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In 2012, as part of a routine disclosure under U.S. law, Wal-Mart revealed it had spent $25 million since 2008 on lobbying to "enhance market access for investment in India." This disclosure, which came weeks after the Indian government made a controversial decision to permit FDI in the country's multi-brand retail sector, created uproar in India. Lobbying by multinationals drew strong emotions in India, evoking images of the millions spent by Enron in the 1990s to "educate Indians" - a suspected euphemism for bribery. Opposition political parties accused Wal-Mart of bribing the Indian government, which, on the eve of a general election, appointed a judicial commission to investigate Wal-Mart. Already under pressure from allegations of bribery in Mexico, Wal-Mart risked becoming embroiled in another embarrassing scandal. How had the company landed in its current situation and how could it respond to the investigation into its India-related lobbying?

Explores the decision faced by AIG's board on whether to join shareholder and ex-CEO Maurice Greenberg's lawsuit against the U.S. government. The suit, argued by super-lawyer David Boies (of Bush v. Gore and California gay marriage fame), claims that in September 2008 the U.S. arbitrarily set aside the rights of AIG's shareholders - violating the Fifth Amendment by taking private property without just compensation - while preserving shareholder rights in other troubled financial institutions, including Goldman Sachs whose ex-CEO was then Treasury Secretary. The U.S. government moves to dismiss the case arguing that it has wide discretion in times of crisis, but a federal judge allows the suit to proceed. The case raises two issues central to understanding capitalism: (1) the importance of and limits to property rights; and (2) the role of the state in choosing between varieties of capitalism, here between oligarchic and entrepreneurial capitalism.

Supplement for case 113124

This note on business-government relations introduces students to the state of campaign contributions and lobbying by corporations in the United States. The note develops two hypotheses as to the impact of corporate political engagement: (i) a vehicle to facilitate good government; and (ii) an instrument of special-interest capture. The note can be used to generate a discussion on the following issues: (1) In a democratic capitalist society, what is the appropriate role of business in government? (2) When it comes to political contributions, should corporations have the same rights and responsibilities as individuals? The note also describes the various practical choices businesses face on political engagement, including disclosure options and options to engage through trade or ideological associations. This description can be used to encourage business students to develop an aspiration for their companies' political engagement strategies

For the past two decades, fair value accounting--the practice of measuring assets and liabilities at estimates of their current value--has been on the ascent, marking a major departure from the centuries-old tradition of keeping books at historical cost. Why has this happened? The author, an associate professor of business administration at Harvard Business School, offers one answer: The membership of the Financial Accounting Standards Board, which sets the standards for GAAP in the United States, has shifted over the decades to include more people from the financial services industry. Ramanna offers strong evidence that these executives prefer fair value and several possible motives for their preference. One, investment banks and asset managers are accustomed to using fair value in their day-to-day business. Two, GAAP profits defined on the basis of fair value rather than historical cost accelerate the recognition of gains, particularly in periods of rising asset prices. Three, the use of fair value to determine impairment of goodwill from M&A activity may impose less drag on earnings, potentially boosting M&A activity--a major revenue source for investment banks.

Supplement for case 111084. In late 2012, IASB chair Hans Hoogervorst, just over a year into his term, must address several serious geopolitical challenges that can derail IFRS growth. The SEC has issued a report outlining why the U.S. should not adopt IFRS. Other major economies such as Japan and India begin to dither on IFRS as well. The E--the IASB's main backers--is embroiled in a debt crisis that divides it; Britain--the strongest voice for IFRS in the EU--lirts with an EU exit. And China remains silent. Adding to these issues are longstanding concerns about the IASB's legal status and its finances. How can Hoogervorst return momentum to IFRS?

Financial Accounting Foundation chairman Jack Brennan is under pressure from private-company interests to set up a new body-the Private Company Council-to determine separate GAAP for private companies. PCC advocates-including the US Chamber of Commerce-argue that traditional US GAAP has too many disclosure and fair-value requirements that impose very high compliance costs on private companies. But there are influential players-including the Big Four auditors-who oppose creating the PCC. They argue that the compliance costs of traditional GAAP are the price of high-quality accounting standards. Balancing these powerful interests, Brennan must make a decision on the PCC; at stake is US GAAP's ability to facilitate capital allocation decisions in the economy.

Corruption is the greatest impediment to conducting business in Russia, according to leaders recently surveyed by the World Economic Forum. Indeed, it's a problem in many emerging markets, and businesses have a role to play in combating it, according to Healy and Ramanna. The authors focus on RosPil--an anticorruption entity in Russia set up by Alexey Navalny, a crusader against public and private malfeasance in that country. As of December 2011, RosPil claimed to have prevented the granting of dubious contracts worth US$1.3 billion. The organization holds corrupt politicians' and bureaucrats' feet to the fire largely through internet-based crowdsourcing, whereby often-anonymous people identify requests for government-issued tenders that are designed to generate kickbacks. Should entities like RosPil be supported, and should companies fashion their own responses to corruption? On the one hand, there are obvious public-relations and political risks; on the other hand, corruption can erode a firm's competitiveness, the trust of customers and employees, and even the very legitimacy of capitalism. The authors argue that heads of many multinational companies are well positioned to combat corruption in emerging markets. Those leaders have the power to enforce policies in their organizations and networks, and they enjoy the ability to organize others in the industry against this pernicious threat.

