Avon Products Bribery Scandal in China

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Presentation transcript:

Avon Products Bribery Scandal in China By Kia Allen & Marie Claire Llareus

Ethical Issue: Bribery Bribery: the offering or taking of something of value to influence persons or gain an unfair advantage Bribery raises moral and political concerns, undermines good governance and economic development, and distorts international competitive conditions. In other countries, bribery is a culturally expected part of doing business and business relationship building. In China, a relationship-based business is highly valued.

Case Study Avon Products Inc. vs. U.S. Securities & Exchange Commission In June 2008, there were bribery allegations in Avon’s China division. An Avon employer paid thousands of dollars to Chinese government officials and third-party consultant agencies in order to obtain governmental permission to conduct door-to-door sales in China. The allegations later extended to Avon’s Brazil, Mexico, Argentina, India, and Japan division. Federal prosecutors found questionable payments dating back to a September 2005 draft internal report.

Timeline 2006 2007 2008 2009 2010 2011 2012 DEC 13- AVON announced it initiated a search for a new chief executive. CEO Andrea Jung announced stepping down and staying on as executive chairman. Timeline At least 4 AVON executives were suspended (in both Asia and U.S.) JUNE- An investigation began regarding allegations of bribery in the China division which extended to other countries (an allegation of improper expenses for items like travel and entertainment on behalf of a Chinese government official. MAY 5- AVON announced firing 4 executives. 2006 2007 2008 2009 2010 2011 2012 FEB 24- AVON filed a report with The Securities and Exchange Commission (SEC) highlighting the event as a corporate risk factor that could cause investor loss. 4th quarter sales of AVON’s China business posted an 8 percent drop in revenue and an operating loss of $3 million. U.S. sales hit $2.62 billion, only to start shrinking in the following years. AVON spent $122.5 million on legal fees and costs related to the investigation since 2009. AVON won a direct selling license and was approved to return to China. OCT- AVON launched an internal investigation into possible foreign Corrupt Practices Act (FCPA) violations in China (appeared to be linked to the payment of improper promotional expense). AVON reports the number of North American “reps” fell 8 percent in 2011 and says it is planning job cuts.

Organizational Chart Avon Products Inc. Andrea Jung (Former CEO; current executive chairman) S.K. Kao (Former China Avon President) Jimmy Beh (Former China CFO) C.Q. Sun (Former head of corporate affairs for China) Ian Rossetter (Former head of global internal audit and security in New York) Charles Cramb (Former Vice Chairman; Chief Finance and Strategy Officer) Avon Products Inc.

Organizational Chart (cont.) Prosecutors U.S. Securities and Exchange Commission (SEC) Federal Bureau of Investigation (FBI) The Southern District of New York’s Complex Frauds Unit in Manhattan

Proposal