In recent years, Ukrainian business has begun to worry about the ideas of corporate compliance. However, it has become mandatory only for state business, because it came to us under pressure from international creditors, along with demands for the introduction of supervisory boards in state-owned enterprises. That is, together with the reform of corporate governance. So far in Ukraine, this tool of corporate management is used either as a trend tuning to shape the company's image in the case of private business, or as a "borrowing" of private business from their international parents or partners. Compliance appeared at UIA six months ago, at the age of 29. Therefore, I will explain why I think so.
Compliance is a set of internal rules and principles that must be followed by all employees and stakeholders, including members of management bodies, it is also a set of requirements of the Company in business relations with counterparty partners. That is, another function of corporate compliance is to regulate actions and decisions in accordance with national legislation (including safety, fire safety, etc.), and if the company wants to enter foreign markets and have international contracts, then with international standards.
With public sector enterprises more or less clear. For example, in Ukrzaliznytsia, which was corporatized by a separate law, a compliance department was launched at the beginning of this year, which included the Office for Anti-Corruption https://www.uz.gov.ua/about/compliance/ . In private companies, effective compliance tools sometimes contradict the traditions of Ukrainian business, in particular, in companies with corporate practices that have "historically" developed at the break of the Soviet Union in accordance with the norms of "red" corporate culture of its leaders. These traditions are not bad and not good - as they are: they allowed starting their own business, to some extent developing, expanding and even competing until 2014 - until Ukraine has clearly decided on its European vector. However, later, when the business is already developing in a global environment, the same traditions become an obstacle to development, which can later even lead to the self-destruction of the company.
For example, lawyers who serve the company's interests initially became partners or members of the governing bodies. At the initial stage, "own" lawyer can deal with issues that go beyond the legal. Then the lawyer immerses himself in business processes, grows business connections, and finally creates his own outsourcing business with "one client". At the same time, it continues to serve the same client company as a corporate lawyer, and at the same time as "its" person close to the owner or owners, representing the client. It turns out "two in one": a lawyer and a contractor not on legal issues. In my own experience, there is even a case of "three in one" - at the same time a representative of the governing bodies (shareholders' meeting), a representative of the counterparty and a corporate lawyer outsourced.
But the client company is evolving - there is a need to implement more professional executive top management, but on "historical conditions". Then the executive manager has a natural question, where is the limit when a lawyer protects the interests of the client company? Moreover, when are the interests of this client's counterparty? And when are their own business interests? How to separate it? The search for an answer leads to the fact that the lawyer in the company "three in one", has a power of attorney to act on behalf of the company on all legal matters, comes to the notary with this power of attorney to dismiss the CEO and appoint himself head of the company. Experienced lawyers in corporate governance argue that such a combination a priori violates not only the ethics of lawyers, but also the law, which should prevent conflicts of interest. After all, a situation is likely when it will be necessary to resolve disputes between the parties. Moreover, what then? One lawyer cannot represent the two sides of the dispute!
Professional ethics, in my opinion, is grossly violated here. After all, a lawyer, as a doctor, builds his professional activity only on the condition of trust in the relationship with the client.
When ethics or the law does not stop the lawyer? In this case, an effective corporate safeguard must be used - the same compliance. And if the beneficiaries (or one of the beneficiaries) of the company do not realize that a large company with different areas of activity, multilevel management, is no longer a "one-person" business, then compliance tools may conflict with the beneficiary. As a result, such a conflict can lead to self-destruction of the business. I will give an example not from my own experience.
Compliance practices have been officially introduced in Ukraine for a long time. Back in 2007, the National Bank issued a decree obliging banking institutions to implement fiduciary responsibilities for owners and top management, as well as compliance policies. The extent to which this was done became clear later, during the banking reform, or so-called "cleansing of Gontareva." The chairperson of the board of not the last bank in Ukraine (at that time he was in the top ten) found a foreign buyer to save the bank. After all, the CEO is accountable not only to the owner (however unfortunate it may be for the owner himself), but also to his colleagues, subordinates, external stakeholders. The owner of the bank, of course, could not openly oppose such an option. Only at the last moment, when it was necessary to sign a purchase agreement, it turned out that the owner agreed with the political leadership and the National Bank, and simply "drained" his assets. The agreement was thwarted - the bank went into liquidation with all the relevant consequences for bank assets, depositors and the state budget.
