Microsoft President Brad Smith email to employees: There is no room for compromise when it comes to ethical business practices

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Microsoft president Brad Smith sent the following email to all Microsoft employees following announcements by the U.S. Department of Justice and the U.S. Securities and Exchange Commission that they had reached an agreement with Microsoft to settle claims of violations of the Foreign Corrupt Practices Act.

From: Brad Smith

Sent: July 22, 2019

To: Microsoft – All Employees

Subject: There is no room for compromise when it comes to ethical business practices

I’m disappointed to share some news today that I hope we’ll never need to repeat – about the announcement of an agreement with the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to settle claims of violations of the Foreign Corrupt Practices Act, or FCPA.

More specifically, it was announced that our Hungarian subsidiary has entered into a Non Prosecution Agreement, or NPA, with the DOJ and we have agreed to a Cease and Desist Order with the SEC. This follows Microsoft’s cooperation with a multi-year government investigation, reported previously, into potential violations of the FCPA between 2012 and 2015. (An NPA is a public contract between the DOJ and a company in which the company agrees to take certain actions; it does not involve the filing of any charges in court. The SEC Cease and Desist Order similarly is based on an agreement and doesn’t involve a court filing.)

As the DOJ stated today, it has concluded that between 2013 and June 2015 “a senior executive and some other employees at Microsoft Hungary participated in a scheme to inflate margins in the Microsoft sales channel, which were used to fund improper payments under the FCPA.” As the DOJ explained, a Microsoft Hungary executive and other Hungary employees “falsely represented” to Microsoft itself that these discounts were needed. But that doesn’t absolve the company of legal responsibility for what happened. These employees failed to pass to customers the discounts they claimed were needed to close a deal, and instead, the DOJ concluded that “the inflated margins were used to fund improper payments.”

At one level, we should all recognize that this misconduct involved a small number of employees at Microsoft Hungary, all of whom are no longer with the company. We’re fortunate to have in place today a new set of leaders at our Hungarian subsidiary who are committed to the company’s high ethical standards.

But it’s even more important that we take the time to learn from this moment, applying some broader lessons that are even more fundamental:

First, today’s settlements involved employee misconduct that was completely unacceptable. We conducted our own investigation and provided complete information to the DOJ and SEC. In Hungary, where the most concerning conduct took place, we fired four Microsoft Hungary employees over three years ago and terminated relationships with four resellers. Some of the resellers responded by complaining to local regulators in an attempt to restore their business and some of the employees responded by suing us. We’re grateful that local courts and regulators have backed up our decision to cut all ties with individuals and businesses that, in our view, behaved in a wholly unethical manner. We’re also grateful that the agreements with both the DOJ and SEC recognize the extent of our cooperation and the DOJ agreed that we deserved the maximum credit allowable for cooperation in determining a monetary penalty.

We were deeply disappointed and embarrassed when we first learned about these events several years ago, and we hope that all of the steps we’ve since taken, including today’s settlement, send a strong message. As a company, we do not tolerate employees and partners who willfully break policies that go to fundamental issues of business integrity. Ultimately, the world will successfully root corruption out of the global economy only if individuals, businesses, and governments everywhere stand up and deliver the message together that they will not stand for conduct that facilitates corruption. Even if there are days like today when it’s difficult to be on the hot seat and serve as such a messenger, it’s a message the world needs to hear.

Second, we appreciate that strong words need to be backed by effective deeds. The first critical step, taken more than five years ago, was to learn from these issues and identify our own opportunities for improvement, especially in the systems and controls that reduce the risk that even a small number of employees and resellers can evade our policies. We’ve learned a lot from the work leading to today’s announcement and have continued to build on these efforts in a way that’s important for the issues in Hungary, as well as in three other countries described by the SEC today, and more globally as well.

We’ve focused on a process of continuous improvement that has led to a number of changes, including the following:

  • We have created a discount transparency program for public sector sales, ensuring that we require that our channel partners pass discounts on to government customers and that we tell these customers about the discounts provided for their benefit. The goal is to help ensure that the value of the discount isn’t used for improper purposes, which was the major concern in Hungary. We continue to work to improve this process to help ensure that customers gain the benefit of any discounts we provide.
  • We’ve strengthened our anti-corruption program to meet the highest standards for such programs, including ISO 37001, the new Anti-Bribery Management System Standard. An independent organization accredited to conduct reviews under this standard has certified, based on all the work that we’ve done since these issues came to our attention, that our Hungarian subsidiary’s program meets ISO 37001.
  • We’ve increased our capability to prevent potential violations by using machine learning to help identify transactions and automatically flag those that pose heightened compliance risk. We now run billions of dollars of deals in 57 countries through this program and have a team apply additional scrutiny to these transactions. Not only are we committed to improving and expanding this program for our own use, we are offering our technology and know-how to other companies so that they can take advantage of it as well.

We recognize that no business process can offer a perfect guarantee of eliminating all global instances of a human frailty that is as old as humanity itself. That’s why we need strong laws and effective enforcement by agencies such as the DOJ and the SEC in the United States and around the world. And it’s why across the business community we need not only to be vigilant but committed to putting the world’s most advanced technology to work to help fulfill the strong ethical principles that the public rightfully expects us to uphold.

Finally, I want to offer some words to each of you – our more than 140,000 Microsoft employees. Satya and every member of the company’s Senior Leadership Team readily recognize that the overwhelming majority of you are committed to doing business ethically and consistently with our high standards. Today’s announcement is a testament in part to the big problems that can be created by a few people. It took misdeeds by only a few people between 2012 and 2015 to lead to today’s $26 million settlement with two government agencies. That entire amount relates to conduct in Hungary, just one of the more than 120 countries in which we do business.

As a company, we need to keep working on improving the systems that help us prevent bad conduct but we need your help as well.

As all of you know firsthand, over the last several years we’ve focused not only on strengthening our processes, but our employee engagement and training. There’s never a good reason to compromise one’s integrity and we hope and expect that if you see something that seems inconsistent with our policies or our values, you’ll bring it to our attention so that little problems don’t become larger.

Ethical business conduct will always remain a team sport. We’re grateful for the support you’ve provided for this work around the world, and as we go forward, it’s critical that every individual employee come to work in the morning with the appreciation that you’re both our first and last line of defense.

It’s a never-ending job that deserves our focus and attention each and every day.

Thank you.

Brad