Avon’s Global Business Puts It At Risk

Avon Products, Inc.’s ongoing bribery investigation highlights some of the corporate governance risks that companies face in conducting business overseas.

Kerry Carr, who had headed the cosmetics company’s internal audit department from 2003 until August 2005, resigned from Avon earlier this month, the Wall Street Journal reported Thursday. Avon’s bribery scandal has been long in the making. In 2008, the company launched an internal investigation into its practices in China. Avon later expanded its probe into other countries and fired executives, including its former CFO Charles Cramb this January, according to news reports.

Avon’s business is extremely international. During 2011, approximately 83% of its consolidated revenue came from operations outside the U.S., according to its most recent regulatory filing. This means the company has more opportunities than others to violate the foreign corrupt practices act, a U.S. federal law that makes it illegal for companies registered in the country to bribe officials elsewhere.

 

GMI Ratings gives Avon a D on its corporate governance overall, in part due to its bribery investigation. The company’s financial statements reflect that Avon has an average AGR, and its accounting and governance risk is higher than 40% of the companies in North America.

 

Avon said it does not comment on the ongoing investigation.

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