As a preview of their upcoming Compliance & Ethics Institute session, Laurel Burke, David Simon, and Sherbir Panag share some insight into compliance challenges in India. For more information about the Compliance & Ethics Institute, click here.
You have received a whistleblower report from a mid-level sales manager in your India subsidiary. This is the third report related to this topic you’ve received in the past year. It is highly personal, and reflects what appears to be a deep conflict between the GM and the sales organization. You conducted internal investigations of the prior two reports, but were unable to substantiate any violations of the company’s code or policies. This report is rambling and long and raises nine different concerns with the way the GM manages people and the various ways she rewards her friends and punishes her enemies. There is a very general, unsubstantiated allegation that a sales agent who is close to the GM is “corrupt.” You have requested substantiation of this claim from the reporter, but have received nothing more. Your human resources team seems reluctant, if not actually opposed, to conducting another investigation, arguing that “investigation fatigue” is destroying morale. What do you do?
Question to Laurel Burke, Associate General Counsel — Compliance, Regal Beloit: From an in-house perspective, what are your core business objectives here? What are your biggest concerns? To whom do you go for advice?
While there is certainly some overlap, new information has also been included. The GM has been in place a long time and is from all accounts in the US, a “good person” and well liked. That said, receiving multiple reports in this timeframe on similar issues is unusual, especially when I look at the reports and it seems like 3 different people. While I’d like to make sure that the issues are not swept under the table, I am also not interested in rehashing old issues. And, I am concerned about our tendency to discount a reporter when they mention issues we think we’ve investigated thoroughly related to other reports because there may really be some underlying bad behavior causing or contributing to the conflict. To top it off, my only real investigative resource inside the company for this kind of report is an HR person; I am worried about how close the HR team is to the management team and whether they can evaluate and investigate independently/without bias. I take a close look at the report and the progress/status of the other two and decide it’s worth a call to outside counsel for some fresh eyes. I start with David, U.S. counsel.
Sometimes the “boy who cried wolf” actually did spot the wolf. My principal concern is the point Laurel raises — that what could turn out to be a real bribery issue gets discounted or ignored because of the context in which it arises. I have seen this occur several times with well-motivated clients that have strong compliance programs, and it can create real trouble. The SEC and DOJ will not be particularly understanding if a red flag is ignored simply because the reporter is a known pain in the neck.
That said, I understand the real and legitimate morale and disruption concerns this scenario raises, and I certainly would not recommend sending in a team of US lawyers and forensic accountants to conduct a full investigation — at least based on what we have now. Instead, I would recommend taking a few reasonable, but tailored investigative steps to test the “corrupt sales agent” allegation. To start, I’d pull and review the agent’s contract and look at all payments made to him over the past couple of years. I’d also look at any sales — particularly government contracts — with which the agent had involvement. But most importantly, I’d rely on India counsel to test the allegation with local knowledge and insight and with a lighter touch. I’d call Sherbir.
There is never a one-size-fits-all for reporter complaints, especially when the allegations cross over from personal issues to human resource management to bribery. The law on both sides of the ocean as far as bribery is concerned reads the same, and hence if the reporter reports the matter to Indian law enforcement they would pretty much react in a manner similar to the DOJ or SEC, and would not appreciate discounting a what they would consider to be a whistleblower merely because similar complaints have arisen in the past. This leaves us with the arduous task of balancing out organization morale and serious criminal liability, that David and Laurel have rightly pointed out.
I wholeheartedly support David’s view that a lighter touch is the need of the hour. In addition to the contract and payment review David suggested, this is what I would recommend:
- Establish Contact: To begin with we need to let the reporter know that the company takes his report very seriously and will respond appropriately. I would want Laurel to establish initial contact with the him and would work with her to ensure that the language used is culturally sensitive and does not come across as overtly aggressive, suspicious or insensitive.
From my experience, the bribery allegation in these muddled complaints usually bothers the reporter the least and in most cases he wants to be heard on the other issues. The initial communication is important to restore some semblance of confidence on the integrity of the process that is to be followed, rather than leaving the reporter feeling unwanted. I would push for this communication being made within 24 hours of receiving the report.
- Email Round 2: In the second round of email interaction with the reporter, I would recommend that Laurel introduces David and I, establishing that the company takes the matter seriously enough to engage outside counsel. Laurel, would further reassure him that his identity will be kept confidential and that the US parent and not the India subsidiary have engaged external counsel.
Hereafter, I would touch base with the reporter via email to organize a meeting / interview wherein I would encourage that he brings forward any additional evidence to substantiate the allegations. At all times, I would mark Laurel and David on email to ensure that he sees this as a US parent driven exercise detached from the Indian subsidiary.
- Interview Preparation: David and I would work together to draw up a list of documents that we need to see, before the interview. Typically, we would want to gather as much as we can about the allegation that can be judged from office records and in some cases may want to do a limited review of emails if the India subsidiaries emails are backed up on a US server. The key is to ensure that we aren’t walking in blind and can do some basic corroboration of the facts.
It is imperative that David and I work on this process together (not just because we enjoy each other’s company) as the expectations of law enforcement in the US and India in terms of cooperation credit and subsequent enforcement approaches vary considerably. A disjointed effort may serve the company’s interests in one country but not the other.
- Company dos and don’ts pre interview: It would be advisable that till we meet the reporter, the company provides limited information to the India subsidiary to prevent compromising the investigation process. Further, for some of the smaller Indian subsidiaries the staff handling key functions are few in number, which allows for allegations to be hurled around on who the reporter could be. This again is detrimental to the process.
- Interview: Conducting an in person interview of the reporter usually works best. As David pointed out, we don’t need to rush in an army of lawyers from the US, and this is something we could work with US counsel to execute. I would conduct the interview with another lawyer present to ensure that an accurate record is maintained, and would walk the reporter through all the issues he has raised.
I would spend a good deal of time on the language the reporter uses and not rely on the first word used, as English for some isn’t their native language. For example, in one interview we conducted the whistleblower kept using the word “corrupt” as an adjective for his manager who allegedly favored a colleague over him. This of course, greatly differs from the term “corrupt” used in the context of anti bribery laws.
- Interviewing the third party: I would not recommend interviewing the concerned third party until some serious allegations were raised in the reporter interview.
- What Next: Post the interview; we would want to wrap up the review as fast as possible to determine where the company stands and if further action is required. This investigation must be swift, efficient and sensitive to costs.
If there are no merits to the reporter’s corruption allegation, be prepared for some more wild emails that he may throw around before he makes his peace. Again, during that limbo period the company must have a reaction strategy in place in the event that he does report it to Indian law enforcement. Now would be a good time to inform the India country head about the issue and brief him on the response strategy.
Lastly, the human resource issues need to be resolved. If the investigation reveals no results on the bribery issue, the remainder of the allegations are usually ignored. It is however recommended that they are explored and corrective action where applicable should be instituted because if not, this reporter won’t be the last one trying to grab US management attention.