Bribery Act – behold a beam

The UK Bribery Act 2010 finally came into force last week, against a backdrop of industry angst – here in the UK. Everyone feels pretty comfortable to condemn the nefarious activities of nameless international sports federations, but – what the hell is this going to do to hospitality?

We’re not interested in re-hashing the various tropes about how the new regulation is going to change the face of sponsorship in the UK – needless to say the impact on sponsors is greatly exaggerated.

To start, for B2C brands the Bribery Act is largely irrelevant – you’re free to bribe your consumer in any way you like, from daily rewards to once in a lifetime experiences. Your only challenge here is: is this a cost-effective marketing communication? Or: are these rewards genuinely going to support customer retention? The same goes for any business carried out solely with private individuals – such as Private Banking.

And for major international B2B brands the Act should bring nothing new. Disclosure and compliance requirements* in the US, Germany, and Switzerland have been around for years; yet businesses such as IBM continue to invest heavily in hospitality and have generally found a way to accommodate themselves to the contours of relevant local legislation. So if as an international sponsor you’re actually doing anything that contravenes the UK Act, you should know better by now.

Of course, the sponsorship industry to a large extent is an innocent bystander in legislation intended to operate at a much higher level, prompted as it was by the then Government’s response to the revelations that BAE Systems had paid more than $2 billion in bribes to Saudi Arabia’s national security chief and longtime Ambassador in Washington, Prince Bandar bin-Sultan..

From our reading of the legislation however, there’s at least one other bystander also affected, and this one, currently, is huddling in the crowd, and passed over in ESA’s current Guidance Notes for ESA Members.

That bystander is the sponsorship agency.

One of Redmandarin’s founding premises was to create an alternative to the model which allows agencies to recommend a property to a brand and receive a kickback from a rightsholder. We’ve long thought this practice not in the best interests of sponsors and ethically highly dubious. The framers of the Bribery Act appear to agree. It’s always been an unethical practice – but now it may just land you in a UK court.

The Act – and the agent

In layman’s terms, a breach of the UK Bribery Act is defined by four key concepts. Firstly, are sponsorship agencies in a position of trust and under obligation to act in good faith towards their clients? Secondly, is there a financial incentive to act improperly in the servicing of their clients? Thirdly, in the opinion of a reasonable person in the UK, are R’s actions improper? And fourthly, is there an intention, in the giving (and receiving) of a reward, to encourage improper action?

Sections One & Two of the Act concern offences relating to bribery and the act of being bribed; and detail the specific case ‘where R (let’s insert for the sake of example – a sponsorship agency) requests, agrees to receive or accepts a financial or other advantage as a reward for the improper performance of a relevant function or activity’.

Using the agency example, would a reasonable person in the UK expect the agency to act in good faith and to carry out its business relationship with its client impartially? We think so.

Would a reasonable person in the UK consider an agency engaged by a sponsor to advise on the appropriateness of a number of sponsorship opportunities to have been placed in a position of trust? We think so.

On that basis, and your client is paying you to provide strategy or advice on sponsorship investment, and you are receiving a commission from a rightsholder, can you demonstrate that the advice you give is not influenced by the commission you stand to receive? If the commission has not been disclosed to the client , we think you’ll have a job.

Both our lay interpretation of the Act and the legal soundings we have taken call out some fresh implications for the UK sponsorship industry.

Firstly, agencies which offer consulting as well as activation need to think carefully about their position and revisit either their business models or their operating policies: if consulting is a paid-for offering, the agency would be well advised to ensure that no commission arrangements are made; if consulting is not charged separately but rolled into activation fees, the agency needs to declare relevant commercial relationship with rightsholders. The good news: if you’re recommending a sponsorship as part of a pitch or tendering process, you’re absolutely in the clear.

Secondly, as a rightsholder, if you offer sales commissions, you’re advised to request your sales agents to confirm in writing that they’ve disclosed the nature and extent of their commercial relationship with you to the buyer: this will provide an audit trail and support the defence that argues no intention to bribe.

Thirdly, as a brand, you’re advised to introduce mandatory disclosure into agency contracts and procurement criteria.  In this example, no liability falls on you under the Act, but in terms of supply chain management and procurement best practice, it’s a no brainer.

In following these steps, you will be reducing the risks of anything later being challenged under the Bribery Act.