by Michael Volkov
Can you imagine the discussions inside Target, The Gap, Levi’s and other global retailers the day after the New York Times story broke? I would love to have been an observer of meetings and conversations among top brass at these companies.
Global retailers must be suffering from sleepless nights. Compliance in the global marketplace is extremely difficult, especially in places like Brazil, India, Russia and China, not to mention many other locations where profits are being sought.
Global retailers follow the money to new markets because consumers who earn money are likely to spend the money.
corruption and bribery
The risks for global retailers are exponential. They are encumbered by regulations all around the world that focus on export/import, real estate/zoning, health and safety and employment. It is a recipe for disaster because any risk assessment worth the paper it is written on should identify these areas as real and significant risks.
The challenge is to address the risks, to restrain the economic pressure to “expedite” bureaucratic approvals, and to sometimes “wait” for the approval. It may be hard for business managers to wait with idle capacity but sometimes that is the cost of compliance and law-abiding behavior.
Before entering a new market, business needs to take into account compliance “costs,” meaning the delays that will result from failure to pay bribes to expedite regulatory approvals. If it is built in to the business plan, then the actual delays which occur will not threaten the business projections and will remove a huge incentive for local business operators to pay bribes for regulatory approvals.
Even with careful planning, there is always a risk. Zoning approvals are critical, and the ability to build retail space is the lifeblood of every global retailer. The sooner the store is up and running, the sooner the revenues start to flow.
Compliance officers need to plan with the business managers in order to minimize risk. Proactive solutions need to be identified. If local third-party agents are needed, due diligence must be thorough and provide a defense to any potential misconduct in the local market.
Compliance officers who are responsible for expansion of a company into a new market need commitments on the following:
- A top-management commitment and statement that the business expansion will be carried out in full compliance with the anti-corruption policy.
- Additional resources needed to vet, manage and monitor third-party agents, freight-forwarders, construction and local counsel in the new country.
- Vendor controls and database needed to keep track of supplier relationships and contracts.
- Monitoring of all interactions between business personnel and government officials in the local country. While cumbersome, some companies actually keep a database of all interactions, including the nature of the interaction, the value of any meal or entertainment, and the participants in the interaction.
- Assignment of an internal auditor and in-house counsel to coordinate and monitor the compliance effort.
- The creation of a direct reporting relationship between the compliance team and management, with notification to the auditing or compliance committee at the board level.
These are basic compliance requirements for any retailer which is expanding into a new and risky country – no risk is so significant that a company should avoid entering into the new market. The challenge, in such circumstances, is to make sure the compliance program matches the significant risks.
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Michael Volkov is a shareholder at the national law firm of LeClairRyan. His practice focuses on white collar defense, corporate compliance, internal investigations and regulatory enforcement matters, and he is a former federal prosecutor with almost 30 years of experience in a variety of government positions and private practice.
