance (and compliance in general) grows stronger and given the motivation to improve, the company may try new things, such as aligning executive and managerial compensation more closely to compliance metrics, and/or rewarding rank and file employees for compliance-related achievements.
You ask, what prevents company executives from doing these things even if the company is not under FCPA scrutiny? The answer of course is nothing, except perhaps the plain and practical realities of the business world.
I was reminded of the FCPA’s silver lining in connection with Wal-Mart. Regardless of whether Wal-Mart’s alleged conduct violated the FCPA (see here for the prior post), Wal-Mart is clearly in the early stages of a timely, costly, and distracting process (see here for its June 1st quarterly filing).
More to the point, during a June 1st investor conference call, the following exchange occurred between a Raymond James & Associates analyst and Wal-Mart CEO Michael Dukes.
BUDD BUGATCH, ANALYST, RAYMOND JAMES & ASSOCIATES: “… I’m going to step into the FCPA issue, if I can … I think the investment community’s already voted that it’s not really an issue from our standpoint, in terms of financial issues, but it’s obviously a big one reputationally and a big one that you had to deal with from a standpoint of the media and all of that … Which really, we think, are probably unfair because of a lot of good things that Walmart has been involved in over the last decade and continues to be involved in. How do you use this opportunity? How do you think about it? I know [Jeff Gearhart, executive vice president, general counsel] has got to think about it from protecting the Company and that’s what that outside investigation is. But Mike, you have to think about it from a standpoint of transparency, and how do you lift this up and then show the entire world how you handle this situation and crisis, which has come to the Company and not at your desire, but from just those events that have transpired?
MICHAEL DUKE: “One thing that’s clear is that we will be a better company because of this. Sometimes when there’s a situation, like this, you can treat it as a challenge or create an opportunity. And frankly, you can see we’re already taking this as an opportunity to be a better company. And so even the focus on doing business the right way, and the initiatives of outreach to communities is something we’re just going to be — you might say just doubling the efforts to be a better company in everything that we do. And frankly, I think it will just lead to long-term being a better company serving communities and serving customers. So yes, a short-term challenge; long-term, it creates us a greater opportunity to be even better.”
*****
The above exchange also furthers the observable point that investors generally care very little about a company’s potential FCPA exposure. Sure, there may be initial investor reaction (such as a 5% – 10% drop in the company’s stock price) when a company discloses or is otherwise reported to be under FCPA scrutiny, but that dip tends to be very temporary as investors come to realize that doomsday scenarios are often overblown. (See here for the prior post regarding Wal-Mart’s stock price – since the post approximately two weeks ago, the company’s stock price has trended even higher).
Even as to the most dramatic stock price drop I am aware of because of FCPA scrutiny (see here for the 2010 post regarding SciClone Pharmaceuticals and its 30+% stock price drop upon disclosing FCPA scrutiny) the company’s stock soon recovered the lost value and began trading, and still trades, at a higher price.