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As they build market share, companies need a plan to limit exposure to steep fines and executive prosecutions.
Life sciences companies are feeling the heat around growing societal expectations of ethical and transparent behavior. A key strategic imperative from this ground swell is integrating internal anti-corruption measures with the commercial strategies built around the murky politics of how to get things done in emerging markets. In these "pharmerging" countries, the growth potential is high but the regulatory rules of the road might charitably be described as "open to interpretation."
L. Stephen Vincze
Consider the basic dynamic: The "BRIC" countries (Brazil, Russia, India, and China) stand out as the most lucrative emerging markets, but they are also ranked at the higher end of Transparency International's corruption level-of-risk rankings.
Recognizing the momentum of the emerging markets, regulatory authorities around the globe are targeting anti-corruption as a top enforcement priority. Prosecutors in the US and the UK are particularly committed, with the US Department of Justice (DoJ) stepping up its monitoring and control activities under the 1977 Foreign Corrupt Practices Act (FCPA). More cases have been prosecuted (57) in the past five years than the total number of cases prosecuted over the previous 27 years, and the commitment to move cases forward has been stoked by a successful cash settlement of approximately $1.6 billion in a corruption case against Siemens jointly prosecuted with Germany. Governments of the industrialized bloc of Organization for Economic Co-operation and Development (OECD) are working together to address cross-border corruption, recognizing that the current turmoil in financial markets and associated banking scandals gives them an unprecedented new weapon—public support.
Using wiretaps, confidential informants, and enforcement techniques previously reserved for organized crime and anti-terrorism, the DoJ is raising the stakes for FCPA enforcement, receiving more funding and "following the money" right to the front door of life science companies. And when the DoJ announces an enforcement priority, two things happen: more prosecutions and more convictions. DoJ has put the life sciences industry and individual industry executives on public notice: you are targets and we are going after you. With 120 FCPA cases in the pipeline and the recent criminal conviction and sentencing of a former company president in another industry to a record 87 months in prison, the trend is clear.
In a November 2009 address to the Pharmaceutical Compliance Forum, Assistant Attorney General and Chief of the DoJ Criminal Division, Lanny A. Breuer, stated, "Our resolve in the FCPA area will not abate. We will be intensely focused on rooting out foreign bribery in your industry. That will mean investigation and, if warranted, prosecution of corporations, but also investigation and prosecution of senior executives."
Across the Atlantic, the UK in July 2009 passed an anti-corruption statute that outlaws both government and commercial bribery, making it significantly broader in scope than the FCPA, its US counterpart.
In this treacherous mix of economic and enforcement pressures, the question clearly becomes, "What are life science companies to do to manage their potential exposure to corruption, where "success" equates to executing a sound, speedy and successful global emerging market commercial strategy?"
At least one piece of the solution is successfully integrating a global compliance anti-corruption strategy with an emerging market commercial strategy. Global life science companies are re-examining how their global compliance functions are structured to align their ability to meet both increasing legal/regulatory requirements and increasing business/operational demands.
Specifically, the function has to address (1) increasing information/data gathering and governmental reporting requirements, (2) potential for more governmental criminal and civil prosecutions of both organizations and individual executives for violation of anticorruption laws and regulations, (3) implications of cost pressures to improve operational efficiency, and (4) the need to be proactive in helping the commercial business navigate the cultural and economic barriers that must be overcome to succeed in emerging markets.
To address these issues, global life sciences companies appear to be moving toward a more centralized model that leverages information system technology to link various global regions and business units. The goal is to enhance information gathering, reporting and consistency in policy implementation across all regions and eliminate costly delays in information transfer historically associated with centralized systems.
The relative size, complexity and maturity of a company's global compliance program are key factors with regard to how that program is structured. Smaller companies may have a more traditional, decentralized, hierarchical structure with compliance officers assigned to each business unit to allow them to be more responsive to local, regional issues. Big pharma companies that have invested to varying degrees in advanced information systems technology are progressing towards a more centralized model, to ensure greater consistency across countries. However, it is unlikely that any company is either fully centralized or decentralized; as a result, there is a move toward a hybrid structure that is flexible enough to tap the latest technology systems and processes. This transition to "enlightened centralization" seeks to strike the proper balance between speed and consistency for global legal reporting requirements and responsiveness to local business operations.
Global anti-corruption compliance is but one piece of a much larger mosaic of an effective business strategy for success in emerging markets. With advances in technology that can link global markets and reduce the cost of information and data capture and analysis, and recognizing the huge costs associated with either a compliance violation or business failure, companies need to put their compliance models front and center in any strategy to support the imperative to build sales in emerging markets.
L. Stephan Vincze is national managing director, Life Sciences Forensic Dispute Services, Deloitte. He can be reached at email@example.com