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Countering the contagion effect and please come to Cambodia.

Countering the Contagion Effect

A contagion effect generally refers to how one company’s actions or scrutiny can spread throughout an entire industry in which the company operates.

Much has been written about pharmaceutical company GlaxoSmithKline’s scrutiny in China (see here) and how GSK’s scrutiny has led to scrutiny of other multinational pharmaceutical companies operating in China.

In a recent conference call with investors, global healthcare products company Covidien sought to pro-actively counter the contagion effect.  During the call, the first words out of the mouth of Covidien Chairman, President and CEO Jose Almeida were as follows.

“Before we get into the strategy, let me spend a moment and  speak about three things that are very important to our company; ethics,  integrity and the quality of what we make. There’s been a lot of conversation  about FCPA  issues in China, Russia, Brazil. You hear that a lot and read them a lot in the  Wall Street Journal in the last two months.  Covidien has an unparalleled effort in creating an  environment where our employees are trained and they practice ethical behavior.  There’s no good business where there’s no ethics behind the business of our  products.  We’re very proud to have pioneered  significant amount of changes in how we do business in many countries in the  world. We were early adopters of the code of [EviMed] but not only we adopt it  for the US, we moved that code and we have it on a global basis.  Covidien provides a significant amount of training  for our sales reps in every part of the world, telling them what is right and  what is not right. We also have compliance committees and grants committees that  absolutely filter any kind of disbursement of money that would go to a society  or training of physicians.  Covidien does not permit, or it does not pay for physicians  to travel from their country of origin to attend any third-party conference in a  different country. We stopped doing that close to four years ago, because we  thought that some of the practices were not aligned with our code of conduct,  and how Covidien wants to do business.  So we have 38,000 employees around the globe and I can tell you that we do  everything we can to make sure that we’re doing the right things for our  customers and doing them in an ethical way. We also have patient safety at the  top of our mind all the time. Quality of our products is the most important  thing that we have. It’s not just about the reputation of the company; it is  about the patient that is receiving their treatment. And not having adherence to  quality will create an issue in safety for those patients, and we feel very  proud about our track record.”

Please Come to Cambodia

Much has been written about whether the FCPA and its enforcement deters foreign investment.  (See here for instance).

Companies obviously make foreign investment decisions based on a host of legal and non-legal risks and thus empirically separating and measuring the impact of FCPA enforcement on foreign investment decisions is difficult.  Moreover, despite the general rise in FCPA enforcement concerning conduct in certain high risk jurisdictions such as China, India, and Brazil, there continues to be vast amounts of foreign direct investment in those countries by companies subject to the FCPA prohibitions.

Any “evidence” that the FCPA and its enforcement deters foreign investment thus tends to be anecdotal.

Such as this recent article in the Cambodia Daily concerning recent remarks by U.S. Ambassador William Todd.

According to the article, despite Todd’s “efforts to promote Cambodia as an attractive destination for business, major American companies are reluctant to invest here as they still perceive the country as indelibly corrupt.”  The article quotes Todd as follows.

“I believe now is the time for big U.S. businesses to come here. And I believe that they want to come here—but I believe that the issue about corruption is preventing them from coming here.”

“The corruption issue, to be frank with you, has created what we think is a drag on the economy. It’s basically something that’s prevented a lot of U.S. businesses from coming in here.”

“I see probably three or four companies a week who want to do business here in Cambodia, who either want to buy things, or sell things, or open things,” he said, “and I’ve seen some very large business—some of America’s largest—and they want to basically make 100-billion-dollar investments, 200-billion-dollar investments and so on, but they get scared off.”

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