MNCs find it tough to do business in India due to corruption and uncertain laws

MNC in India are finding themselves on the wrong side of norms

MNC in India are finding themselves on the wrong side of norms. Is that because doing business in India without indulging in corruption is close to impossible?

Sudden top management changes on most occasions make for vicarious reading pleasure. This week had a couple of such high-profile shuffles.

Globally, German engineering and electronics multinational and a reluctant poster boy for the fight against bribery, Siemens AG, saw a change at the top. CEO Peter Loescher was replaced by CFO Joe Kaesar. And in India, the suspended CFO of the retail joint venture company Bharti Walmart, Pankaj Madan, made a surprise return to the Indian conglomerate's telecom operation, Bharti Airtel BSE 0.29 % .

There is a link between the two - the American law called Foreign Corrupt Practices Act  (FCPA), which the US Securities and Exchange Commission (SEC) is very keen to enforce.

Although analysts say Loescher was replaced because Siemens had missed a series of profit targets, the outgoing CEO had been brought in for a mandate quite removed from the bottom line: when Loescher replaced Klaus Klienfeld in 2007, his immediate priority was to restore confidence at Siemens AG after the company was charged with bribery in places like Argentina and Bangladesh.

It was the first time that an outsider - Loescher came from Merck BSE -0.33 %  - was brought in to head Siemens AG, an indicator of the board's lack of confidence in the then management.

At Bharti Walmart, Madan was suspended in November 2012 along with four other officials after the American retail giant started internally investigating whether its practices in India violated the US FCPA.

The US SEC and German public prosecutors and tax officials had made a spectacle out of Siemens, making it pay $800 million in the US and 395 million in Germany to settle the charges in 2008.

Kaesar, who takes over from Loescher, was one of the few people to survive the top-management purge in 2006-07. In 2011, during a visit to India, Kaesar had recalled how he saw almost 80% of the top management exit Siemens in 2007-08.

The message was clear for multinationals. In emerging economies, they will have to run with the local players, but with the iron ball and chain of the ethics of mature economies attached to their feet. However, the shackles of FCPA or its UK cousin, the UK Bribery Act (2010), have not really acted as deterrents. The US SEC is now investigating over 100 companies including at least half a dozen cases where bribes were allegedly paid in India.