Case Study ECA 21/003

Ethics & Compliance Academy

XiroKo Holding is a French group of companies operating three factories in Eastern Europe — a 800-employees facility in Bulgaria specialized in fashion and jewellery products, a 600-employees integrated production platform in Romania and a 1.800-employees similar production platform in Serbia — and a huge distribution chain with high-end stores throughout Europe and Russia. The corporate group holds several luxury brands and has a € 2.3 billion annual profit, with a +1.5% median annual increase in the last 7 years.

In 2007, when Bulgaria and Romania became members of the European Union, XiroKo moved and expanded 60% of its production units from France and Belgium to those two Eastern European countries. XiroKo was accused by many public figures and politicians of not being interested in the welfare of its employees and following profit by any means. Furious French and Belgian employees protested against the partial closure of the factories and several XiroKo managers suffered minor injuries when some layoff protesters threw rocks to the factory buildings. For weeks, the protesters tried to block the roads and disrupt the work at those French and Belgian facilities, but, in the end, the companies operating them were left alone with the help of the Police.

Seven years later, the remaining 40% of the French and Belgian operations were moved to Serbia, where the company decided to build an entire industrial platform. This time, the factories were closed without any incident. The workers received around € 3.000 per capita as part of the collective bargain renewed in 2011 and, for most of them, were found new jobs with other companies in the region.

Now, in 2021, a French important newspaper published several articles built on the results of a 12-months undercover investigation concerning the operations of XiroKo in Bulgaria, Romania and Serbia, accusing it of bribery and inhumane work conditions. The newspaper used four local journalists to infiltrate the operations. During their undercover work, the four journalists managed to obtain many proofs — video and printed — showing (i) how the company paid local authorities to close their eyes to the work conditions and many environmental issues, (ii) how it financed the political campaigns of politicians from all parties to ensure their support in obtaining public investments in the development of the industrial platforms owned by the XiroKo, and (iii) how it used various off-shore companies to siphon profits out of those countries and hide them from French fiscal authorities.

The company did everything to supress workers who complained about work conditions and, in one case, went as far as suing a former employee for affecting the reputation of the company. The journalists noted that the judge ruled that the company was right in its claims and the employee should pay approximately € 6.000 to XiroKo; but the same judge was the husband of a local politician who received substantial contribution from XiroKo for the re-election campaign.

You were the Chief Ethics & Compliance of the XiroKo Group in the past 10 months and never learnt anything of the situation. All the documents used to be doctored by the expats sent in those three countries to run the operations. The whistleblowing channel was also locally administered and nothing came out of it to let you know of the situation. One of the first things you did in these 10 months was to set up an audit system with 3rd-parties to ensure independence of these checks, but even those reports were doctored. What is your next step?

CASE STUDY INFORMATION

Copyright (C) 2021, Cristian Ducu. All rights reserved.

Author(s): Cristian Ducu

General Area: Business Ethics

Specialized Field: Ethics & Compliance

Keywords: Compliance function, Human Rights, whistleblowing, work conditions, bribery, corruption, political donations

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