By: Michael Volkov
Warren Buffet, the Oracle of Omaha, understands the importance of corporate culture and adhering to a code of ethics. He has been quoted as saying:
“Lose money and I will forgive you. Lose even a shred of reputation and I will be ruthless. … Wealth can always be recreated, but reputation takes a lifetime to build and often only a moment to destroy.”
Buffet’s implicit message is unmistakable – culture, reputation and profitability go hand in hand. The point appears very obvious, yet so many corporate leaders fail to understand this basic, but essential point.
Over the last few years, we have seen glaring examples of poor ethical cultures – Volkswagen, General Motors, VimpelCom, Valeant, just to name a few.
Trust and integrity are the two most important ethical traits in our corporate world. When surveyed, employees, middle managers and executives typically cite these two concepts as important to their overall view of the company, their job and their commitment to compliance with the company’s code of conduct.
Building a company’s reputation and ensuring that trust and integrity exist requires the board, the CEO and senior executives to set the tone and communicate a consistent message. It is easy, with the benefit of hindsight, to list and identify all the problems that led to the results in the above-listed corporate scandals. It is far more difficult to set out a plan to instill an ethical culture and then achieve the end result.
Warren Buffet recognizes the importance of this task. His achievement is even more incredible when you realize that he has purchased many companies through the years and integrated them into the lean operational headquarters of Berkshire Hathaway.
A commitment to culture requires time and attention. When senior executives fail to understand the importance of ethics and compliance or balk at resources needed to carry out this function, a company will suffer. There will always be naysayers in every organization, but when they dictate corporate decisions and actions, there is a real danger of harm to the company.
Researchers have attempted to quantify the reputational value of a company. Sometimes the concept gets wrapped into corporate goodwill, but there is more to measuring the value of corporate trust and integrity than an accounting of goodwill. Goodwill is calculated by taking the company’s market value and subtracting its book value. Another measure has been suggested as subtracting asset value from market value.
During the last 15 years, researchers have estimated that the trust premium for ethical companies ranges from half of stock value to three-quarters of stock value. That may be a little high, but it is conservative to estimate that a company’s reputational value ranges from 20 to 30 percent.
Given these obvious benefits to corporate operations, many board members, CEOs and senior executives find it hard to embrace trust and integrity, as it is difficult to decide how to instill and enhance these concepts. Sometimes the answers to a difficult question can be obvious, and if corporate leaders would just attend to the issue, they would find that practical strategies are readily available and can be adopted with minimal investment and resources.
A return on investment calculation underscores the low-cost, high-return nature of an investment in corporate culture. CCOs have to make corporate culture a top priority. It is not hard to do, but it requires communication, education and commitment.
Michael Volkov is the CEO of The Volkov Law Group LLC, where he provides compliance, internal investigation and white collar defense services. He can be reached at mvolkov@volkovlaw.com. His practice focuses on white collar defense, corporate compliance, internal investigations, and regulatory enforcement matters. He is a former federal prosecutor with almost 30 years of experience in a variety of government positions and private practice.
Michael maintains a well-known blog: Corruption Crime & Compliance which is frequently cited by anti-corruption professionals and professionals in the compliance industry.Michael has extensive experience representing clients on matters involving the Foreign Corrupt Practices Act, the UK Bribery Act, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and regulatory enforcement issues.
Michael has assisted clients with design and implementation of compliance programs to reduce risk and respond to global and US enforcement programs.
Michael has built a strong reputation for his practical and comprehensive compliance strategies.Michael served for more than 17 years as a federal prosecutor in the U.S. Attorney’s Office in the District of Columbia; for 5 years as the Chief Crime and Terrorism Counsel for the Senate Judiciary Committee, and Chief Crime, Terrorism and Homeland Security Counsel for the Senate and House Judiciary Committees; and as a Trial Attorney in the Antitrust Division of the U.S. Department of Justice.
Michael also has extensive trial experience and has been lead attorney in more than 75 jury trials, including some lasting more than six months. His clients have included corporations, officers, directors and professionals in, internal investigations and criminal and civil trials. He has handled a number of high-profile criminal cases involving a wide‐range of issues, including the FCPA and compliance matters, environmental crimes, and antitrust cartel investigations in countries all around the world.
Representative Engagements
- Successfully represented three officers of a multinational company in two separate criminal antitrust investigations involving a criminal antitrust investigation in the District of Columbia and the Southern District of New York.
- Defended pharmaceutical company before the Food and Drug Administration and Senate Finance Committee relating to application for approval of generic drug.
- Conducted internal investigation which exonerated company against allegations of false statements in submissions to the FDA and against improper conduct alleged by Senate Finance Committee.
- Represented company before the US State Department on alleged violations of ITAR which lead to voluntary disclosure and imposition of no civil or criminal penalties.
- Advised several multinational companies on compliance with anti‐corruption laws, and design and implementation of anti‐corruption and anti‐money laundering compliance programs.
- Advised hospitals, pharmaceutical companies and medical device companies on compliance issues relating to Stark law and Anti‐Kickback law and regulations.
- Conducted due diligence investigations for large multinational companies for anti‐corruption compliance of: potential third party agents, joint venture partners and acquisition targets in Europe, Africa, Asia and Latin America.
- Represented individual in white collar fraud case in Alexandria, Virginia and secured dismissal of criminal charges and expungement of criminal record.
- Represented company before Congress and Executive Branch in effort to modify Justice Department regulations concerning use of federal funds.
- Advised and assisted World Bank in review of global corruption policies, enforcement programs and corruption investigations and prosecutions.
