Voles System's Bribery Accusations in China

This case describes the bribery accusations and subsequent investigation at the Chinese subsidiary of a U.S. public-listed Fortune 500 company, disguised as "Voles System"(hereafter, Voles). The primary purpose of the case is to illustrate the internal corporate governance challenges of developed-market multinational companies (MNCs) operating in emerging markets where the institutional context is significantly different and where under-developed institutions increase the uncertainty and risk of doing business in these markets. This case stands out in the management education field, as it fills a gap where there are very few teaching cases discussing the dark side of international business in an emerging market. After a brief introduction of the company's background (its history, strategy, organizational structure, culture, and corporate governance structure), the case describes a series of two anonymous internal "whistleblower" allegations that the Mainland China business unit (BU) had been bribing Chinese officials to win contracts. In response to these internal reports, the Legal Department conducted two investigations in late 2015 and 2016, respectively, but neither found concrete evidence of bribery, and the allegations could not be substantiated. A third report was subsequently made to the U.S. Department of Justice (DOJ) in April 2017. The DOJ placed Voles under formal investigation. While the investigation found that there was no concrete evidence of bribery of Chinese officials, several managers and staff of Voles's Mainland China BU had established a slush fund and related business entities to "entertain" senior managers of its key customers in China. The DOJ’s investigation came at a great financial cost and hurt the company's reputation in the oil and gas industry. This case ends with multiple questions facing Voles and many MNCs operating in emerging markets: how did Voles fail to prevent such management malfeasance even after implementing industry best practices for corporate governance? What are some short-term measures to address the situation in the Mainland China BU as revealed by DOJ's investigation? What are the long-term measures to implement to prevent such corporate governance failures from happening again in fast-growing emerging markets?