What you'll learn on this podcast episode
As the world emerges from a pandemic mindset, we find ourselves confronting new geopolitical realities with Putin's war in the Ukraine as well as increasingly fraught relations between the US and China. How is this geopolitical landscape changing the compliance landscape? In this episode of the Principled Podcast, host Susan Divers is joined by Tom Fox, the founder of the Compliance Podcast Network and aptly accredited “Voice of Compliance.” Listen in as the two discuss the impact of geopolitics on ethics and compliance, and what issues should be top-of-mind for E&C leaders in the near future.
To learn more, download a copy of Tom Fox's white paper Never the Same: Five Key Areas in Which Business Will Never Be the Same After the Russian Invasion.
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Guest: Tom Fox
Tom Fox is literally the guy who wrote the book on compliance with the international compliance best-seller The Compliance Handbook, 3rd edition, which was released by LexisNexis in May 2022. Tom has authored 23 other books on business leadership, compliance and ethics, and corporate governance, including the international best-sellers Lessons Learned on Compliance and Ethics and Best Practices Under the FCPA and Bribery Act, as well as his award-winning series "Fox on Compliance."
Tom leads the social media discussion on compliance with his award-winning blog, and is the Voice of Compliance, having founded the award-winning Compliance Podcast Network and hosting or producing multiple award-winning podcasts. He is an executive leader at the C-Suite Network, the world’s most trusted network of C-Suite leaders. He can be reached at email@example.com.
Host: Susan Divers
Susan Divers is the director of thought leadership and best practices with LRN Corporation. She brings 30+ years’ accomplishments and experience in the ethics and compliance arena to LRN clients and colleagues. This expertise includes building state-of-the-art compliance programs infused with values, designing user-friendly means of engaging and informing employees, fostering an embedded culture of compliance, and sharing substantial subject matter expertise in anti-corruption, export controls, sanctions, and other key areas of compliance.
Prior to joining LRN, Mrs. Divers served as AECOM’s Assistant General for Global Ethics & Compliance and Chief Ethics & Compliance Officer. Under her leadership, AECOM’s ethics and compliance program garnered six external awards in recognition of its effectiveness and Mrs. Divers’ thought leadership in the ethics field. In 2011, Mrs. Divers received the AECOM CEO Award of Excellence, which recognized her work in advancing the company’s ethics and compliance program.
Before joining AECOM, she worked at SAIC and Lockheed Martin in the international compliance area. Prior to that, she was a partner with the DC office of Sonnenschein, Nath & Rosenthal. She also spent four years in London and is qualified as a Solicitor to the High Court of England and Wales, practicing in the international arena with the law firms of Theodore Goddard & Co. and Herbert Smith & Co. She also served as an attorney in the Office of the Legal Advisor at the Department of State and was a member of the U.S. delegation to the UN working on the first anti-corruption multilateral treaty initiative.
Mrs. Divers is a member of the DC Bar and a graduate of Trinity College, Washington D.C. and of the National Law Center of George Washington University. In 2011, 2012, 2013 and 2014 Ethisphere Magazine listed her as one the “Attorneys Who Matter” in the ethics & compliance area. She is a member of the Advisory Boards of the Rutgers University Center for Ethical Behavior and served as a member of the Board of Directors for the Institute for Practical Training from 2005-2008. She resides in Northern Virginia and is a frequent speaker, writer and commentator on ethics and compliance topics.
Principled Podcast transcription
Intro: Welcome to the Principled Podcast, brought to you by LRN. The Principled Podcast brings together the collective wisdom on ethics, business and compliance, transformative stories of leadership and inspiring workplace culture. Listen in to discover valuable strategies from our community of business leaders and workplace changemakers.
Susan Divers: General Pete Schoomaker made a remark some years ago that's always stayed with me. He said, "People like to think that life is an opera that unfolds over several acts, but it's really a rodeo. You never know what's coming out of the shoot." So much of the ethics and compliance sphere clearly demonstrates the truth of the general's remarks, especially recently. LRN's last two program effectiveness reports focused specifically on the impact of the pandemic on ENC programs. Now we have the war with Russia in the Ukraine and increasingly fraught relationships with China. How is the geopolitical landscape changing the compliance landscape?
