The Metro­politan Corporate Counsel, a publi­cation dedicated to legal issues relevant to corporate lawyers, recently inter­viewed Alfredo Avila, Assistant General Counsel at Monsanto about how they approach FCPA compliance for acquisitions.

Monsanto recently acquired a US-based company with a Turkish subsidiary, and found during the due diligence the sub had made inappro­priate payments to Turkish government officials. In 2005, Monsanto disclosed their own inappro­priate payments made to Indonesian government officials and submitted to a three year monitoring program as a result, and Mr Avila talks about how their prior experience has affected policies going forward, including for this latest acquisition.

On the subject of codes of conduct:

Codes of conduct and compliance policies are important but are only the first step in assessing a compliance program. Monsanto believes that the biggest deterrent against unethical behavior is strong leadership.

I agree that codes of conduct are but the first step in ensuring compliance with the FCPA and other anti-corruption legis­lation. As an internal auditor, you want to assess whether the code of conduct has been read and signed by every relevant employee of the organi­zation, and ensure that the code is complete and addresses issues covered by the FCPA. Typically new employees will receive the code of conduct when they join the company. Keeping the documen­tation to prove that everyone has agreed to the code is critical.

Assessing leadership is a much tougher job for an auditor. You will get a sense throughout your meetings and commu­ni­ca­tions with senior management of their commitment to ethical business practices, and from there form an opinion. Of course if you already know there were past incidents of non-compliance, leadership is called into question and probably requires more substantive audit proce­dures to ensure compliance since the preceding events.

On the topic of embedding compliance into policies:

We had to reevaluate our policies for petty cash, travel and enter­tainment, inventory, delegation of authority and so forth from the perspective of the document trail. It made us formalize some practices into policies and reevaluate policies to make sure we captured enough detail so that an independent third party could find all his inquiries answered within the four corners of a document. That forced us to recon­figure policies and also recon­figure our expense recording so that our documen­tation captured more infor­mation. While this takes a little bit more time on the front end, it answers many more questions on the back end and contributes to creating a trans­parent culture.

Prepa­ration and retention of documen­tation related to expenses is key to proving compliance with the FCPA. Any payments made to government officials, if they’re legit­imate, will have appro­priate evidence. I like the part at the end about creating a trans­parent culture because culture plays a huge role in estab­lishing ethical tradi­tions that can prevent situa­tions like the ones experi­enced by Monsanto and their acquisition.

Read the full interview for more.

The news that KPMG has snapped up the audit of Rentokil Initial from rival PwC brings with it renewed concerns around the indepen­dence of firms providing additional services as well as opining on financial statements.

Under the arrangement KPMG would undertake all the statutory respon­si­bil­ities associated with an external audit, while also ‘delving deeper’ and offering advice on internal audit issues.

Not only that, but the audit will cost 30% less than what PwC was charging. I wonder if the company will end up losing more than they’ve saved if the market punishes them for the perception of having a less independent opinion. The director of the Profes­sional Oversight Board, the UK body respon­sible for monitoring the UK’s ethical standards, declined to state whether the deal would be inves­ti­gated. For their part, KPMG says they are confident they can address the threats to their independence.

Some observers say the arrangement would not be a viable option for companies with a dual listing in the US, owing to strict indepen­dence guide­lines or ‘bright lines’ set down by the Securities and Exchange Commission.

It may not help shave costs during a time of economic diffi­culty, but I firmly believe keeping internal audit service providers separate from external auditors is critical to preserving the indepen­dence required for a financial statement opinion and is just best practice in general. I would’ve thought 7 years after SOX we’d have this down pat.

A recent article on the New York Times about the political costs that Google is facing due to its market dominance, and their strategy to reduce those costs, caught my interest:

Google has begun this public-relations offensive because it is in the midst of a treach­erous rite of passage for powerful technology companies — regulators are intensely scruti­nizing its every move, as they once did with AT&T, I.B.M., Intel and Microsoft. Some analysts say that government opposition, here or in Europe, could pose the biggest threat to Google’s continued success.

Google’s SEC filings make repeated mentions of the high level of compe­tition the company faces in their business. Microsoft and Yahoo are specif­i­cally named as the two biggest competitors, and Google notes that Microsoft has more cash and employees, and both companies have longer relation­ships with advertisers.

