Companies should be especially careful about conducting due diligence when entering into new ventures in unfamiliar markets, participants in The Wall Street Journal’s “Dow Jones Global Compliance Symposium” advised.
Companies that do not proceed with caution in such circumstances run the risk of being like the entity that invested $20 million into an investment in India, only to discover that it could not meet the local compliance regulations necessary to do business there, according to a Journal report on the symposium.
“The lesson of such cases,” the Journal explained, citing panelists’ advice, “is to line up the compliance ducks well before entering a growth market, particularly due diligence and clear accountability.”
The Journal further advised: “Companies that don’t may find themselves stammering ‘rogue employee’ in response to reputation-staining headlines for corruption scandals.”
One compliance advisor who attended the event suggested that “rogue employee” is merely a euphemism for company missteps.
“To me, when you say ‘We had a rogue employee’ it’s the same as saying ‘we had a problem with leadership and culture and controls’,” Donna Boehme, a principal with consulting firm Compliance Strategists, said, according to the Journal’s account.
To avoid such problems well before getting into a risky market, compliance advisors and executives should not assume that the obvious has been considered, experts advised.
“I think the first thing is not to assume [the managers] actually know what they are doing,” said Odell Guyton, vice president and head of global compliance at Jabil Circuit Inc., “you have to be skilled enough to question the obvious,” including questions such as “why this market,” and “why this deal?”
Sometimes, even when compliance issues, such as those related to corruption, are discovered, there may still be a way to proceed without putting the company at risk, experts attending the event said.
A strategy that one adviser said has been used to good effect, according the the Journal, is making a convertible loan to a target company, rather than buying it. That gives the target company time, and guidance, to improve its oversight and controls. Should the company fail to improve controls, the loan can be repaid