To Lead or to Wait: Why Local GMs in High-Risk Markets Must Proactively Take On Compliance

Introduction

"To be or not to be—that is the question:

Whether ’tis nobler in the mind to suffer

The slings and arrows of outrageous fortune,

Or to take arms against a sea of troubles

And by opposing end them."

For local General Managers (GMs) of subsidiaries operating in countries that rank low on the Corruption Perceptions Index (CPI), the choice often feels as complex as Hamlet’s famous question.

Should you endure the uncertainties and risks of managing compliance in these very risky markets, waiting for HQ to issue directives, or do you take proactive steps now to mitigate potential risks and ensure smooth operations?

While the CPI may not be perfect, it is one of the most recognized and consistently published measures of corruption risk globally. A reasonable threshold for identifying "very risky" countries is a CPI score below 50, which signals significant perceived corruption and governance challenges. In such markets, the difference between waiting and acting can determine whether a subsidiary succeeds or is undone by escalating compliance issues.

HQ might provide compliance frameworks, but as the local GM, you are the one who witnesses the complexities of interacting with local officials, navigating regulatory landscapes, and managing local partnerships daily. Proactive action today can prevent compliance issues from escalating into crises that affect your entire company. The choice between proactive leadership and waiting for HQ’s directives can determine whether you effectively manage risks or leave them unchecked, potentially spiraling out of control.

The Most Frequent Reason for Proactive Compliance Investment: Corporate Growth and Local Integration

One of the most frequent triggers for investing in local compliance improvements is corporate growth and expanding operational complexity. As large U.S. companies grow into regions that are inherently high-risk—often indicated by low CPI scores—ensuring that local subsidiaries meet global compliance standards while adapting to regional challenges is crucial. This is especially true across sectors such as energy, finance, telecommunications, and healthcare.

Based on the CPI, countries with scores below 50 are classified as very risky. These scores reflect a significant level of perceived corruption and governance challenges that require a highly proactive compliance approach:

• Americas (AME): Countries like Venezuela and Haiti face widespread government corruption, political instability, and the influence of organized crime. These conditions lead to extremely high compliance risks, with weakened institutions unable to effectively enforce anti-corruption measures.

• Asia Pacific (AP): North Korea and Afghanistan have very limited governance capabilities, lack of transparency, and authoritarian regimes. These factors result in minimal accountability, making it crucial for GMs to ensure compliance in these environments is vigilant and dynamic.

• Europe and Central Asia (ECA): Turkmenistan and Russia face challenges related to post-Soviet governance structures and significant state control over the economy, leading to poor transparency and political influence that raises compliance concerns.

• Middle East and North Africa (MENA): In Syria and Yemen, ongoing conflict has completely degraded public institutions, leading to a breakdown of governance and creating significant risks of corrupt practices.

• Sub-Saharan Africa (SSA): Somalia and South Sudan suffer from extreme poverty, political instability, and non-functioning government institutions, contributing to pervasive corruption and weak regulatory enforcement mechanisms.

• Western Europe and European Union (WE/EU): Even in countries like Bulgaria and Hungary, issues such as political interference in the judiciary and public sector corruption create significant challenges to the rule of law and compliance enforcement.

These countries, characterized by weakened institutions, political instability, or entrenched authoritarian regimes, demand more frequent, stringent monitoring, assessments, and audits to mitigate evolving compliance risks. Waiting for HQ’s instructions can leave subsidiaries vulnerable to risks that evolve faster than directives from corporate.

Why GMs Shouldn’t Wait for HQ: Key Reasons for Proactive Compliance Assessments

1. Corporate Expansion Needs Local Tailoring—HQ Can't Always Provide That Context

When corporate HQ expands into new regions like Latin America, the Middle East, or Southeast Asia, compliance frameworks designed for less risky countries like the U.S. or Switzerland may not apply effectively. Compliance in very risky markets isn’t just about adhering to a set of rules; it’s about adapting those rules to function effectively in local conditions.

