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What Major League Baseball Has in Common with the FCPA

on February 24, 2015

Reconciling sales strategy with FCPA compliance seems like a difficult task, particularly in high-risk markets that offer the evil twins of big market and bribery opportunity.  I speculated in a recent post about the Avon FCPA violation about what would change in the industry if FCPA violations are being viewed as simply the cost of doing business. Lucky for me, Richard Bistrong and Alison Taylor take on the same subject in this blog post from the JD Supra Advisor blog.

Mr. Bistrong speaks on this topic from experience.  As an international sales executive, he spent five years as a government witness before spending fourteen and a half months at a US Federal Prison Camp as part of his own plea agreement.  Mr. Bistrong and Ms. Taylor, a managing director at Control Risks, make a good case for ensuring that organizational and strategic issues need to be addressed in the context of corruption risk.  While it is easy to grasp the concept that sales culture and incentives need to complement compliance expectations and requirements, I started thinking about other instances where there is intense competition, where the monetary stakes are high, and where the opportunities for cheating are present and alluring.  I came upon everyone’s favorite pastime: Major League Baseball.

The MLB and FCPA Connection

Professional sports are a great analogy for life in general, but particularly for business. The original “reality TV”, professional sports have become the center of huge slices of global business.  Over 909 million people worldwide watched the 2010 World Cup Final.  Over 112 million people watched the 2014 Super Bowl and 30-second commercial spots for the 2015 Super Bowl went for $4.5 million each.  Sponsors benefit, owners accrue value in their teams, players earn more money as they separate from their peers. In light of all this, competition mounts not only among teams, but also between players for the largest contracts.

There have been several high-profile scandals in all sports including doping in track and field, cycling (Lance Armstrong, anyone?), American football, and baseball, but for me, Major League Baseball (MLB) offers the most useful analogy to FCPA. For years MLB turned a blind eye to the use of steroids and human growth hormones. Why? It was good for business.  Amped up batters hit home runs in record numbers. Excited fans crowded ballparks to see the “long ball”. Borderline players became established stars and the already established stars began accruing records for the ages. The 1994 players’ strike dramatically reduced attendance as long-time fans became disillusioned with greed on the part of players and owners. Increased performance began to increase attendance a time when it was really needed. As a result, owners were happy to see attendance increase without much regard to the possibility that fans returning to see “the long ball” were doing so as a result of rampant abuse of Performance Enhancing Drugs (PEDs). In many ways this was like a company looking at a huge market opportunity in China (as was the case with Avon.)  If we can gain an edge, the consequences will be worth it.

So, what did it take for MLB to address the rampant abuse of PEDs? First, MLB needed to want to address the issue. Fans became disillusioned, Congress decided to “help”, and public sentiment turned such that neither players nor owners could afford to continue to look the other way. Then, MLB had to make progress in two areas, testing for PEDs and punishments for violators of the league’s anti-PED policy. These punishments include fines, loss of salary, and suspensions. When players miss games and lose money, they pay attention.

While there are still violators identified, it appears that the anti-PED policy is having an impact. Home runs are down and there is general agreement that the most skilled players are the ones dominating the sport. In other words, the game is cleaner now than it was in the late 1990s and early 2000s.  But it took market consequences for owners to care and the specter of fines and suspensions for players to care.

Post-Enron and Worldcom, the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have started pursuing more FCPA investigations.  Using the MLB analogy, they started their “detection and investigation” process, but unlike MLB and PEDs, the punishments haven’t deterred everyone. The potential benefits of gaining an unfair market advantage still outweigh the costs of FCPA consequences.  Testing for PEDs was available to MLB teams long before it was used.  Teams could have taken the initiative, within the confines of their agreements with the Major League Baseball Players’ Association (MLBPA), but chose not to take it.

Similarly, businesses have detective solutions available to identify risky behavior relative to the FCPA and have not chosen to implement them. In MLB, it was the “clean” players who led the effort to change their collective bargaining agreement (CBA) to allow PED testing. So far, our customers who have implemented Insights On Demand for FCPA are the “clean” companies. Perhaps like MLB, it will be the ones following the rules that lead the charge in implementing solutions that ensure fair play.

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