Hello and welcome to another episode of LRN's Principled Podcast. I'm your host, Susan Divers, director of thought leadership and best practices at LRN. Today, I'm joined by Tom Fox, the founder of the Compliance Podcast Network and aptly accredited Voice of Compliance. In addition to his 30 plus years of legal experience, Tom is the author of the award-winning FCPA Compliance and Ethics blog, and The Complete Compliance Handbook now in its third edition, which is by far the best source for best practices in one place about ENC programs. We're going to be talking about the impact of geopolitics on ethics and compliance and what issues should be top of mind for ENC leaders in the near future. Tom, welcome.
Tom Fox: Susan, thanks. I have wanted to be on this podcast for a long time. I particularly enjoyed your reference about rodeos because in the great state of Texas, that's a college sport, rodeoing, so lots of rodeos and it's certainly an apt metaphor for what we're going to talk about today.
Susan Divers: Well, great, Tom and I really appreciate the opportunity to have any conversation with you, but particularly on the podcast. So Tom, first, generally, how do you see the ongoing war in the Ukraine as disrupting trade and the rules, both formal and informal, that have governed the world for the last 20 years and is the World Economic Forum vision of trade now dead?
Tom Fox: Susan, in addition to the rodeo metaphor you gave us, the most prescient comment I heard during the COVID-19 pandemic is that we've moved from disaster recovery to business interruption to, excuse me, to business resiliency, to business as usual. Literally now, we can have a weather event, we can have an economic event, we can have a geopolitical event, we can have any event and the requirement of a company is how do you respond? How do you respond tomorrow? Have you planned for this?
I think the type of thing that we saw with the Russian invasion, as tragic as that was, it's one more, it's just an event and we're going to talk about that in some detail. But every company has legal, ethical and business obligations around that event. I was also particularly struck by your reference to the World Economic Forum, and when I read that, it put a frown on my face. And it put a frown on my face because the World Economic Forum, in my mind, has been one of the biggest leaders for the global economy.
Since at least 1990 when I started paying attention to a global economic framework because I was in the energy industry and began to think about these issues on a global basis, the World Economic Forum and their symposiums, their position papers and really their raison d'etre was to talk about a global economy. Although I certainly thought we would have regional conflicts, as we have always had, I never thought we would, I guess my hope was that the global economy would help drive us towards a more integrated global community and that we wouldn't be put near a brink again of a global conflict. I don't pretend to say that's where we're going in Ukraine, but when you start talking about tactical nuclear weapons, that's a conversation we haven't had in this country since the '60s with seriousness.
The World Economic Forum, the world they envision, the world you and I grew up in professionally, I think that world is gone. We're moving to something else. I use the Russian invasion of Ukraine really as an ending point or an exclamation mark on trends that we have seen percolating probably 10, 5, 3 years that accelerated extraordinarily greatly in the COVID-19 pandemic up to the war in Ukraine and the disruption that that has caused really impacts businesses, and this is going to be something, I think, we're going to have to deal with literally on an ongoing basis forward. Lots, really, to unpack there, but I do have to acknowledge you for pointing out it was really the World Economic Forum that has led, I thought, the charge for a global economy and globalization and unfortunately, I think that world is now dead.
Susan Divers: I hear you and I feel the same way about the Forum. LRN participated in it quite actively until fairly recently, and the Forum really did an excellent job of helping global leaders cooperate, frame some of the rules and the practices. Maybe when the current situation resolves itself one way or another, there'll be an opportunity to do that again.
But getting a little bit more granular at this point. You've written about the impact of the Ukrainian war on the supply chain and certainly for business that's one area where the rubber really hits the road. Can you explain that a bit to our listeners?
Tom Fox: Sure. The Ukraine War, the Russian invasion of Ukraine, as I said, put a exclamation point on this. One of the key disruptions from COVID-19 was indeed supply chain. Here, I think for the first time, Susan, we started to look at geography as a risk. Geopolitical risk has been known for quite some time, but with the COVID-19, we have the swaths of the world that were unavailable to us because of the pandemic. As the pandemic raged through China and moved to India and moved to Africa, large parts of the global supply chain were literally shut down completely and they couldn't get back up, couldn't get running again. We saw, from COVID-19, a geographic risk that we have perhaps not considered as much before. This is different than an island that may worry about climate risk or flooding or fires in California or something like that. We had real geographic risk.