Countries with CPI scores below 50 often face inconsistent enforcement and frequently changing regulations, which may not align with the compliance practices of less risky environments. In Switzerland, compliance is a well-defined process embedded into the business culture, while in the U.S., enforcement is strict, aiming to deter misconduct through penalties. In contrast, countries like Venezuela or Russia present unpredictable regulatory landscapes, requiring agile and locally-adapted compliance strategies.

Local GMs must recognize these differences and proactively adjust compliance measures to suit these contexts. Engaging an experienced compliance consultant with expertise in high-risk regions ensures that compliance practices are not only globally sound but also practically effective on a local level.

2. Anticipating Integration Issues—Why Local Expertise is Key

Corporate expansion into very risky countries often overlooks the subtleties of local integration—such as managing distributor relationships, navigating government interactions, and ensuring compliance with local promotional practices. This is true across many industries—whether in the energy sector dealing with state regulators, in telecommunications negotiating licenses, or in healthcare managing interactions with healthcare professionals.

A proactive compliance assessment conducted by an external consultant familiar with the regional challenges helps identify these high-risk areas before they escalate. For example, in countries with low CPI scores, interactions with local officials and third-party vendors can be vulnerable to compliance breaches. A consultant with both global and local experience can help design processes that are culturally sensitive and legally compliant.

3. Cost-Effective, Timely Solutions Before Problems Escalate

Waiting for HQ to act reactively after a problem arises can be immensely costly. Consider the costs incurred once an investigation is initiated or a whistleblower report comes to light—legal expenses, regulatory penalties, operational disruptions, and damage to the company’s reputation globally are all consequences that could have been mitigated.

In contrast, hiring a compliance consultant experienced in managing compliance in very risky environments, such as parts of Latin America, Central Asia, or the Middle East, is a fraction of the potential fallout. Early compliance assessments help identify risks before they escalate, turning potential crises into manageable corrections.

4. Building a Strong Compliance Culture Locally—Learning from the Past

Consider the case of Teva Pharmaceuticals in Mexico. In 2016, Teva faced significant compliance issues that resulted in a $519 million settlement following bribery charges related to local subsidiary operations. This incident sent shock waves throughout the organization, requiring extensive changes not only in Mexico but also across all global subsidiaries, impacting the entire corporate reputation.

For GMs operating in very risky countries, this example emphasizes the necessity for more frequent monitoring, assessments, and audits. Compliance failures at the local level can have serious repercussions for the entire corporation. Proactive assessments tailored to local challenges can help prevent such issues from ever becoming a crisis.

More Frequent Monitoring, Assessments, and Audits in Very Risky Environments

In countries scoring below 50 on the CPI, compliance monitoring, assessments, and audits must be more frequent and rigorously enforced. Given the volatile regulatory environments and heightened compliance risks, periodic verification of compliance programs is critical to ensuring adherence to anti-corruption standards. Evolving risks in such countries demand proactive and ongoing oversight, much more than in regions with stronger governance structures.

Conclusion: To Lead or to Wait

"As yourself, is it nobler to wait for the crisis, or to take arms against the potential troubles now?" Just as Hamlet struggled with the choice between action and inaction, GMs in very risky markets face a similar decision regarding compliance. Should you endure the uncertainty and wait for corporate HQ to act reactively, or should you take the lead to proactively manage compliance risks before they become unmanageable?

The costs of waiting are significant: regulatory fines, operational disruptions, and reputational damage that can reverberate across the entire corporation. In contrast, proactive compliance assessments, frequent monitoring, and rigorous audits led by experienced consultants represent a vital investment in stability and growth.

The choice is clear: take proactive action now to prevent compliance issues from becoming crises. Lead with proactive compliance to avoid becoming reactive in the face of inevitable challenges, ensuring that your operations are resilient in even the most challenging environments.

Ready to Talk Compliance?If you’re ready to ensure your subsidiary stays ahead of the curve and aligns seamlessly with both local and corporate standards, reach out. A targeted compliance assessment could be the most proactive move you make this year.

To learn more about my expertise, please visit:

www.kruk.ch/general-8

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