A Failure To Escalate

By Thomas Fox

At the recent Corporate Counsel Institute – Europe put on by the Georgetown University Law CLE program in London, participant Matthew King, Group Head of Internal Audit at HSBC, was interviewed by Project Counsel founder Gregory  Bufithis. They talked about the most important elements of a successful compliance program. Mr. King said the one key feature is “escalation.”

He meant that in almost every compliance issue he's been involved with, there was a point when an employee did not report a sensitive payment or situation up the ladder for additional review. Because the issue never reached the right people in the company for review, action, and resolution, it later became more difficult and more expensive to deal with.

Culture, Mr. King emphasized, has to be in place, not only to allow escalation but to actively encourage it. And while whistleblower hotlines are necessary, these should not be viewed as the only way for an employee to escalate a concern.

The HP matter, which I wrote about previously in this space, is an example of a failure of escalate. It involves HP's German subsidiary and allegations of bribery connected with a contract for the sale of hardware into Russia. The Wall Street Journal reported that at least one witness said the transactions in question were internally approved by HP through its then-existing contract approval process.

Mr. Dieter Brunner, a bookkeeper who is a witness in the probe, said in an interview he was surprised when, as a temporary employee of HP, he first saw an invoice from an agent in 2004.

"It didn't make sense" because there was no apparent reason for HP to pay such big sums to accounts controlled by small businesses, Mr. Brunner said. But he processed the transactions anyway because he was the most junior employee handling the file. “I assumed the deal was OK," he said, "because senior officials also signed off on the paperwork."

Think how different HP's situation might be today if this temporary employee had escalated his concern.

So is your company encouraging its employees to escalate their compliance concerns? Or does everyone simply approve a payment or transaction because others have already done so?

The YouTube video of Gregory P. Bufithis' interview of Matthew King is here.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. His blog can be found here and he can be reached at tfox@tfoxlaw.com.