You are the director of international operations for a leading clothing designer

Question

You are the director of international operations for a leading clothing designer based in New York. Your firm recently formed a 50/50 joint venture with a top Latin American manufacturer. On a recent trip to the joint venture’s factory in Latin America, you uncovered discrepancies between the financial results sent to the U.S. parent company and those sent to the local parent firm. Further investigation has convinced you that the local venture’s top management is keeping two sets of accounting records to facilitate the diversion of funds to personal bank accounts. This scenario is not surprising to you, however, because it is rather common in the local country. What do you do? Do you confront your local joint venture partner directly or find another solution? Might you devise a policy that encourages the local partner to be honest in its financial reporting? If so, how do you go about doing this?

Explanation / Answer

As the director of international operations, I would immediately call for a meeting with both the parent companies involved in the joint venture. Confronting the local joint venture directly is the best solution to solve this issue. This is because as an individual, if I do not reveal this fraudulent activity to the parent company in New York, then these activities would not be stopped. Also, on my personal part, my moral ethics is that I have to reveal the financial frauds to my parent company. Once the meeting has been arranged between the two parent companies, a policy that would be drafted in such a way that there is no room for misinterpreting the financial reporting. The financial misrepresentation is an act of ethical code of conduct. The conflict resolution process should include relevant facts, relevant parties, ethical issues such as breach of ethical conduct, fundamental principles related to the misrepresentation of facts, established internal procedures and remedies to the issue.

Upon investigation, the financial reporting handled by the Latin America parent company had two sets of financial reporting. Since they had ownership in dealing with the financial reporting without the supervision of the other parent company, there were chances of misrepresenting the facts. In order to avoid this, a common financial analyst needs to be appointed by the company to analyze and record the financial reports for both the companies. This would avoid any mishandling of financial reporting. The financial analyst is a common man between the two joint venture companies. The professional accountant would exhibit the qualities such as integrity, objectivity, professional competence, confidentiality and professional behavior.

Another alternative to resolve this conflict is to reestablish the internal procedures. For example, new policies can be in place such as ‘any revelation of misconduct of the business ethics would be seriously dealt with.’

Also, encouraging the local partner to adhere to the business ethics and the code of conduct is prime factor in the conflict resolution process.

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