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Cyber-attack on Sony follows leaks by the Guardians of Peace about SEC Bribery Investigation

From the Golden Globes to Foreign Bribery: Sony Pictures Embarrassed Again

No one was surprised last Sunday night when the hosts of the Golden Globe Awards, Amy Poehler and Tina Fey, took a swipe at Sony Pictures for the tasteless comments made by some executives that were released after a cyber-attack incident related to the release of the controversial movie, The Interview. Fey kicked off the show by calling the room of celebrities "minimally talented spoiled brats," referencing one of the leaked emails between Sony co-chairwoman Amy Pascal and producer Scott Rudin.

That was just the beginning of the mocking of Sony and the movie. Fey then said, "Tonight we celebrate all the great television shows that we know and love along with all the movies North Korea was okay with. That’s right," continued Poehler. "The biggest story in Hollywood this year was when North Korea threatened an attack if Sony Pictures released ‘The Interview,’ forcing us all to pretend we wanted to see it. North Korea referred to ‘The Interview’ as absolutely intolerable and a wanton act of terror," added Fey. "Even more amazing, not the worst review the movie got."

These comments were made in good fun, although Sony may not have appreciated them. But now comes the real serious stuff. Last month files leaked and published online by the Guardians of Peace hackers revealed that Sony had received an email from the U.S. Securities and Exchange Commission that the Commission was looking into a tip from an anonymous source that Sony Pictures contractor Digital Marketing Group (DMG) had used “special influence” to get the film Resident Evil 4 into China. DMG has worked with Sony over the years to maneuver around China’s quota for incoming movies and censorship systems to get its films released in the country.

The investigation of Sony by the SEC revolves around possible violations of the Foreign Corrupt Practices Act by bribing officials in China to secure release of the film. Bribing foreign government officials to gain business is prohibited under the Act, although so-called “facilitating payments,” or grease payments are permitted. The latter can be made to induce an official to carry out responsibilities they ordinarily would do anyway as part of their job description, but they require such payments when a foreign company is involved.

After issuing the subpoena, the SEC told Sony it had learned that Li Chow, the general manager of Sony’s Beijing office, sent a 2011 email revealing that DMG used "special influence" to get the film into theaters. Documents show that Sony was preparing a response to the SEC about its strategy for the film, which grossed $296 million worldwide, including $21.6 million in China. Of course, Sony denies the charges and says no such email could be found. What would you expect the company to say?

As I did my research for this blog I found that, according to an article posted by Forbes, some anomalies were uncovered when Sony looked into DMG’s budget, according to emails from the film’s lawyers. In particular, a significant sum was spent on “red pockets,” which often contain a “physical gift for an occasion such as Mother’s day or in connection with advertising to refer to a promotional item that may or may not have a cash component,” according to the draft responses to the SEC.

Sony feigned ignorance saying that is wasn’t sure what specifically these red pockets referred to. It said they may have been an internal reference to administrative fees charged by the Chinese government for the cost of importing foreign films. Sony’s lawyers were “unaware that any funds were used to give cash gifts to Chinese government officials as a quid pro quo for film importation or any other improper purpose,” adding that use of the term “red pockets” in an internal budget line item did not show that such gifts were ever made, “let alone identify any officials who may have been recipients, the purpose of payment, or the amounts.”

I could go on with the details but you can read more about it through the link to the Forbes article. Instead, I want to comment on the culture at Sony. Corporate culture is the key to establishing an ethical organization environment. Sony has demonstrated a disregard for ethical behavior through the emails leaked containing the tasteless internal communication referred to earlier on, and the apparent unethical, if not illegal payments, to foreign officials to gain distribution rights for Resident Evil 4.

Sony purports to have a compliance monitoring program to ensure global adherence to the Company's Code of Conduct, internal policies, and training and other protocols. The program relies on risk assessments, self-assessments, compliance audits and internal audits, along with monitoring of hotline and other reporting. The purpose of such a program is to identify red flags that indicate possible problems with internal controls and compliance with regulations. Obviously the company’s compliance program is not working.

Ethics is all about what we do when no one is looking. Sony executives undoubtedly did not expect the emails criticizing some in Hollywood to ever see the light of day. Their actions were disrespectful of the talent it hires, irresponsible in making such statements in internal communications, and exhibits a lack of integrity.

As for the alleged foreign bribery payments, assuming the charges are valid, which I do, then Sony has allowed its purported cultural values that do not sanction such payments to be corrupted by what may be a lesser standard in China. The old adage is “When in Rome, do as the Romans do.” Well, if every movie company made bribes to get its pictures released because such payments are required to do business in a foreign country, then distribution rights may come down to a bidding war where one company is played off against another.

Neither an individual nor a company should pick and choose when to follow ethical standards. Ethics is not a spigot that can be turned on or off whenever desired. Ethical behavior requires a consistent application of ethical values such as honesty, trustworthiness, integrity, respect, responsibility, and so on. Sony appears to have failed on many fronts and, I believe, will be the target of additional leaks of embarrassing emails and other communications in the future that bring into question whether it acted legally. The jury is already in on whether it is an ethical company.

Blog posted by Dr. Steven Mintz, aka Ethics Sage, on January 14, 2015. Professor Mintz teaches in the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.ethicssage.com.

 

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