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FCPA Blog Daily News

Entries in David Hess (2)


Friends And Neighbors

These are good days for FCPA junkies like us. More is written now about enforcement and compliance in a week than used to appear in a year. And a lot of it is original and well outside the conventional wisdom. Among the people producing work in that category (and who have appeared on the FCPA Blog before) are:

David Hess, an assistant professor at the University of Michigan's business school. He thinks about incentives for corporations to keep themselves clean -- through the use of sustainability reports, the Federal Sentencing Guidelines, and deferred prosecution agreements, among others.

Rebecca Walker, a private practitioner, whose ideas on “associative liability” and extending codes of conduct to third parties are important to anyone in the compliance business. And she's humble and charming.

David C. Weiss, a law student at the University of Michigan. He wrote a terrific article for the January 17, 2009 Michigan Journal of International Law. It asks why the Securities and Exchange Commission uses disgorgement in FCPA enforcement actions, where the remedy came from, and where it's going. Great questions, and he's got some answers too.

Andy Spalding, a lawyer and Fulbright scholar. He argues that the Foreign Corrupt Practices Act -- are you ready? -- causes corruption and hurts poor people. Andy respects the rule of law but also spends time trying to understand how laws really work. You've got to love a smart, well-spoken policy-wonking lawyer. As we said when we first heard his ideas, they're a real mind bender.

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Two blogs with full-time FCPA coverage:

wrageblog, where Alexandra Wrage of TRACE has created a bulletin board for the compliance community. She and her contributors dish some great advice. We received a nice invitation to pen a few words there and we're planning to do that soon.

Mike Koehler's fcpa professor is a new resource. He had an FCPA practice for ten years and now teaches business law at Butler University. Many times over the years Mike has helped us understand FCPA enforcement practices, particularly at the SEC. We enjoy his view of the statute itself and what he thinks the words in it are supposed mean.

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And two veteran blogs that only sometimes cover the FCPA but are always worth reading:

Kevin LaCroix's D & O Diary. A reviewer might call his work authoritative, influential, magisterial, and quirky enough to always be inviting. We'll just say it's a must-read site.

Here's a recent excerpt we liked:

It might well be asked why anyone should bother reading both the Wall Street Journal and the New York Times business pages. After all, both usually cover the same stories. Indeed, on Friday, both ran stories discussing the fact that year-to-date bank failures are at the highest level since 1992.
However these same-day articles about the number of bank failures in fact were a great illustration of the value of reading both publications, because the two newspapers presented very different explanations for the run of failed banks . . . . here
Gabe’s Guide to the e_Discovery Universe. It's wild. There can be nearly a hundred posts a month, and its artwork and headlines are reason enough to visit (Crazy woman comes up with notion that e-discovery professionals should be “qualified”).

Our favorite times are when Gabe Acevedo, the blog's creator, hits the road. Then it becomes the world's best (and only?) law-related travelogue. Like his dispatch in April from Chicago:

As everyone knows, the most important part about any conference is the free stuff you get to take home with you, and the ABA Techshow did not disappoint. CDW gave away little mini toy race cars and notepads as well as some other stuff . . . The ABA handed out 2 gig thumbdrives. Definitely one of the cooler types of schwag there. . . . here
Gabe is bursting with enthusiasm and goodwill, and he's always generous with his praise and attributions.

We'll have more to say about other friends and neighbors later.


The Paradox Of Corruption

The man on the left is David Hess, an Assistant Professor of Business Law & Business Ethics at the University of Michigan's Ross School of Business. He's on the blog today because he thinks and writes a lot about how to control corruption in international business. Among his articles are many dealing with ways to help corporations develop more ethical cultures -- through the use of sustainability reports, the Federal Sentencing Guidelines and deferred prosecution agreements, among others.

Prof Hess, a member of the Pennsylvania bar, has a law degree from the University of Iowa and a PhD in management from Penn. He recently bagged the Aspen Institute's 2008 Rising Star Faculty Pioneer award for his work on ethical behavior and sustainable economic development.

The following interview is from the University of Michigan Business School's site. Our thanks to the folks there for permission to republish it.

What are you thinking about?

Hess: I'm continuing my research on controlling corruption in international business. I'm looking at both government regulation and the use of voluntary initiatives by multinational corporations. This research includes not only bribe payments to public officials, but also private-to-private corruption, which involves corrupt payments between two corporations' agents.

Why is it interesting to you?

Hess: The topic interests me because corruption is such a harmful but enduring practice. Some people have stated that it's a paradox in that corruption is universally disapproved yet universally practiced. It's also important to remember that corruption in developing countries is harmful not to just economic development, but also to the realization of human rights and the attainment of sustainable development.

In the United States, the Department of Justice has stepped up enforcement of the Foreign Corrupt Practices Act in the last few years. However, most enforcement actions seem to be based on self-disclosure by the bribe-paying corporation and clearly only a very small percentage of those paying bribes are turning themselves in. The challenge is get to get more corporations to prevent the payment of bribes by their agents in the first place, and, if someone does pay a bribe, to disclose those actions. The recent case of the German company Siemens shows why this is such a difficult challenge. Siemens -- a conglomerate operating throughout the world and employing close to 500,000 people -- apparently had corruption thoroughly engrained in its culture. One report indicated that the company's own internal investigators identified over $2 billion in suspicious payments over the past several years. Apparently, these practices were so common that individuals at all levels of the organization either no longer questioned their appropriateness or felt powerless to oppose them.

Overall, we need to provide incentives for corporations to self-regulate, help them develop effective compliance programs that allow self-regulation to work, and find ways to help corporations like Siemens reform themselves. The legal, managerial, and ethical issues involved create many interesting and important research questions.

What implications do you see for industry?

Hess: Corporate officers recognize the business case for ending corruption. They see the costs that corruption imposes on operations and the damage it can do the company's reputation. Thus, there is a strong business case to end bribe payments. However, they also see their competitors paying bribes to win contracts. This makes it very difficult to ensure that employees refuse to pay when bribes are requested by customers and clients. It also means that collective action is required. All corporations must be committed to combating corruption and working together to solve this problem. Ending corruption is both pro-business / economic development and pro-human rights / sustainable development. Unfortunately, due to these collective action problems, breaking the cycle of corruption is a significant challenge and requires novel solutions.


An example of Prof Hess' work is this July 2008 Working Paper called The Three Pillars of Corporate Social Reporting as New Governance Regulation: Disclosure, Dialogue and Development.