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April 20, 2005
In random regional business - reflexions
From this article in FT:
Decline and fall of the freebie
By Dan Roberts
Published: April 19 2005 19:06 | Last updated: April 19 2005 19:06
This is both amusing and of real interest
The surreal dilemmas sound like they could be drawn from a magazine advice column for paranoid lawyers: can I provide sacrificial goats for my customers in the Middle East? What if the client asks us to procure internal organs for his sick relative? Is it OK for me to donate cash at a Korean funeral?
These are not the made-up challenges of some legal agony aunt, but the real-life scenarios under discussion by senior executives responsible for setting policies for corporate hospitality and gifts in an increasingly strict US regulatory environment.
The conclusion of the executives, who recently gathered in New York for a summit on the problem, was that the fine grey line that separates acceptable generosity from the darker world of bribery and corruption has narrowed substantially.
What lies behind their nervousness is the growing impact of Sarbanes-Oxley corporate governance legislation on the already strict rules of the US Foreign Corrupt Practices Act. Combine this with increasingly active enforcement agencies and the rapid globalisation of US business and there is a recipe for multinational angst on a grand scale.
Where minor local transgressions might once have been swept under the carpet, they are now likely to emerge as so-called "material weaknesses" in internal control reports requiring sign-off from a chief executive and finance director worried about their own liability. What might be common practice in Seoul or Yemen may not look so wholesome in front of the Securities and Exchange Commission or a Manhattan jury."
One begins to wonder how publicly listed US firms will be able to compete in emerging markets where ... ahem standard and legal practice departs from the increasingly absurdly prissy standards in the United States.
In particular, I draw attention to this observation:
"To those tempted to see this as American smugness, she points, in contrast, to sharply lower prosecution rates across much of Europe for similar international bribery cases. The problem is particularly acute in industries or regions of the world where a degree of modest generosity has always been seen as a polite way of building long-term relationships."
Indeed, emerging US standards are absurd and cold in the context of where I am at.
Now, to answer some intriguing questions at the end of the arty:
THE TRICKY PROBLEM OF STAYING IN THE REGULATORS’ GOOD BOOKS
What would you do? (A hypothetical dilemma posed by Trace International).
You have a contract for a high-value project in a developing country and it states that payments will be made by the customer at certain milestones in the project. To determine if the milestones have been reached, the contract calls for periodic visits to the facility. The contract is silent on how the cost of these trips will be handled.
1) Your main contact at the customer asks your company to pay for the trips, including travel and lodging. What do you do?
2) Several committee members say they plan to bring their spouses.
3) The trip is unexpectedly prolonged for a second week for legitimate reasons and, as the weekend approaches, the committee members ask what you have planned for them for Saturday and Sunday. They make it clear that they have always dreamed of seeing Disney World.
4) Assume the contract includes a per diem allowance for these visits. When and to whom do you pay the per diem?
5) You want to host meals at the beginning and the end of their trip. Any concerns?
Answering from my emerging markets perspective (w/o regards to stupid American idiot rules)
(1): If it's a significant contract and the margin allows, absolutely. Not so big, or not such big margin, maybe offer a cost share.
(2): Tell them that's fine, but spouses are on their dime, although offer assistance on visas.
(3): Arrange a trip to Disney World, at their expense, but take on the logistics. Possibly arrange transport and deals on the same. If milestones are in a dodgeyway, look into cost sharing.
(4) Presuming a general cash allowance, each member in by cheque or similar instrument, for the week, up front with proper notation of per diem.
(5) None.
Posted by The Lounsbury at April 20, 2005 05:49 PM
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Jan-July 2005
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