The Ukraine War really put an exclamation mark on geopolitical risk. What is the risk? What was the risk in 2019 of Russia invading Ukraine? Certainly there were discussions at the highest level of our government. Frankly, I don't think you and I, wasn't on our radar. Maybe if you read foreign policy, it was on your radar, but for the business practitioner, from the compliance professional, I don't think we were thinking about a Russian invasion and what that might do to either our supply chain or business partners or customers. Well now, if the Ukrainian grain cannot be put in the global food supply chain, that's a huge disruption. The question that I thought about is what would be the effect of the disruption of the global food chain on one of our former employers, Aecom, Halliburton, businesses that you and I have both been involved with, but we don't think of as having perhaps a food risk. Nevertheless, if grain is not available, what do those types of risks mean for employees in allegedly or apparently unrelated companies? Companies have to start thinking about these kinds of things in ways that we haven't done before.
I did a podcast earlier this week where someone said, "Look, the issue now is China and Taiwan." And he was absolutely right. That could be a military issue, could be a geopolitical issue. 82% of US semiconductors are made in Taiwan. That's a huge issue. Let's go back to our former employers who are now heavily invested in tech and actually use semiconductors as part of their manufacturing process. They're going to be impacted, let alone the US semiconductor industry and the US computer industry. That is something now that we have to consider. Are there any other geopolitical conflicts that could erupt, which might negatively impact our supply chains? And when I mean negatively, I mean you can't get your supplies out of those countries, whether it's a raw mineral, whether it's a extractive mineral, whatever it may be. Those types of issues now are more front and center than they ever have been.
From the business perspective, Susan, supply chains, since at least the late '70s or early '80s, the primary goal was efficiency. That was generally translated to just-in-time. It was seen because of the experience in the '60s where particularly in the auto industry, you had lengthy supply chains and actually large number of parts piling up in warehouses that was deemed to be inefficient. They wanted it just before they needed it. That led to just-in-time. That led to one or two suppliers. We found that sole suppliers or sole plus one suppliers has a risk. That risk is, if they're in a geographic area that's wiped out by COVID, if they're in a geopolitical area that is no longer available to us, then we, as a company, have a problem with our supply chain.
Certainly there are many industries that have been offshored outside of the United States. From our industry and service, or rather service industry folks like us, to manufacturing, to everything in between. That is now trying to be reshored on American soil. Can we do it? Yes. Can we do it tomorrow? Probably not. Can we do it in time for Christmas? Probably not. We're going to have to retrain, we're going to have to retool. We may have to allow greater immigration to get people in to do those jobs and it brings up an entire series of questions. It brings up economic questions. How much more is it going to cost to reshore? How much more does it cost and pay an American wage as opposed to a Philippine, Bangladeshi or other wage? Or you name the country outside the United States where the wages are disparate.
All of those issues are now in play in a way that certainly they were percolating around and percolating along in the second half of the last decade. COVID-19 accelerated those conversations, particularly around just-in-time and sole source suppliers. But now, I don't know how much of the globe Russia consists of. I think at one point, it was 12%. That's not available to us as a supply chain partner now and Russian partners are not available to us as supply chain partners. Now, what happens if China is not available to us as a supply chain partner or Taiwan because of an armed conflict with China. How is that going to play? Or can we even get semiconductor chips out of Taiwan if they're in an armed conflict with China? All of these issues are now front and center and I think every company has to be looking at their supply chain, who's in their supply chain.
Then obviously, this ties into things that were not deemed to be connected to all of these issues before, such as conflict minerals. Conflict minerals required you as a company to determine or any of the minerals you're buying, the four Ts, I think, coming out of countries primarily in Africa under conflict. This was the first time companies had really taken a deep dive, not to their direct suppliers, but to their sub-suppliers and they found out we don't exactly know who all of our sub-suppliers are. Obviously the Uyghur Forced Labor Prevention Act has huge impact on supply chains and hopefully, we can talk about that at some length in a little bit, but all of these issues on supply chain, it's elevated the discussion of the corporate supply chain, I hope, to where it properly belongs, in the board of directors level.