Two lost decades later, capitalism in Japan embodies peculiar contradictions-preserving wealth and social stability in the face of declining economic power. Scant transparency in Japanese corporate practices plays an important role in this phenomenon. Sometimes justified as an embodiment of Japanese culture, the opacity of Japanese corporations is credited with empowering managers to make long-term business decisions that preserve employment and business relationships and maintain social harmony. But opacity also facilitates fraud and corruption, which erode investor confidence and stifle risk-taking. A flamboyant politician, Kotaro Tamura, attempts to raise public awareness around these tensions, but his provocative style earns him few friends in Japan's conservative political establishment.

Supplements case Tanzania A

Anti-corruption web platform "ipaidabribe.com" leverages the transparency and anonymity of the Internet to encourage private citizens in India who have been the victims of corruption to self-report details of bribes paid, including the bribe amount, the name of the corrupt official, and services rendered. The ipaidabribe.com portal then aggregates these data to create maps and charts of corrupt activities across Indian cities. The theory is that such data will build awareness and shame, raising the cost of corruption. But after initial successes-buoyed by visibility generated from mass street protests against corruption in 2011-traffic to the website has slowed. The question before spouses, ex-bankers, and ipaidabribe.com co-founders Ramesh and Swati Ramanathan is how to generate and sustain interest in the web platform so that they have real impact on retail corruption in India. Possible solutions discussed include teaming up with local governments and police, focusing attention on one or two Indian cities, and franchising ipaidabribe.com internationally to create more visibility.

Loan officer Jim Teague discovers his agro-processor client has a serious health-code violation just days before a disbursement is due. Proceeding with the loan could jeopardize the health of thousands of customers and put his employer at serious risk. But withholding the loan will likely deprive hundreds of farmers affiliated with the agro-processor their livelihoods in this poor rural corner of Tanzania.

In late 2009, Wang Boming, publisher of Caijing Magazine, widely regarded as China's most independent newsmagazine, gathered his core team for an urgent meeting. His pioneering editor Hu Shuli, described for her fiercely independent journalism as "the most dangerous woman in China" had quit with two-thirds of Caijing's staff, allegedly over a conflict on editorial independence. Wang, known for his ability to navigate the country's carefully controlled propaganda apparatus, considered how to rebuild the magazine without its star editor.

In late 2009, Wang Boming, publisher of Caijing Magazine, widely regarded as China's most independent newsmagazine, gathered his core team for an urgent meeting. His pioneering editor Hu Shuli, described for her fiercely independent journalism as "the most dangerous woman in China" had quit with two-thirds of Caijing's staff, allegedly over a conflict on editorial independence. Wang, known for his ability to navigate the country's carefully controlled propaganda apparatus, considered how to rebuild the magazine without its star editor.

What should business leaders do about corruption? In December 2011, four HBS alumni met to debate how to engage the unprecedented protests against Vladimir Putin's corrupt government, which had erupted in Russia in response to alleged fraud in the recent parliamentary elections. A notable figure in the protests was anti-corruption blogger Alexey Navalny. Navalny used publicly available requests for tender, "crowd-sourcing", and volunteer experts to discover, expose, and encourage prosecution of corrupt dealings by the Russian government. These efforts made Navalny a cause celebre in Western media, and a popular figure with Russia's tech-savvy population. But was Navalny the right figure for business leaders in Russia to organize around? What were the risks of getting involved with a politically volatile activist?

The last thirty years have seen the widespread embrace of market capitalism as not only a highly efficient form of economic organization but also as one that best meets the diversity of human preferences. In large, complex societies, an increasing body of theoretical and empirical research suggests, however, that the existence of competitive markets rests on strong institutional foundations. This note explores the appropriate role for the general manager, if any, in sustaining these conditions for market capitalism.

Set in 2010, the case discusses the strategic directions Hong Kong could pursue, particularly vis-a-vis China, as it seeks to preserve its preeminence in the region. In 2010, the Hong Kong Exchange announced that it would allow listed Chinese companies to report using Chinese GAAP without reconciliation to IFRS The exchange was responding to the demands of its largely Chinese clientele and also coping with increased global competition to attract listings from Chinese companies. However, there were concerns around whether this change would undermine Hong Kong's position as a financial center in the long term. Hong Kong's position as a global financial powerhouse was due in part to its rigorous emphasis on compliance and enforcement; allowing companies to report under Chinese GAAP, the practice of which was highly variable, could compromise Hong Kong's high corporate governance standards.

What are the major challenges to the continued growth of IFRS worldwide? Should countries be encouraged to pursue "full adoption" of IFRS or should each country determine its own IFRS "convergence" strategy? Given the limitations of governance and information-intermediation institutions worldwide, should IFRS limit the use of fair-value accounting? How should the IASB respond to the growing power of emerging markets such as China in international standard setting? What lessons can be learned from the growth and development of IFRS for international harmonization of corporate governance standards more broadly? This case first describes the IASB's major accomplishments over the 2001-2010 period and then outlines the major challenges to the continued growth of IFRS as it enters its second decade.

In a controversial decision, the Bank for International Settlements includes deferred tax assets as part of a bank's core capital.

Supplement to 111029