Readers of this blog will know I have closely followed IKEA’s corruption problems in Russia, which have unfolded over the past year. Coincidentally, these posts have invariably proven to be some of my most popular (measured by traffic). I have my own theories about this – which I will share below – but I feel almost a sense of public duty to continue reporting on updates to this case.
Turning the Corner
The end of 2010 started out well for IKEA in Russia, even though it halted new investment in the country. In October, the company named a new General Director in Russia – Per Wendschlag – presumably ending the leadership vacuum since the firing of two of its top managers over corruption issues in February. The company settled its legal battle with a power generation company it paid to power its St. Petersburg mall until late last year. IKEA was in such a good mood, it even promised to throw in a few roads, what with the traffic problems in Moscow. Most importantly, earlier this month IKEA founder Ingvar Kamprad personally announced his “distress” over the results of an internal investigation into the company’s Russian operations (by no less than 3 of the big 4 accounting firms!). As a result of the investigation, Wendschlag promised to “build up a strong IKEA Mos from IKEA values.”
Within a week of Kamprad’s announcement, however, the Swedish tabloid Expressen – the abominable fly in IKEA’s Russian ointment – revealed fresh allegations of ethical lapses at the furniture vendor’s Russian operations. Indeed, no less than a dozen former managers of IKEA Mos have come forward claiming to have been fired after they tried to fight against corruption at the company (Russian-language coverage here). Most of the new allegations concern private fraud in the company’s relationship with third party service providers. For example, one of the fired managers cited a $100,000 invoice for snow removal by a Turkish contractor that IKEA Mos received in July. One of the only fired managers to be named in the news report – Jarmo Lipsanen – claimed that IKEA managers paid inflated invoices to these third parties, and the overages were split between the third parties, government officials, and the IKEA managers. This is not incredibly new, as it is the same basic scheme that IKEA alleged was occurring with the power generators in St. Petersburg.
A Private Problem?
The allegations are, of course, only that – allegations. Still, if even a small percentage are true it appears to indicate that IKEA’s leadership is still grasping for ways to deal with this problem (worst case scenario is they don’t care). I personally think this is a function of the company’s private ownership structure, which leaves its internal operations and problems away from the penetrating gaze of regulators. I doubt you would see many listed companies spend a year dealing with a corruption issue this serious and [more importantly] public, only to come out the other side with a fresh round of allegations one week after the owner announces the conclusion of the internal investigation.