But for the people that we deal with, the CCOs and compliance professionals, I think it should be a part of an equal conversation because what are the risks? I was going to say implications, but what are the risks of moving your supply chain, reshoring it? It's a change so the risks change. It may not be an FCPA risk because you may be in the United States, but almost every state in the US has an anti-corruption law and a state anti-corruption law. I had to look at it one time, 37 states do. That's not that you can't bribe our state government officials, every state says that, but 37 with regular commercial private or private anti-bribery laws. When was the last time you, as a compliance professional, had to assess that issue, that risk? Lots of new risks and you, as a compliance professional, need to be a part of those discussions so you can begin preparing your corporation for those eventualities.
Susan Divers: Well, that's a perfect example, or I should say it's an example on steroids of how you have to respond to the risks that face you today and hopefully, tomorrow, try to look around corners. I remember, I think it was in the 2020 guidance that DOJ put out. They said that you can't let your program be a snapshot in time or go on cruise control. That's one of the biggest traps I see people fall into. You ask them what their risks are and it's kind of like what the risks were last year. With this environment and with what you just outlined in terms of supply chain, there's going to be a lot for compliance teams to do. How should people be addressing that right now? I know we'll talk later about sanctions and anti-money laundering being the new FCPA as Deputy Attorney General Monaco said recently, but what's your advice today in terms of how to think about those risks?
Tom Fox: Susan, you hit it exactly on the head. Assess your risks when your business changed. You reference the 2020 update to the Evaluation of Corporate Compliance Programs. That's where the first time the Department of Justice formally said, it's not an annual risk assessment. It's not a biennial, all-encompassing $100,000 risk assessment. It's an assessment when your business changed. The beauty of the timing of that statement, it was June, 2020, everyone's risk had changed because we were working from home. It didn't mean your risk increased or decreased, they changed. How do you assess working from home or how did you assess working from home from a compliance perspective? Once you made that assessment and then you found there were actually new risks, then you had to put a risk mitigation strategy in place, then you monitored that strategy to determine its effectiveness and then you used that information to upgrade your compliance program.
The formula is in place for all of these things, but it starts with exactly what you said, Susan, assess your risks if your business has changed and everyone's business has changed literally, particularly in the supply chain. You've got to know who your suppliers are. From the business perspective, who can supply us is paramount. Pricing is going to be paramount. But from the compliance perspective, where are they getting those? If you're a clothing manufacturer, how many of your suppliers are coming out of Bangladesh and how many of those suppliers are violating any sort of fair trade or human rights laws? Even what's the safety, as we know from the Plaza collapse a few years back in Bangladesh. You have to know who's in your supply chain to a level and degree that you didn't previously think about unless you were in conflict minerals.
But the beauty of that is that if you make that assessment down into your sub-suppliers from your supply chain, you as a business will be stronger. You will see, number one, if there are inefficiencies in our supply chain, but two, if there's a disruption, you'll be able to mitigate that if a disruption occurs because you can move to another supplier because you know where the parts are coming in from and hopefully, you'll be able to have prior knowledge or planning around that.
But think of a weather event. In 2021, I was living in Houston. It hit seven degrees. That was the first time we'd had single-digit weather in Texas since 1890. Well, we can't prepare for that, yeah! This is a town that had gone through two 500-year floods and 1,000-year flood over the past 18 months. We had a wildfire north of Houston. We'd never had a wildfire in Houston, Texas in my lifetime. All of that's to say is that things have changed. I don't pretend to say I know which way it's going, I just know that you have to be there. You have to have assessed those risks and have a plan in place if you can't utilize all the way down in your supply chain, but that gives you the opportunity to be more business efficient and if a catastrophe does occur, you're more quickly able to respond. Starts with a risk assessment, put a risk management strategy in place, monitor that strategy, and then improve your compliance program as information becomes available to you.
Susan Divers:I totally agree with that, Tom and I want to relate it back a little bit to a point you raised earlier too, which is this gives you an opportunity to make sure that you're dealing with ethical sub-suppliers and that your whole supply chain meets spec. I think I've seen in the past, in my long years as an ethics and compliance lawyer, and before that as more of a specialist on FCPA that a lot of times, people don't know who their sub-suppliers are and the first they find out is when there's fraud or potential bribery issue or diversion or a theft of intellectual property. It does give you an opportunity to get a more solid grip on your suppliers and make sure that they are the right people that you're dealing with.
