“The board should set the global corporate standards that apply and can be effectively translated to every area of the company’s business” – Lord Woolf, the Woolf Committee, May, 2008.
The oil&gas industry has had its fair share of poor publicity over the years around issues of corporate governance, from health and safety to pollution, and from the effect of the “resource curse” on indigenous populations to reporting of reserves.
One way to combat such publicity is through the establishment and enforcement of global corporate standards, and many larger companies have had comprehensive policies on these issues in place for some time.
Setting standards of ethical conduct and ensuring regulatory compliance with legislation should be at the top of the agenda for every multinational, according to the Woolf Committee in its report, released in May.
Standards for a whole range of business conduct, from anti-bribery and corruption through to good standards for the environment, employment and health and safety, have been actively encouraged through organisations such as the OECD (Organisation for Economic Co-operation and Development) and its Guidelines for Multinational Enterprises, which have been subscribed to by at least 33 countries around the world.
However, a survey in 2006 of 350 multinationals showed remarkable ignorance of legislative requirements in the countries in which they operate in these areas of ethical, commercial and social responsibility.
According to Lord Woolf, standards should be set globally throughout the company, regardless of location. Where local standards are higher than global ones, they must be applied.
OECD guidelines and Lord Woolf’s 23 recommendations for multinationals are voluntary. But are they?
Governments are increasingly losing patience with multinationals and directors who fail to observe the law in their country, and penalties for offences such as corruption and bribery are becoming increasingly stringent – with extradition from the UK for “white-collar offences” a reality.
The US Foreign Corrupt Practices Act has been in existence for some time and fines are becoming eye-wateringly high. But it is not just the damage to the bottom line that harms a multinational. Reputational damage can be far harder to deal with.
On November 20, the Law Commission published its proposals for reform of the law on bribery and corruption in the UK.
Bribery and corruption, of course, are already offences here, but the proposals seek to simplify the somewhat confusing and messy current position to something more straightforward – but powerful.
The new offences can be summarised as:
It will be an offence if anyone gives an advantage to someone in an attempt to induce them to do something improper.
It will be an offence to accept or request a reward for improper behaviour.
It will be an offence to employ an agent who bribes others on the company’s behalf (unless the company can show it had adequate procedures in place designed to prevent this kind of conduct).
There will be a separate offence of bribing a foreign official.
The making of “facilitation payments” will also be an offence.
All of the above must be committed in relation to a business, professional or public activity, and individual managers and directors may also be convicted if they consent or connive in the offence of the company.
The offences need not be committed in the UK. They will still be offences even if committed outside the UK if the accused is a British citizen, one ordinarily resident in Britain or a UK company.
The penalties for these offences will be in line with fraud, with the possibility of very heavy prison sentences for individuals.
While none of the proposed offences is new (they all exist in some shape or form at present) the intention is clear – to tighten up on corrupt practices. This reflects an increasing trend in this direction in Europe, where, recently, directors in companies such as Siemens, VW and UBS have found themselves in the firing line.
January next year sees significant changes in penalties for companies, directors and managers in the UK for health-and-safety offences, with prison now a possibility for individuals in a number of offences and fines significantly increased, while the oil&gas industry has seen its first prison sentences for cartel activity in the marine hoses case previously discussed in this column.
In the future, multinationals which don’t heed Lord Woolf’s recommendations for businesses and ensure that “members of the senior executive team and heads of business units have both a personal and collective responsibility to demonstrate high standards of ethical business conduct and to achieve effective implementation of the global code” may find themselves and their company at the wrong end of enforcement action for breaches of regulatory compliance in any part of the world in which they do business.
For many boards, the first issue is: do they even know what the regulatory requirements are that affect them? Only then can they develop their global code and roll it out at all levels.
Penelope Warne is head of energy at CMS Cameron McKenna, which has 55 offices in 24 countries