Creating a Culture of Integrity

Business Ethics for the 21st Century

Andrea Spencer-Cooke,Fran van Dijk

• Verlag: Routledge
• Jahr: 2017
• ISBN:
  9781351274029
• Auflage: 1
• Thema: Business
• Thema: Business General

For companies, unethical business practices like bribery and corruption pose major business risks, and can result in fines, reputational damage, lost business opportunity and – increasingly – criminal or civil charges.Organizations have responded to this critical governance issue with rigorous formal integrity and compliance frameworks, to set out and enforce standards for ethical business practice. But companies also need to create an enduring culture of integrity that establishes doing the right thing as the cultural norm across the organization – and this requires more than compliance alone.Creating a Culture of Integrity identifies the key actions sustainability and compliance officers can take to foster this cultural shift within their organizations.This "one-stop" toolkit for embedding integrity also includes: inspiring best-practice case studies from companies who've implemented culture change, with insights on how they deal with ethical dilemmas when these arise and; powerful arguments to help you make the business case for building a strong ethical culture around your compliance system.

Chapter 1
Introduction

ETHICS IS A GROWING BUSINESS ISSUE. You can barely open a newspaper today or turn on the TV without hearing something about yet another company paying the price for poor employee judgment, bad conduct or inadequate oversight. In a 24-hour news cycle world, nothing stays hidden for long – quite literally in the case of Petrobras, Brazil’s state-owned oil company, whose multi-billion dollar corruption probe has even led to calls for a suspect to be exhumed.¹

The penalty for such misconduct is high. Back in 2008, German engineering giant Siemens made corporate history when it paid US$1.6 billion to settle charges of bribery across its global operations.² That has since been dwarfed by banking fines in the US and UK: $1.9 billion to HSBC, $2.6 billion to Credit Suisse, and a monumental $8.9 billion to BNP Paribas. Their transgressions? Everything from mis-selling insurance and helping customers dodge tax to rigging forex markets and violating sanctions.³

The actual cost of irresponsible decision-making is even higher. UBS losses in the sub-prime mortgage crisis totalled US$17 billion – the largest in Swiss corporate history – and could have been prevented with a different risk culture.⁴ Studies put the cost of reputational damage from ethics scandals at up to seven times the original fine in market value.⁵ World soccer federation FIFA is learning the hard way what graft does to your reputation, but it could be some time before the final price-tag for its appalling governance is known.

A shared burden

Added up, the burden of unethical business conduct on the economy as a whole is mindboggling. The B20 Anti-Corruption Working Group estimates that corruption consumes 3% of global GDP each year, and costs more than US$2.6 trillion.⁶ It reduces government revenue, undermines growth and development, and increases the costs of doing business by up to 10% on average according to the World Economic Forum and OECD.⁷ The rationale for fighting corruption isn’t just a question of ethics – we simply can’t afford it.

The cost isn’t only economic. Corruption undermines the rule of law and the power of democracy. As Harriet Kemp, Head of Development at the Institute of Business Ethics (IBE) puts it, ‘corruption is not a victimless crime; it leads to decisions being made for the wrong reasons. Contracts are awarded because of kickbacks and not whether they’re the best value for the community. Corruption costs people freedom, health and human rights and, in the worst cases, their lives.’⁸

Tightening the net

Little wonder that business ‘conduct risk’ is a red-hot topic for regulators. Around the world, standards and regulations are being developed and revised to combat unethical business practice more effectively, from the US Foreign Corrupt Practices Act (FCPA) and UK Bribery Act to China’s Article 164. The OECD Anti-Bribery Convention, legally binding in over 40 countries, also makes it a crime to bribe foreign public officials in international business transactions.

As well as legal frameworks, voluntary anti-corruption initiatives are proliferating. The United Nations Global Compact (UNGC), whose tenth principle targets ethical business conduct, now counts among its signatories over 8000 businesses across 145 countries. At industry level, too, bodies like the UK Banking Standards Review Council (BSRC) are being created to improve behaviour and restore public trust, while the Governor of the Bank of England Mark Carney has called for global standards to tackle the sector’s ‘culture of impunity’.⁹

The upshot at individual company level is a race to the top to foster good conduct by embedding effective ethics and compliance (E&C) frameworks that prevent, detect and respond to ethical violations. But no E&C programme alone can guarantee that everyone will always do the right thing. Unless it’s accompanied by values-driven behaviour change that is aligned, integrated and reinforced at individual, organisational and systems levels, your E&C initiatives will struggle to make a lasting impact (see Chapter 9).