Let's turn from that, which is I think a very good segue to the issue of economic sanctions. There's really been a quantum leap in that area, even it was starting before Russia, I think, with the sanctions on Huawei and the heating up of tension in the US-China relationship, but now it's on a completely different level and that really, I think, has to be top of list for companies when they review their ENC programs. Can you talk about that and give us some guidance?
Tom Fox: Sure. Once again, Susan, let me use the Russian invasion as the exclamation mark because under the Trump administration, we saw an exponential increase in the use of trade and economic sanctions. I had several friends in that space and every once in a while, I'd email them, "Well, we had three changes today. What do you expect this afternoon?" The point being that the prior administration saw those as legitimate and important tools for US national security. That has only increased now on steroids because of the Russian invasion. What the Trump administration's use of those tools did was it elevated the discussion of the trade compliance director in a corporation to the board of director level. It may have elevated them within the compliance function or generally within the C-suite because people now had to call trade compliance and say, "Anything new today?" Well, the sanctions that have come out after the Russian invasion have been all encompassing.
Now, I looked before this podcast, I think we're on our seventh round of sanctions and more to come. That's seven rounds from the United States. That doesn't even count the UK and Western Europe who have equally sanctioned Russia. Many US multinational companies are also subject to UK or EU trade sanction directives. You need to be cognizant of those. But the current trade sanctions that have been levied, and when I say there's still more to come, we haven't gotten to the nuclear option, which is secondary sanctions. If we get to secondary sanctions, that's an entire level of trade and economic sanctions literally that we have not seen since World War II.
Discussion though, around trade sanctions, and once again, I've talked to several of our colleagues who have that as their specific compliance remit and their specialization is they now feel elevated within the corporation. They feel that the issues they've been dealing with, their professional careers are now being discussed literally at the board of directors level because of these huge potential fines and penalties, the huge visibility. As important as these legal restrictions are, Susan, it's actually the reputational damage.
Just think about the companies that either drag their feet about leaving Russia or were slow or less than somebody's idea of we need to be out of there. They were excoriated in the press for doing business in Russia after this invasion. Those conversations have largely on by the wayside because I think most US companies are out of Russia now, but the reputational damage for the violation of trade sanctions or even some sort of norm or standard now costs more than perhaps even the finer penalty would've cost. It's really a huge change for our colleagues. It's an important change because now, those issues are being evaluated together with supply chain at the board level in a way they have not been previously evaluated.
You may now need to look, you need to call your trade director of trade compliance about issues in your supply chain. You need to call your director of trade compliance about where are we doing business? How are we doing business? Who are we doing business with? Who's our customer base? Are we selling with commission sales agents, company employees or distributors? If we're using distributors, are they reselling our products into Iran? Are they reselling our products into a country that's exporting to Russia? All of those issues now, I think, are being discussed at the highest level of a company. But for me, Susan, the real beauty of this discussion is finally, I think, the silos are coming down within a corporation and you're seeing a much more holistic approach to many of these issues that we'd not seen previously.
Once again, if I could go back to the DOJ's June, 2020 update to the Evaluation of Corporate Compliance Programs as presaging all of this, they said in that document compliance must have access to all data silos within a company because compliance needs to know what everyone's doing so compliance can do its job. Well, that turned out to be true, but it turned out to be true much broader. I think the DOJ was onto something when they said that, and I think now, companies are realizing you have to have this holistic approach. Trade sanctions and export control sanctions are here to stay.
The other insight from the Trump administration use of them and the Biden administration use of them is they're administration agnostic. They're not going to go away and if 2024, we have a Republican administration, they are probably going to continue those and they're not going away. If there's a Democratic administration, they're not going away. They're probably going to continue those. Sanctions, trade sanctions, export control sanctions are here to stay. They're probably going to get more robust. And until Russia pulls out of Ukraine, I think companies have to take these very, very seriously, both for a potential legal finer penalty, but even more important is in the commerce or the business place of public opinion.
Susan Divers: I totally agree with everything you've said and you've made a very articulate vision of what a major challenge is for compliance teams. The only thing I would add is, it's interesting to me, that this can affect small and medium-sized companies that don't think in these terms and may not even really be very sophisticated.
