Culture shock - Cultural differences can add risk for international companies and their investors


Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

One man’s ‘bribe’ is another man’s ‘corporate gift’ – with the dividing line often coming down to matters of culture, perception and law. what investors need to bear in mind and what various multinational companies – perhaps most notably GlaxoSmithKline – are currently discovering is cultures, perceptions and laws can and do change.

Glaxo has been in the news since Chinese authorities alleged it bribed people to boost its drug sales. the practice of pharmaceutical firms making payments to doctors as a way of encouraging them to prescribe their drugs is hardly unheard-of – in China or indeed plenty of other parts of the world – but such a practice does not sit well with Chinese president Xi Jinping’s ongoing crackdown on corruption.

That different nations have different attitudes to such matters is nothing new and indeed transparency international has for some years published a league table known as the Corruption Perceptions Index. For the record, Denmark, Finland and New Zealand are currently rated “most clean” out of 176 countries, the Uk is equal 17th with Japan and the US is in 19th place.

For its part, China is almost exactly in the middle, in 80th place, while there are no prizes for guessing the identities of some of the countries at the bottom of the table – Somalia, Afghanistan, North Korea, Sudan and so forth. Still, the table contains a few surprises perhaps – not everyone, for example, might expect 50th-placed Rwanda to rank 12 spots above newest European Union member Croatia.

One additional factor that may be weighing on the minds of Glaxo’s senior management is that, by virtue of having its headquarters in the UK and a listing in the US, the company falls under the provisions of two of the toughest pieces of anti-bribery legislation in the world – the UK’s 2010 Bribery Act and the 1977 Foreign Corrupt Practices Act in the US.

Among the penalties for falling foul of the former are an unlimited fine and a maximum of 10 years’ imprisonment – and any person or company with any relationship to the UK may be prosecuted, regardless of where any offence occurred. You may be an Azerbaijani working for a Bahrain company in Chile but if you are subcontracted to a UK business in any way, you fall under the act.

One would expect every multinational business to be on top of all the potential issues and risks that go hand in hand with operating in a variety of jurisdictions with different laws and different ideas of best practice. Equally, investors would do well to remember that, while companies tend to be seen as more secure the bigger they grow, that expansion can in itself bring new risks.


Kevin Murphy

Kevin Murphy

Fund Manager, Equity Value

I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials.  In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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