In October 2018, the International Forum on Business Ethical Conduct (IFBEC) published the Model Business Courtesies and Hospitality Guidelines (Guidelines). IFBEC is a nonprofit organization created by and composed of aerospace and defense (A&D) companies with the goal of promoting and developing global, industry-wide ethical standards for their industry. The Guidelines establish general principles for A&D companies with the goal of creating common understanding and agreement on acceptable practices related to provision of business courtesies and hospitalities.
The Guidelines set forth the "4R Rule":
- Comply with the Regulations. Only offer business courtesies and hospitality that are compliant with applicable law and the internal policy of the receiving organization.
- Be Reasonable. Courtesies that may be viewed as extravagant or call their appropriateness into question should be avoided altogether.
- Be Responsible. When a specific or unique situation arises, IFBEC members are expected to use common sense, experience, and professionalism in evaluating whether a business courtesy or hospitality should be offered or accepted.
- Keep Records. Business courtesies and hospitality must be offered transparently and documented.
The Guidelines can be found here. IFBEC made it clear that the guidelines are meant to complement individual company standards regarding ethics, with companies providing further clarification in their own documents. While model guidelines play an important role of setting uniform principles for acceptable industry practices, we believe that regulators would want companies to provide more specific rules.
Business courtesies play an important role in building relationships with business partners and customers. They can be useful for promotional and potential educational activities and for maintaining healthy business relationships, but they also present potential corruption risk. Companies must ensure that business courtesies are extended in compliance with applicable law and company internal rules and procedures.
In order to minimize the corruption risk associated with business courtesies, companies must have rules for providing hospitality and courtesies to government officials. It is also advisable to have rules for business courtesies and hospitalities for commercial relations. Such rules should explain what company employees can and cannot do. Most companies have rules that prohibit cash gifts and payments, impose frequency limits on hospitality for government officials, require that all hospitality have a legitimate business purpose and cannot be provided in order to obtain an improper advantage. The rules can also set forth general monetary limits for certain hospitalities, including meals, gifts and entertainment, and provide guidance on the provision of lodging, transportation and other gratuities.
When establishing internal rules, companies often struggle with striking the right balance between corruption risk and promotion of business objectives. A third relevant factor in this calculation is often related to the allocation of internal and external resources and the need to properly oversee and record business courtesies and hospitalities. The task of managing these competing priorities is particularly challenging for companies operating in multiple countries. These companies have to deal with different legal regimes in countries with varying cost of living, corruption risk, political conditions, and local practices and traditions. How this tension is resolved varies from company to company.
In our experience, companies fall into two broad groups. The first group consists of companies that have general rules and chose one standard monetary limit for business courtesies and hospitalities that applies globally. To accommodate multiple countries, such monetary limit tends to be low. Any courtesies and hospitalities exceeding the limit would require an approval. There are certain advantages to this approach. In particular, it is simple in application and administration and does not require investment in country specific guidelines. However, this approach may be perceived to be less business friendly because it imposes one limit without regard to local conditions. In particular, a business dinner in London would likely be more expensive than a business dinner in Hanoi. However, the applicable monetary limit would be the same. In reality, such approach may result in too many requests for exceptions or employees ignoring the rules.
The second group of companies develop country-specific guidelines that establish country-specific monetary limits based on local legislation and other factors. The main advantage of this approach is a tailored treatment of hospitalities in different countries based on local law and conditions.