When I was looking a couple of months ago, I came across a case involving a false eyelash manufacturer who was importing what turned out to be false eyelashes that sourced in North Korea. I mean, it was a Chinese supplier, but the sub-supplier was North Korean and they got in trouble. As you know, it doesn't really matter if you don't know. That's no defense and they paid a fine for that. It was a good reminder that trade sanctions can affect everyone and that you really, hopefully, have to have that on your radar.
Let's take an interesting topic off of this, which is have the enhanced sanctions started to really impact whistleblowers? I mean, we know that FCPA enforcement has certainly inspired a lot of whistleblowers, as well as SOX and other areas such as that. But what about trade sanctions and what about AML and what we're seeing?
Tom Fox: That's been, I don't want to say it was an unintended consequence, but one of the most interesting outcomes or aspects of the Russian invasion. For the first probably 30 days, the most ubiquitous picture of the Russian invasion was a yacht steaming away because it was a Russian oligarch's yacht and they were trying to steam to a port where the US couldn't come in and forfeit them because of trade sanctions and sanctions put on the Russian oligarchs. But here's what happened. On January 1st of 2021, US Congress overrode President Trump's veto of the National Defense Authorization Act. In that bill, there was something called the AML law of 2020. The AML law of 2020 was the first update to our anti-money laundering laws and trade sanctions laws since the Patriot Act passed in the wake of 911. As part of that change, a bounty program for whistleblowers was put in place similar to the SEC bounty program put in place in Dodd-Frank.
That Department of Treasury money laundering or anti-money laundering bounty program applies to those Russian yachts because if a yacht is seized and sold, the person who reported it can be eligible for up to 30% of the proceeds of that sale. This created an entire cottage industry of marine yacht hunters who knew and they are working with law firms to actively, and when they find one in a port that the US can get jurisdiction over, these law firms notify the DOJ and then the DOJ does whatever they need to do to try to get seizure of that yacht in a foreign country. That was viewed as hugely popular and the American public is cheering them on in a way whistleblowers have never been cheered on in our lifetimes.
I remember I interviewed a woman whose law firm specializes in whistleblowing and I said sort of in an offhand manner, "Are you telling me that whistleblowing is sexy?" Her response is, "You mean, it hasn't always been that way?" No, it hadn't. But now, it was seen as directly in the interest of the United States, particularly our national security for these whistleblowers to come forward. As important as whistleblowing is to the SEC, I don't think it had ever been considered a national security issue.
That ties to what the Department of Treasury has announced publicly that they expect US corporations to be in on the fight of trade and economic sanctions and money laundering by self-reporting. I had had a little trouble tying self-reporting of your own violation to the fight against national security. But what the Treasury Department argued was, come to us, tell us if you find people within your organization violating trade sanctions or economic sanctions and we'll give you credit for that, that may be a declination up to it, including a declination. The DOT has truly tried to incentivize companies to be a part of this fight and that is now the same for whistleblowing.
Whistleblowers are now seen. There's one other document called US Strategy on Combating Corruption, which came out in December, 2021. In that document, the Biden administration pointed to whistleblowers as a component of the fight against bribery and corruption, which that document elevated to national security status. Now, we have whistleblowers who before the Russian invasion, certainly were a part of the legal landscape and part of the compliance landscape, but now they're being told, you are a part of our national security interest and you are a part of our national security fight and if you bring us this information in the form of blowing the whistle, you will be rewarded.
The US public is saying, you go. You go find those yachts. You go find those people who are doing business with those that are not in the national security interest of the United States and we'll support that. That's, in my mind, just a huge psychological change. Susan, I know you have written and said more about whistleblowing and how to treat whistleblowers than about anybody and I know this is something that you've been talking about for a long, long time, but I really see this as a true shift in the way whistleblowers are thought of in the United States.
Susan Divers: Well, I'm glad you brought that point out because I think that's true. Tying it furthermore to the impact of corruption on national security, I think is an idea whose time has come and we're going to do a whole other podcast on that as part of this series so I won't get into it a lot. But the concept of corruption as a victimless crime has been around as long as I've been practicing, which is a long time. It's not a victimless crime. I don't need to convince you. But it basically corrodes good governance, it corrodes social structures, it makes it harder for the poor. I mean, if I can go bribe my way, get a MRI ahead of everybody else in some less developed country, I'm jeopardizing the other people who can't afford that in that country and I'm also corroding ethics and good governance, but it hasn't been seen that way in the past, either by the government really or in the corporate community, and so we'll get into that more in the next podcast.