I find it inter­esting that Google is taking the strategy of talking about the “formi­dable compe­tition” they face as a risk to their business instead of (or in addition to) the risk posed by increased government regulation as a result of their perceived market dominance.

In the section where they talk about government regulation and the risk it poses to their business, they discuss issues like privacy laws, copyright infringement and even net neutrality. But I couldn’t find mention of the risk presented by regulation due to the perception of unfair competition.

Does your business face political risks like Google and other tech companies?

I received an email late yesterday from the IASB with the following message:

The Inter­na­tional Accounting Standards Board (IASB) issued today an Inter­na­tional Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs), which are estimated to represent more than 95 per cent of all companies. The standard is a result of a five-year devel­opment process with extensive consul­tation of SMEs worldwide.

For non-public companies, the devel­opment of IFRS tailored to their needs is good news. (Get the IFRS for SMEs at the IASB website.) For Canadian non-public companies, move along — there’s nothing for you to see here.

The reason is because despite the full embrace in my country of IFRS for public companies (they’re making the transition as of Jan. 1, 2011), our governing body has decided that for private, we’re going to go it alone. All the good reasons to join the inter­na­tional community when it comes to accounting standards for public companies get thrown out the window when it comes to private. Appar­ently, Canadian private companies are a special beast that no one outside our borders can comprehend, and thus the job of maintaining a separate set of accounting standards is preserved.

The decision to develop a separate set of standards for Canadian private companies is the wrong one, and I hope it won’t be long before the powers that be see it as such. At the very least, the AcSB should allow private Canadian companies to use IFRS for SMEs. (Currently they have the option to implement IFRS when public companies do, but no word on the SME variant.)

What do you think?

Microsoft has the enter­prise market cornered with its Office produc­tivity suite. Skill with Outlook, Excel and Word is pretty much required in the corporate world. As a result, most companies have signif­icant data tied up in the propri­etary binary file formats doc and xls.

This is not to mention all the web-based software designed for Internet Explorer (and usually an obsolete version of IE like 6) which is a similar issue to the vendor lock-in problem. Corpo­ra­tions still overwhelm­ingly use IE6 as their default browser, but the missed oppor­tu­nities related to browsers in industry is a topic for another day.

In Office 2007 Microsoft has made its XML-based formats (docx, xlsx) the default, which was certified as an open standard by Ecma Inter­na­tional in 2006, and then by ISO in late 2008. But did we really need a second open document standard? We already had OpenDoc­ument, which was an ISO standard as far back as 2006.

OpenDoc­ument is now supported in Office Word 2007 SP2, and there are only a few formatting issues noted by me in informal testing. There are issues around the formula handling in Excel, as Microsoft built support on the 1.1 version of the standard instead of the newer 1.2 and thus strips formulas from ODF spread­sheets even if they’ve been created using the Excel add-in. For the time being businesses might be safer using Office Open XML.

Despite this, ODF is the future. Rob Weir puts it succinctly:

With an open standard, like ODF, I own my document. I choose what appli­cation I use to author that document. But when I send that document to you, or post it on my web site, I do so knowing that you have the same right to choose as I had, and you may choose to use a different appli­cation and a different platform than I used. That is the power of ODF.

There is a plugin available from Sun for older versions of Word, including: Microsoft Office 2000, Office XP, Office 2003, Office 2007 (Service Pack 1 or higher) or the equiv­alent stand-alone version of Microsoft Office Word, Excel or PowerPoint.

Govern­ments and educa­tional insti­tu­tions have been making the move to OpenDoc­ument, and it’s time for the private sector to follow suit. Preserving the integrity of data within critical files should be a top priority. OpenOffice.org is a free and open source produc­tivity suite that with its latest 3.0 release has reached a level of maturity appro­priate for business use, and its imple­men­tation of the ODF standard is without the caveats associated with Microsoft’s.

The most important benefit is the freedom to choose how to view and edit your data within documents and spread­sheets. But the cost differ­ential between OpenOffice.org and Microsoft Office should also be a factor. And the history of Microsoft’s unique inter­pre­tation of the term ‘inter­op­er­ability’ should be considered if your business chooses to continue to use closed standards.