To prevent such actions in developed economies, safeguards such as fiduciary responsibilities for shareholders, supervisory boards, boards of directors, and corporate compliance have been created. The case of Airbus explains how effective compliance works.
Europe's largest aircraft maker has been under investigation since 2016 for allegations of fraud, France for possible corruption, and the United States for possible violations of the arms embargo on South Sudan. All investigations concern breaches of relations with intermediaries and "third-party consultants", that is contractors.
In early 2020, Airbus entered into amicable agreements with three jurisdictions to suspend investigations, for which it must pay a fine totaling $ 4 billion. The agreements have yet to be approved by the courts of these countries. The most interesting thing in this case is that Airbus itself launched a series of investigations, voluntarily notifying the British authorities (SFO - Serious Fraud Office) of signs of violations. Why did the corporation's management do so?
"Reducing legal risks allows Airbus management to focus on solving production problems, including increasing production of A320 aircraft that can move its rival Boeing 737 Max, as well as developing aircraft with lower carbon emissions," wrote the British Guardian. Here's how it would be more profitable to pay $ 4 billion so that courts and investigations wouldn't interfere with the corporation's development. Few would argue that Europeans know how to count money.
Of course, if there was such a violation as, for example, the supply of weapons against the international embargo, it could not pass without the tacit consent of senior government officials. However, Airbus management, in accordance with the requirements of compliance, considered it necessary to report them to the relevant authorities of the United Kingdom. Although the corporation is headquartered in other jurisdictions (France, Germany). That is, the compliance of a large corporation extends beyond the national jurisdiction of the city of registration.
To confirm this thesis, I will give another striking example. The loudest corporate scandal in decades, caused by the anti-corruption investigation against the Rolls Royce Corporation - the pride of the British, because during World War II, British aircraft on Rolls Royce engines defeated the German Messerschmitt. National pride status has not prevented a British court from accusing the legendary corporation of pernicious bribery of officials outside the UK.
In fact, Rolls Royce's management has operated in other countries according to their national business traditions. In India, Rolls Royce representatives paid local intermediaries to negotiate with the right officials. Otherwise, it is extremely difficult, it was almost impossible to do business there. Rolls Royce was forced to pay a £ 500 million fine (almost $ 625 million). However, it was not British justice that considered it a victory, but what forced the corporation to align corporate compliance with national anti-corruption laws (adopted in Britain in 2010) and, most importantly, extend it to all jurisdictions around the world with Rolls Royce affiliates.
To understand, I will try to analyze the stage of development of corporate governance in Ukraine. In the summer of this year, after the change of the head of Naftogaz, under pressure from Western creditors, the government drafted a bill to correct the shortcomings of corporate governance. In particular, the bill obliges not only public but also private companies to introduce fiduciary responsibilities for shareholders, supervisory boards and the board. These same responsibilities should prevent actions that harm companies. It was guided by their fiduciary responsibilities that Airbus management voluntarily reported signs of wrongdoing, and shareholders did not interfere. In Ukraine, while the acute phase of discussions over the change of the head of Naftogaz was underway, the relevant committee of the Verkhovna Rada considered the bill, but rejected it. The law has not yet been adopted.
The conclusion is that so far we have such things as corporate responsibility and compliance - no more than fashionable decor.
We conduct financial audits, even involving companies from the "big five auditors". Then what? If the tool for preventing and correcting errors, including financial, does not work, the audit will do little to help the business. In addition, if the shareholders, or one of them, decides to harm the business? It turns out that management will not be able to counteract this.