The Battle of Shiloh, Corruption in Ukraine and Things to Come

Monday marked the 126th anniversary of the ending of the the two-day battle of Shiloh. On the second day, the Union troops under General Grant largely recovered the ground that the Confederate troops had taken on the first day. Grant was severely criticized for allegedly being taken by surprise by the Confederate attack, but he managed to survive the firestorm. The Confederates lost their most senior commander, General Albert Sydney Johnson, on the first day of the fighting.

With the successful Union counter-attack on the second day, the battle is generally viewed as a tactical victory for the North. However, for me the thing that is most significant about this battle is that it was the first horrific slaughter of the Civil War. There were over 23,000 casualties on both sides. Unfortunately, it presaged more to come. I will never forget Shelby Foote’s comments in Ken Burn’s documentary The Civil War. Shiloh was not an aberration, but there were 25 more Shilohs to come. It truly was a sign of things to come.

The recent events in Ukraine have had a variety of interpretations, results and predictions. But one thing is clear: the government of Ukraine allowed systemic corruption to occur. One can look to the Archer-Daniels-Midland Corp. (ADM) Foreign Corrupt Practices Act (FPCA) enforcement action to see the effects in play. In that matter, ADM paid bribes to obtain tax rebates to which it was legally entitled. Unfortunately for ADM, it developed opaque schemes to fund bribery payments and then hid them on its books and records. Not good for FPCA compliance.

Or consider the case of Ikea. In an article in Bloomberg, entitled “Dashed Ikea Dreams Show Decades Lost to Bribery in Ukraine,” Agnes Lovasz wrote that Ikea has tried for over a decade to open a store in the country, but has been unable to do so because it refuses to pay bribes. She wrote that according to Transparency International’s (TI’s) Corruptions Perceptions Index (CPI), “Stuck between the European Union and its former imperial master Russia, Ukraine has emerged as the most corrupt country on the continent.” She quoted Erik Nielsen, chief global economist at UniCredit SpA in London, for the following, “Even before this latest crisis, Ukraine was a mess beyond description.” How about this recommendation from Lennart Dahlgren, a retired Ikea executive who led the company’s entry into Russia – he said in an interview with Russkiy Reporter magazine in 2010 that compared with Ukraine, Russia, the most corrupt major economy, “is whiter than snow.” Faint praise indeed.

While a U.S., UK, EU or other Western government response is certainly appropriate, I thought about a business-led response to such a situation when I read an article in the April issue of the Harvard Business Review (HBR), entitled “The Collaboration Imperative,” by authors Ram Nidumolu, Jib Ellison, John Whalen and Erin Billman. In this article, they discussed business collaborations in the context of sustainability. I found that their concepts should be considered by companies or industry groups when trying to develop strategies to fight corruption. As Jason Poblete continually reminds us, the marketplace is one important place to look for solutions to problems, and this article certainly provides some starting points for such an analysis.

The authors posit that collaboration models should be divided into two categories: (1) coordinated processes and (2) coordinated outcomes. Adapting these to anti-corruption/anti-bribery programs, this means that under the “coordinated processes” prong, businesses should identify and share industry-wide operational processes that prevent and detect bribery and corruption. Under the “coordinated outcomes” prong, the authors’ work translates into developing industry benchmarks and standardized systems for measuring anti-corruption/anti-bribery performance across the value chain.

The authors outlined specific steps in their article which I thought also proved insightful for implementing their ideas in the anti-corruption/anti-bribery context. First, you should begin this journey “with a small, committed group.” They advise: “to prevent the logjams that can occur when many stakeholders with conflicting goals try to work together, start by convening a small ‘founding circle’ of participants. The members must have a common motivation and have mutual trust at the outset. This group develops the project vision and selectively invites subsequent tiers of participants into the project as it develops.”

Next, you should try to “link self-interest to shared interest.” This is because to help facilitate success, “collaboration initiatives must ensure that each participant recognize at the outset the compelling business value that it stands to gain when shared interests are met.” The participants need to then try to monetize the system value by “linking self-interest and shared interest to quantify how the collaboration reduces costs or generates revenue for each participant.” It helps to build a direct path to some early successes because “to generate momentum and commitment, the action plan must also emphasize quick wins. Business thrives on visible and immediate results, and sustainability collaborations are no exception. Even if these wins are small initially, the cost savings or incremental revenues provide proof to other executives inside participants’ organizations that the investment is worthwhile.”

As many in such a collaborative group will have conflicting priorities, the authors believe it is important to have “independent project-management specialists with demonstrated competence in trust building among diverse stakeholders. Additionally, the project management function must be seen by all participants as neutral and committed to the success of the project, rather than to any individual stakeholder.” Interestingly, the authors note that there should be built-in competition which should be “structured to support shared goals.” Finally, and perhaps most obviously, any such group must have a culture of trust. Fortunately, in the anti-corruption/anti-bribery world, there are very few trade secrets but beyond this, “building and maintaining trust is an ongoing practice foundational to every other practice during the collaboration project.”

Perhaps the people or the leadership of Ukraine may at some point realize that the perceived endemic nature of corruption in their economic system has helped lead to its current problems. Maybe the citizens in Crimea thought the Russian government less corrupt. While I do not pretend to know the answers to these questions, the collaboration model that the authors have detailed for sustainability initiatives is certainly one that U.S. companies might wish to consider on some type of industry-wide basis.

This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.

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