Why boards need to pay more attention to anti-corruption policies

Why boards need to pay more attention to anti-corruption policies
The SNC Lavalin situation is a wake-up call to corporate boards about the need for anti-corruption policies, says James Klotz.
If the headlines swirling around the alleged corruption at SNC-Lavalin don’t have boards of directors asking a few questions about compliance programs in the companies they serve, it should, says the former head of Transparency International Canada.
“The Lavalin story is a wake-up call to boards,” says James Klotz, a partner at Miller Thomson LLP and recent past-president of Transparency International Canada, the global organization dedicated to the fight against corporate corruption. “All of a sudden there are two class actions and the board is in the hot seat.”

Last month, two lawsuits were filed on behalf of investors in Montreal-based SNC-Lavalin, alleging the company’s directors are liable for the firm’s falling stock price because of the scandal surrounding questionable payments to secure contracts abroad. The suit alleges that the company made $56 million of improper payments to foreign agents and that those payments had been authorized by the company’s former CEO, Pierre Duhaime.

Rochon Genova LLP and Siskinds LLP announced lawsuits that allege the company violated securities law by misrepresenting that it had adequate controls and procedures to ensure accurate disclosure and financial reporting.

The lawsuit came on the heels of an April RCMP search of the SNC-Lavalin offices in Montreal.

To have an effective anti-corruption and compliance program, Klotz says companies need to have buy-in from the top starting with the chairman of the board and the members having a solid understanding of what steps to take to make sure corruption doesn’t occur. There also needs to be a senior officer entrusted with making sure there is a compliance program and rules around travel and entertainment.

“Without that the likelihood for problems is significantly higher. With Lavalin it could turn out to be nothing very exciting — the answers could be all non-criminally related, but people are reading about the board of directors being sued for failing to have proper supervision,” says Klotz.

But having a compliance program is not necessarily enough to keep out of trouble.

“Every company I’ve dealt with that’s had a corruption problem has already had a compliance program in place or at least an anti-corruption policy saying they don’t take bribes,” says Klotz. “Typically they also have some kind of compliance program in place. It’s simply not enough for the board to rely on management to deal with this problem. The board has to be more actively involved to make sure management actually gets it.”

That means the appropriate resources are created to make sure corruption doesn’t take place and that requires internal controls, policy, and training of staff.

“You can have a great policy that says we don’t pay bribes but if you don’t train your people on the front line to recognize what a bribe is in the first place, that’s a problem,” says Klotz. “It’s typically not just simple envelopes of cash changing hands, although it can be.

“In fact, corruption can often be far more insidious, which means if people don’t know how to recognize a bribe or what to do when a bribe request is made and how to be proactive to make sure the requests don’t get made in the first place. That’s even better, which you can do with training,” he adds.

Klotz is also a member of the Fédération Internationale de Football Association’s independent governance committee.

“We’ve made recommendations and at the FIFA national congress in Budapest our initial recommendations seem to have been adopted for the creation of an investigatory body with an independent chairperson. There is the appearance of improvement — it’s still early days in the process but so far the indications are it’s moving in the right direction.”

Klotz says the issues at FIFA, international soccer’s governing body, are more governance-related issues — an organization that had a set of rules that were outdated and needed to be updated given its size.

For corporate Canada, he says it’s more about making sure the appropriate efforts are taken to make sure corruption doesn’t take place.

“If you’re building a plant in another country and you’ve been waiting three months for the concrete to come to pour the foundation and the trucks arrive along with a government inspector who wants a bribe and if you don’t pay it the trucks are going to have turn around and you’ll be three months delayed.”

That puts the person on the front line with the responsibility for what may seem to be an insignificant payment for what the consequences are, says Klotz.

“It doesn’t require a lot of effort to prepare a predictive model and determine where the touch points will be and who, where, and how bribes will be requested.”

For companies putting together anti-corruption policies, Transparency International Canada has created a tool available as a free download on its web siteTI Canada’s Anti-Corruption Compliance Checklist.

The tool kit outlines six actions for companies to take, which include:
• Assess (Where do you stand? What are the risks?)
• Plan (Benchmark against best practices)
• Act (Implement a no-bribe policy)
• Monitor (Continuous self-check and improvement)
• Report to stakeholders (Internally and externally)
• Assure (Raise credibility)

“I’m very proud of the tool — it wasn’t rocket science because all of the tools were available but we put them all together and the feedback I’ve been getting from it has been tremendous,” says Klotz.

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