Risk Advisory's Non-Executive Director and former CEO, Bill Waite gives his perspective on the past year and reflects on the impact Covid-19 had on our clients’ compliance processes and procedures.
Almost a year ago I was sitting at my kitchen table with a bunch of friends having dinner and discussing whether Covid-19 was just another avian flu or something more sinister. We came to the conclusion that even if it was a problem we would still be able to ski in the Alps by March – 2020. Flash forward to now – in Italy and France, ski resorts have been closed for months. How over-optimistic we had been.
Today, sitting at the same kitchen table in the company of my Flat Coat pup – the only friend I am allowed to be with – I started to reflect on what impact Covid has had on our clients’ compliance processes and procedures and, specifically, whether we had seen any impact on their application of due diligence processes and procedures, either by industry, type or geography. In short, I wondered whether in times of economic crisis, with the accompanying drive to raise cash and reduce costs, compliance would be “parked” and short-term commercial considerations would come to the fore.
Risk Advisory works for more than three hundred multinational corporations in a broad cross-section of sectors across the world, so while not empirically sufficient for an academic, our data set is stronger than mere anecdote and so should help answer the question. That data shows that all our clients continued to engage in due diligence, and there was no change in their application because of either the nature of the transaction or the geography. Whilst there was a material fall in all client activity in quarter 2 of 2020, by quarter 3 activity had resumed and we actually saw an increase in volume in quarters 3 and 4.
The fall and resurgence in activity, I believe, mirrors the escalation of the impact of Covid-19 across the world and the change of working patterns in our clients’ organisations. Perhaps unsurprisingly, the biggest sectorial falls in activity were in oil and gas, oil support services, engineering, energy distribution, mining, hotels and leisure and airlines. There was, however, stable or increased activity from private equity, development banks, aerospace and defence and sovereign wealth funds. Geographically we saw a general fall in activity in all continents save for Asia where activity was broadly stable.
Which leads me on to a second question – whether President Trump’s known antipathy to the Foreign Corrupt Practices Act has had any impact on our clients’ approach to the Act, and to their compliance with it and other similar legislation.
Looking at the same data set – this time over a period of three years – I saw no variation in our clients’ approach to compliance during President Trump’s administration, albeit there were obviously sectorial and geographic variations in volumes of transactions investigated. For my part it’s entirely unsurprising that, in this instance, President Trump’s “tone from the top” had little or no impact on corporate compliance amongst our clients.
First, because there was a broad recognition that President Trump’s administration was one administration and whether it lasted for four or eight years it was highly unlikely that anti-corruption enforcement by the DoJ would be forever taken off the table. Second, because of US influence, there were now a number of effective enforcers in other countries and it was unlikely that they would follow the President’s agenda. Third, from my experience over the last 25 years, anti-corruption compliance has become embedded within our client organisations, not only because of enforcement risk but because stakeholders in corporations – including their leadership – recognise that it’s the right thing to do. Fourth, and perhaps most powerfully, because of the growth of the Environmental, Social and Governance agenda and its impact on the application of capital, of which anti-corruption compliance is surely an integral element.
Whilst President Trump’s ambition remained unfulfilled, however, there always remains the risk that isolated political priorities may derail stakeholders’ commitment to anti-corruption compliance and more broadly ESG.
On 30 December 2020, the EU and China reached an in-principle agreement on investment in their respective markets. The agreement contains “ambitious provisions on sustainable development, including commitments on forced labour”. There is little clarity, though, on how our clients will be able to assess the Chinese Government’s conformity with these commitments, without which such commitments are at best illusory. Clients and asset managers may well be left with the choice of either investing blind or else remaining committed to their core principles.
With that thought I leave my kitchen table to take my Flat Coat not for a post-ski climb in the Alps but for a rainy walk in West London.