Reputation Matters: foreign firms facing Petrobras corruption chargesBy Stephen Lock
At a closed conference recently, I was listening to Brazil's 'super judge', Sergio Moro, talk about his extraordinary investigations that have so transfigured the Brazilian political and business environment.
Moro who exposed the Lava jato Petrobras corruption scandal, was greeted at this conference like a rock star: cheered to the rooftops and given a standing ovation. And this was a meeting of bankers, international lawyers and investors...Now, however, there are signs that the lava jato investigation is entering a new chapter and that foreign firms could soon face questioning ($wall) and even indictments.
Moreover, charges in Brazil might only be the beginning. For many multinationals, corruption charges in Brazil could also open up criminal charges in the USA. Indeed, as lawyers Norton Rose Fulbright wrote, subsequent US FCPA corruption charges may be faced even by non-US firms. For some multi-nationals, even if sub-contractors, the British Bribery Act may also be triggered, even though the bribery to win contracts wasn't in Britain and indeed didn't involve a state player.1
For the foreign firms about to be ensnared by judge Moro, this isn't just a legal matter to be hammered out in private with prosecutors. It is an acute corporate reputation issue that can have years-long impact on corporate brand.
Of the five emerging markets I have lived in, I am (not) surprised that it is often the same names that crop up in corruption allegations. I can think of one pharmaceutical firm; a couple of global engineering giants and a power business who have faced investigations, and often eventually charges, in almost each of the emerging markets I have lived in. Corporate corruption can be an acute reflection, often it is the reflection, of corporate 'deep culture'. However, for most firms a corruption charge is a great shock and occurs under circumstances where the corporate has been unlucky and one bad apple, indeed, has abused the system.
So if you're a multi-national about to face Brazilian investigators in the lava jato scandal what should you be doing, as you 'lawyer up', to ensure that your corporate reputation survives the process? How do you articulate and convince people that it really is an aberrant and isolated failure of your corporate ethics?
Putting effort and emphasis on the PR management of corruption investigations isn't just 'best practice'. It makes sound financial sense. As the share price slumps of both Petrobras and - corporate misdeeds of another kind - Volkswagen have shown, the sooner you can use PR as a means of ameliorating the investor relations car-crash of criminal investigation, the better.
Determine your narrative of events and be prepared, proactively, to talk about it. Be as factual and open as your criminal lawyers will allow you. Be swift in making management changes and communicate this openly. If you are making operational changes, or changes to sales process, be candid about it.
Invest at least double the time you spend on internal communications as you have on external communications. You have a job to do. Demonstrate a ruthless commitment to compliance while ensuring the honest and ethical feel supported and empowered as they prepare for 'what's next'. Make sure the young and talented have a 'reason to stay'.
Your communications need of course primarily to be discussed and aligned with your external legal counsel. But this isn't an area of litigation where you necessarily need to be led by your insurers. It is a complex area, but FCPA fines - and often UK Bribery Act fines - are likely to be uninsurable in many cases, even under Directors and Officers Liability policies.
In the narrative of any litigation, there are times when advantage can be achieved by pushing your side of the story; and times when it's important to step back to consider or avoid prejudicing your position.
Like in any crisis, you will want a Crisis Management team assembled to handle this. But this isn't a crisis because it can take years to sort through. So assemble a Litigation Management team that goes beyond legal and has Board level - but not necessarily CEO-level 2 - empowerment and representation. The most expensive mistake such teams can make is to regulate the communications to an 'after-thought press release'. Integrate PR into the planning; using someone who has real experience of corruption and corporate criminal cases, who gets the need to balance openness with corporate confidentiality; candor with avoiding contempt of court and knows who to work as a team.
To discuss a potential requirement for support and learn more about our business, please contact:Stephen Lock
- Senior Vice President, Brazil Country Manager
- Email: email@example.com
Stephen Lock has been a litigation PR adviser since the early 1990s and is featured extensively in the book 'Litigation Communication: crisis and reputation management in the legal process', Beke (2014). His experience ranges from transport disasters; corporate killing; negligence; insolvency & fraud; to compliance failure. In recent years, he has advised global corporations facing corruption and human rights prosecutions. A Cambridge law graduate who began his career as an investment banker, Stephen Lock was named international PR executive of the year at the 2014 International Business Awards. He chaired the global ethics committee of the world's biggest PR firm 2012-2015, before joining Speyside as senior vice president. Speyside leadership has over twenty-five years of international legal dispute PR management experience, across countless jurisdictions. We offer stand-alone litigation PR services but also integrated with government relations; investor relations and corporate crisis management services; including strategic stakeholder trust-building.
1. The UK Bribery Act is interesting, and terrifying for corporate risk officers at the same time, because it also criminalises bribery payments between private sector players, even if there is no state actor involved.