But that's fascinating to tie the whistleblowing into that and it has the additional benefit of being true, if you will. I have to say, I love the image of the yacht hunters. It's one of the first things I read when I open The Wall Street Journal in the morning to see if there's some oligarch's yacht that's being towed away or whatever, but it's definitely an idea whose time has come.
Tom Fox: For those of you who think our ever new ideas, I think if you look back in history, that was called piracy and or rading by English-
Susan Divers: Letters of marque.
Tom Fox: Yes, exactly. Letters of marque. It's an old concept, but it's equally valid today.
Susan Divers: Well, let's close off this session because we're going to do another podcast and talk more about anti-corruption and sustainability. But one of the things I was curious about is how does all of this tie in to the level of transparency that we're seeing in international trade, in commerce? Our chairman of the board, Dov Seidman, whom I know you know of and know has written a lot in the past about radical transparency and how does that tie in to what we've been talking about?
Tom Fox: Susan, let me go back to 2015 and the Volkswagen emission testing scandal. I read a speech by the head of the German Manufacturer's Council, so the German trade group for manufacturers. In that speech he said, "The answer is compliance and transparency." One, be in compliance, but two, be transparent about it. That is how we, as a German industry, will get through this. Volkswagen has done what they've done. We can't stop that or do anything about that, but we, the rest of German manufacturing, can be in compliance and can be transparent about that compliance. That really struck me at the time and it stuck with me since then.
The transparency, the radical transparency that Dov talks about is even more important in 2022 because of things like the Business Roundtable Statement on the Purpose of a Corporation. How many stakeholders are there now? Previously, there have been only shareholders, but now you have multiple stakeholders. It can be your employees, it can be your third parties. It can be those localities where you do business and that's where that radical transparency is so critical because they may not own shares and they may not be able to vote, but they can vote with their pocketbook. The radical transparency allows you to demonstrate to stakeholders who are going to vote with their pocketbook that we do business ethically and we are in compliance, and that you can and should do business with us because our values are what your values are. That's, to me, the power of radical transparency and it's the ability to demonstrate to those who are not regulators. Because remember, if you're fined for a regulatory violation, that's seen as a below the line sunk cost. Just the cost of doing business.
Tell me how much my fine is and I can reserve for it, whatever it is. What I cannot reserve for is if 5, 10, 25 or 50% of my customer base chooses not to buy my products because I've been found to have violated sanctions or I've been found to have used Uyghur labor in product site sourced out of China, or you name the issue. That's not a bottom line cost. That's a top of the line cost. That's a cost you can never get back because you can't reserve for non-sales. It's a cost you can't anticipate, you can't reserve for, you can't mitigate the risk because once you don't have sales, you don't have sales. To me, that concept of transparency, that concept of doing business ethically, in compliance and that concept of radical transparency all really protects you and allows you as a corporation to say, "This is what we stand for. This is why we're proud to sell a product to you and hopefully, you're proud to buy a product from us."
Susan Divers: Well, you're right and that really tees up the heart of sustainability. Sustainability isn't one giant checklist after another. It's what are we really doing and how are we doing it? What you're also saying too is, and it ties with things Dov said in the past, that we live in an age of radical transparency where anyone can go on Twitter, I guess, if they pay the $8 now or post on Facebook or Instagram or wherever and expose concerns. And with the incredible increase in sanctions and money laundering controls, it's just a further reason, if anyone needed one, why you have to get your house in order and you have to make sure that you are dealing with those risks effectively and of course, walk the walk as well as talk the talk.
We are running out of time, unfortunately, but I'm excited to mention again that we're going to continue this conversation in an upcoming podcast. It's been such a pleasure having you today, and I know we could keep talking for another couple of hours, but we'll have further opportunities in the future.
Tom Fox: I always have way too much fun when you and I sit and chit chat, whether it's over a lunch, a coffee, or a podcast, so thank you, Susan.
Susan Divers: Oh, I feel the same way, Tom. My name is Susan Divers and I want to thank you all for tuning into the Principled Podcast by LRN.
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