Bloomberg Whiffs, Part 2

I wrote here and here about Bloomberg Markets’ hit piece on Koch Industries. Yesterday’s post focused on Bloomberg’s false claim that a European Koch subsidiary illegally sold products in Iran. This post will deal with the second major theme of Bloomberg’s article, an incident in 2008 in which Koch learned that a French subsidiary had made improper payments to officials and others in support of sales. Bloomberg begins its piece with this story:

In May 2008, a unit of Koch Industries Inc., one of the world’s largest privately held companies, sent Ludmila Egorova-Farines, its newly hired compliance officer and ethics manager, to investigate the management of a subsidiary in Arles in southern France. In less than a week, she discovered that the company had paid bribes to win contracts. …

She immediately notified her supervisors in the U.S. A week later, Wichita, Kansas-based Koch Industries dispatched an investigative team to look into her findings, Bloomberg Markets magazine reports in its November issue. By September of that year, the researchers had found evidence of improper payments to secure contracts in six countries dating back to 2002, authorized by the business director of the company’s Koch-Glitsch affiliate in France. …

Egorova-Farines wasn’t rewarded for bringing the illicit payments to the company’s attention. Her superiors removed her from the inquiry in August 2008 and fired her in June 2009, calling her incompetent, even after Koch’s investigators substantiated her findings. She sued Koch-Glitsch in France for wrongful termination.

Bloomberg then moves on to other topics, leaving the clear implication that Koch wrongly fired Egorova-Farines in retaliation for her reporting the improper payments, and that she has asserted a meritorious claim for wrongful termination. Pages later, the reader gets at least an inkling of the truth: Egorova-Farines lost her case because she was properly terminated for incompetence and for inability to fulfill the duties of her job. Bloomberg is well aware of this result, and grudgingly acknowledges that “[t]he court ruled against her on February 11.” However, Bloomberg tries to create the impression that this ruling was somehow uninformed and is likely to be overturned on appeal:

Neither Egorova-Farines nor the labor court knew at the time that Koch had cited the company’s six-year pattern of improper payments in its termination letter to Mausen, she says.

This statement makes no sense. As the employment tribunal recognized, Egorova-Farines’ termination had nothing to do with the fact that Mausen approved improper payments. That fact was a given; the decision recites:

Mrs. EGOROVA-FARINES uncovered that the management of the Replacement department of KGF paid kick-backs to clients so as to win contracts in different European and African countries. … Mrs. EGOROVA-FARINES immediately informed KCTG’s management in the United States who sent right-away an on-site investigation team on 4 June 2008.

Bloomberg carefully avoids quoting the court’s findings which explained why it dismissed Egorova-Farines’ claims and ordered her to pay the Koch subsidiary’s costs:

* Mrs. Egorova-Farines had a “preexisting depressive condition”;
* “Whereas Mrs. EGOROVA-FARINES pretended she was able to handle investigation and work as part of a team, the Company progressively detected recurring professional shortcomings in her performance”;
* Mrs. Egorova-Farines “then conducted a parallel investigation but did not inform the rest of the team”;
* She “talked to and wrote to Leon Mausen but did not inform the rest of the team”;
* “Mrs. EGOROVA-FARINES’s attempt to impose her viewpoint defied the rules that are really elementary”;
* “Mrs. EGOROVA-FARINES pretended she had given the Company all these elements”;
* “Mrs. EGOROVA-FARINES finally confessed for the first time that she had no experience in the compliance field,” even though “In her resume, Mrs. EGOROVA-FARINES prided on having experience in this field”;
* Despite all of the above, the Koch subsidiary “then decides to give Mrs. EGOROVA-FARINES a second chance.”

* “The Company then discovers that Mrs. EGOROVA-FARINES again violates all confidentiality principles in the compliance field, when she includes in her presentation case-studies that are totally inappropriate”;
* Nevertheless, “the Company…decides to offer her to adapt her position, and to give her a third chance.”

* “The list of grievances attached to the offer is extremely clear, and Mrs. EVOROVA-FARINES has never contested it. It focuses on her serious deficiencies, her lack of teamwork skills, her refusal to accept other viewpoints than hers, her irrational attitude, her lack of transparency, her tendency to systematically retain documents and her disrespectful behavior towards colleagues”;
* “[F]rom December 8, 2008, Mrs. EGOROVA-FARINES was receiving e-mails notifying her that deadlines for mandatory training had been missed”;
* And finally, her preexisting psychiatric disorder disabled her from attempting to carry out her job duties: “As from September 2008 the deterioration of Mrs. EGOROVA-FARINES’ health conducted her to regularly consult with her physician, Dr. Chocron, and a psychiatrist, Dr. Penso, and to undergo tranquilizing and antidepressant drug therapy. These treatments did not stop the deterioration of Mrs. EGOROVA-FARINES’ health, who was sent to the hospital for 2 months, from February 17 to April 17, at the Bellevue Private Clinic.”

So the Koch subsidiary’s termination of Mrs. Egorova-Farines was held to be amply justified. But Bloomberg didn’t want you to know any of that. Bloomberg, motivated by political animus against the Koch brothers, wanted you to get the impression that she was a heroic whistle-blower who was fired for lifting the lid on another employee’s improper payments. This is the sort of dishonesty that pervades the entire hit piece.

What of the substance of the claim, that Leon Mausen and others made improper payments on behalf of Koch-Glitsch France Sarl? It is true, as established by Koch’s own investigation–the findings of which, somewhat ironically, Bloomberg quotes. As a result, Koch promptly fired those responsible. Under Europe’s pro-employee labor regime, the employer had to pay severance even though the trial court held that Mausen was terminated for “a real and serious cause,” because the termination did not take place within 60 days of when the employer first learned of Mauser’s offenses. But so what? No scandal there.

As I wrote here, it is a regrettable fact that in much of the world, bribes and kickbacks are common. Such practices disadvantage American companies, and American businesses and the U.S. government have been fighting them for many years. Still, employees of foreign subsidiaries sometimes succumb to temptation, in violation of even the strongest company policies, like Koch Industries’. As I noted in the linked post, between 2008 and mid-2010, the SEC and Department of Justice brought 109 Federal Corrupt Practices Act enforcement actions, and those represent only the tip of the iceberg. I pointed out that G.E. is just one of hundreds of American companies that have had the same experience as Koch: learning that employees of a foreign subsidiary have made improper payments in support of sales.

So why the lurid headlines and the exclusive focus on Koch Industries? Is there anything other than political bias that explains why Bloomberg headlines “The Secret Sins of Koch Industries?” I think we all know the answer to that question.

In connection with my two prior posts, I have sent emails to Jonathan Neumann, who edited the Koch article for Bloomberg, informing him that I am looking into Bloomberg’s journalistic practices and ethics, and asking him a series of 14 questions. I have now sent Mr. Neumann a third email, adding these questions:

15) Did you edit Bloomberg’s article on Koch Industries so as to create the impression that Koch’s French subsidiary terminated Ludmila Egorova-Farines in retaliation for her reporting of improper payments authorized by Leon Mausen? If so, why?

16) Do you have some criticism of Koch’s handling of the Mausen matter? If so, what is it?

Mr. Neumann’s email address is [email protected] I would encourage you, if you have a moment, to send him a politely-worded email asking him to answer my questions about Bloomberg’s ethics and journalistic practices.

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