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Three Questions about Compliance and Ethics for Business Leaders

July 18, 2010

We have previously written about the increasing activity of regulators, particularly in the US, to combat bribery and corruption in business.  At the end of June, The Guardian reported on the case of Octel, now called Innospec, who admitted paying million-dollar bribes to officials to sell toxic fuel additives to Iraq.

The company recently admitted that, in a deliberate policy to maximise profits, executives from Octel  bribed officials in Iraq and Indonesia with millions of dollars to carry on using tetra-ethyl-lead (TEL), an anti-knocking agent for gasoline, despite its health hazards.  The firm’s Lebanese agent, Osama Naaman, was extradited and agreed this week to plead guilty and co-operate with US prosecutors.

It appears that the US authorities may seek extradition of Paul Jennings, the former Chief Executive of Octel, to face the corruption charges.   Dennis Kerrison, Jennings’s predecessor, also risks further proceedings against him.

Jennings stepped down in March 2009 and is now Financial Director of the waste firm Biffa.  The Biffa Board may be feeling concerned that its finances are in the hands of someone who is alleged to be involved in one of the worse bribery cases in the UK in recent years.  Biffa is no doubt ready to cope without him if he has to spend time away from his job answering questions from US prosecutors.  Kerrison is now living on his wine estate in South Africa.

Jennings says he is unable to comment due to the ongoing investigations.  Kerrison says: “I have not authorised any bribes, backhanders, or other illegal or dubious payments”, while Innospec says: “Innospec admits its former chief executive officer … approved payment of the kickbacks.”

It’s difficult to conclude very much from this whole sorry affair, but if you are a business leader, here are three questions to think about:

  • Are you being proactive enough?
    Innospec’s claims that it has changed its company and removed former management who were involved may be legitimate.  However, these claims made after the event somehow ring hollow; the business case for proactive investment in effective standards and compliance programmes should now be clear.

    i2a reviewed the Innospec ‘code of ethics’ published on its website, which we found compares unfavourably versus leading examples.  The document reads as though it has been written by lawyers with little thought to how the rules will be translated into the behaviours of people – without changing behaviours you don’t have effective compliance.

  • Is your business compliant?
    The defence of ‘I have not authorized bribes, backhanders, or other illegal or dubious payments’ is unlikely to be accepted.   Neither is the fact, as is often the case, that the bribes are being paid by third-parties/agents an excuse.  Business leaders are now obligated to ensure business is being conducted to high ethical standards and in a manner compliant with current regulation.  And just to make it more difficult, this regulation is changing rapidly.
  • Do you know what you are acquiring and who you are hiring?
    A number of businesses have inherited problems through acquisition or from previous management.  There is an increasing need to conduct ethical due diligence on acquisition targets and on individuals that join an established leadership team.

This blog was written by Andy Tomkins.

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