Previous posts have explored the FCPA’s long tentacles (here), collateral civil litigation resulting from FCPA scrutiny or enforcement actions (here and here), how FCPA scrutiny can impact mergers (here), how FCPA scrutiny can impact the cost of capital (here), and numerous prior posts have highlighted professional fees and expenses in connection with FCPA inquiries.
In short, failure to comply with the FCPA has real business effects in addition to any ultimate fine and penalty amount announced on resolution day. This post summarizes several recent business effects associated with FCPA scrutiny.
As previously indicated in this Wall Street Journal Corruption Currents post by Samuel Rubenfeld, S&P recently cut its debt rating on Avon Products Inc. Among the reasons cited for the downgrade was “expenses related to the ongoing investigation under the Foreign Corrupt Practices Act.” (See here). As noted in this recent New York Times White Collar Watch piece by Professor Peter Henning, professional fees and expenses incured by Avon in connection with its internal FCPA review have approached $250 million – and there hasn’t even yet been an enforcement action. Over the past three years and doing the math, Avon has spent approximately $225,000 per day on its FCPA inquiry. One can debate whether such expenses (as well as the other business effects noted in this post) should happen or are truly necessary, but the point remains such effects are happening.
Sticking with the investigative fees issue, Weaterford International recently stated in its March 15th annual report (here) that since disclosure of its FCPA scrutiny (as well as Iraq Oil for Food and OFAC scrutiny) it has “incurred $123 million for legal and professional fees in connection with complying with and conducting” the on-going investigations. According to the company, “this amount excludes the costs [the company has] incurred to augment and improve our compliance function.”
Diebold, which disclosed FCPA issues in July 2010 (see here), stated in March 14th proxy solicitation materials (here) that the cash bonus of Thomas Swidarski (President and CEO) was reduced by the Compensation Committee. According to the materials, the Committee concluded that ”given the CEO’s ultimate responsibility for the oversight of the company, as a result of the impact to the company of the global FCPA investigation it was appropriate that Mr. Swidarski’s cash bonus be reduced.” Nevertheless the materials indicate that Swidarski did receive a $1 million cash bonus (on top of his other compensation) … but it could have been more. Another component of the proxy materials that caught my eye was discussion of the Board Special Committee set up to oversee the “global FCPA review.” The materials note as follows. “This committee met in person or telephonically seven times in 2011.
In other disclosure news, Dun & Bradstreet (the world’s leading source of commercial information and insight on businesses) announced earlier this week (see here) that it “has been reviewing certain allegations that local employees may have violated the Foreign Corrupt Practices Act and certain other laws in our China operations. D&B is cooperating with the local Chinese investigation, and has voluntarily reported these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission.”
D&B’s FCPA disclosure was contained in the same release in which the company stated it “has temporarily suspended its Shanghai Roadway D&B Marketing Services Co Ltd. operations in China, pending an investigation into allegations that its data collection practices may violate local Chinese consumer data privacy laws.”
D&B’s FCPA disclosure marks the third time in the last four weeks that a company has newly disclosed FCPA scrutiny.