CLP has found that the practice of discussing frequently asked ques- tions in the course of training sessions provides useful information on
troublesome problems that the company confronts. The compliance statement that every employee above a certain level must sign is a sec- ond source of information. Managers are asked to certify that their area is in compliance. If the necessary compliance level has not been achieved, the manager must state what the problem is or was and whether it has been or is being fixed.
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LG Electronics (LGE) is a Korean company whose products and services include digital displays, appliances, media systems, handsets, and net- works. Each of its component enterprises is managed autonomously. LGE has more than 70 subsidiaries in 40 countries. In 2000 more than two- thirds of its US$13 billion in sales revenues came from exports. China took nearly a fifth of these exports, and the rest of Asia accounted for roughly one-fourth.
Corporate Code of Ethics
LGE’s anticorruption policies and practices have evolved from the com- pany’s Code of Ethics, the fundamental purpose of which is to ensure fair competition. In 1993, looking ahead to 2000, top management saw that commitment to “free and fair competition” was critical to establishing and maintaining credibility in global business and that attention to cor- porate ethics and to building a culture of transparency must be a key ele- ment of the company’s business plan. “Without fair transactions, we cannot be an excellent company,” the leadership group argued.
The main obstacle to achieving these “fair transactions” was a pattern of exploitative supplier relations. Employees in procurement departments were asking for gratuities from suppliers. Sometimes they did not have to ask—they were offered gifts. Abuses in other areas were common, if less egregious: they included discrimination and favoritism in human resource decisions and occasional theft, embezzlement, and improper use of proprietary information by employees.
The Ethics Code was drafted by a committee consisting of the chief executive officer (CEO) and seven or eight business managers, supported by the Internal Audit Department. For benchmarks, the authors looked at best-practice companies in similar industries (for example, General Electric) and at high-profile examples such as the Singapore Government Law.
Bribery was an implicit code violation from the start, since it contra- vened the company’s commitment to “free and fair competition.” But
LGE introduced explicit anticorruption policies and practices into the code in 1998, when Korea adopted new legislation against bribery to con- form to the OECD Anti-Bribery Convention. The code now provides that:
Employees should comply with the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions, a Korean law that prohibits any direct or indirect promising, giving or offering bribes to a for- eign public official in relation to his/her official business in order to obtain improper advantage in the conduct of international business transactions.
Significantly, the company put this language into the Fair Competition section of the code. The company’s leadership believes that the most seri- ous consequence of bribery is that it results in an unfair competitive process and damages the company’s reputation with competitors, con- sumers, and the public for fairness in its business practices.
Implementation System
Notable elements of LGE’s implementation system are communications and training, and written acceptance of the code by employees.
Communications and Training
All employees hired in Korea, regardless of where they are posted, receive copies of the code. Code orientation is part of the training curriculum for all new employees. The training includes discussions of problems that the company and its representatives typically encounter. As in some other East Asian companies, such as Matsushita and Shell, these dilemmas are sometimes presented in cartoon format. Certain frontline employees—
salesmen, and service and procurement employees—take part in these exercises at least twice a year.
Employee Certification
Every year, each employee must sign a “pledge of action” reading, “I pledge my strongest support to the Code of Ethics and the Practice Guideline for the Code of Ethics of LG and affix my signature to that effect.”
Warning Procedures
The ethics program is monitored regularly for compliance. The com- pany’s Internal Audit Department makes periodic checks of employee
compliance and retains consulting companies for formal reviews of sup- plier practices.
Procedures for obtaining advice or reporting questionable conduct are set forth in the code. Section 2, clause 2, instructs employees to discuss questions of code interpretation with an “executive” (most likely, the per- son to whom the individual reports). If the executive is not helpful, the code allows the employee to refer the case to the formal ethics committee head of the particular unit (usually, the head of Human Resources). If there is no resolution at this point, the case could go to the Administrative Office of the Ethics Committee, that is, LGE’s Internal Audit Department.
The company recognizes the limits of its formal procedures, and it maintains a Website and telephone number for anonymous complaints.
The senior auditor interviewed said, however, that thus far he was unaware of any specific inquiries or reports regarding the bribery of pub- lic officials. It is possible but unlikely that employees have called the CEO directly to report irregularities because in that event the CEO would prob- ably have asked the Internal Audit Department to investigate such com- plaints.