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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.


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