Rebuilding trust

At stake here for business is not just a hit to the bottom line in the form of fines, but a much wider issue of trust, credibility and organisational well-being. Most companies, most employees want to do the right thing. But in the words of Sam Al Jayousi, Group Compliance Manager at Carillion, one of the UK’s leading integrated support services companies, ‘reputational damage is contaminating’.¹⁰ A few rogue players in a company or industry can be enough to tarnish everybody – can you name a ‘clean’ bank?

When public trust takes a hit, a company’s licence to operate is jeopardised. Regulators step in, employee morale tumbles, brand reputation suffers, customer loyalty weakens, investors and business partners flee and it becomes harder – much harder – to attract and retain top talent.

Conversely when a corporation gets it right, by promoting, supporting and celebrating personal and organisational integrity and empowering employees to ‘do the right thing’, not only is conduct risk reduced, but the foundations are laid for long-term business success. Reshaping your business culture is the best way of preventing ethical dilemmas from becoming ethics lapses in the first place.

“In the wake of the corruption scandal, Siemens was gripped by a mood of “something needs to happen.” Staff were shocked, but that gave rise to a sense of purpose and new beginning. We need to feel that again – albeit under more auspicious circumstances. Ultimately, strategy papers don’t make or break the future and sustained success of a company. Its corporate culture does.”

JOE KAESER, CEO SIEMENS¹¹

Why read this book?

Drawing on examples from pioneering companies around the world, this book demonstrates the importance of fostering a culture of integrity as a foundation for ongoing corporate anti-corruption initiatives.

Without a strong ethical culture companies have to rely on the compliance system to do all the heavy lifting. Investing in integrity means shifting from a ‘don’t get caught’ to a ‘right thing to do’ mindset that can positively reinforce compliance, and boost trust and openness.

Step one is adopting standards and setting up a compliance system to enforce them. Step two is about creating an enduring culture of integrity that embeds good business conduct as the cultural norm across the organisation. This book shows you how.

As well as examining the role of policies and codes (Chapter 3), it explores how recruitment, training, management processes and tone from the top can be harnessed to incentivise ethical practices and build a strong organisational culture of trust, openness and integrity (Chapters 4–7). It gives tips on what to do when things go wrong (Chapter 8). And it describes how, in a culturally diverse world, companies and stakeholders can work together to change the unwritten rules that work against us doing the right thing (Chapter 9).

Chapter 2
Moving Beyond Compliance

IF YOUR COMPANY HAS ALREADY SET UP an Ethics and Compliance (E&C) system, you’ve taken the first important step towards embedding ethics.

Basic E&C checklist

Although the E&C function is relatively new, there is broad consensus on the elements of an effective programme (see Box 1, overleaf). Front and centre are risk assessment, clear codes and policies, and putting in place the right organisational roles, structures and resources. Next, come training and communication – vital for on-boarding employees – proper internal controls and a safe, anonymous, third-party hotline for reporting violations. Finally, penalties and regular audit and reporting cycles help to ensure that standards are upheld.

In addition, the US Department of Justice and US Securities and Exchange Commission list four key things they see as hallmarks of an effective E&C programme:¹³

• Commitment from senior management.
• Incentives (i.e. personal evaluations and promotions, rewards for ethics and compliance leadership) and disciplinary measures.
• Due diligence around payments to third parties, such as agents, consultants and distributors.
• Merger and acquisition (M&A) due diligence and integration.

Properly implemented, an E&C programme that ticks all these boxes will go a long way towards embedding ethical conduct. But without a culture that supports it, even the best E&C system will struggle to deliver.

BOX 1. Elements of an effective E&C programme ¹²

1. Periodic and targeted E&C risk assessment.
2. Code of Conduct (CoC) and related system or framework of policies.
3. Chief ethics and/or compliance officer (CECO) with sufficient resources and budget.
4. CECO access and reporting to the management and board.
5. Appropriate ethics and compliance training and communications.
6. System of internal controls and proper delegation of approval authority.
7. Helpline/hotline system with anonymous reporting options.
8. A consistent system of internal discipline.
9. Periodic auditing, monitoring and evaluating of E&C programme.

Prevention is better than cure

A company’s conduct risk is determined by the behaviour of its employees. To sustain high standards of ethical conduct, you need everybody in your organisation to buy into that goal. Preventing corruption, bribery or fraud before it happens is far better than catching people after the fact. By the time the ref blows the whistle, it’s too late – as FIFA is learning.

Rigorous E&C programmes can certainly drive people to act ethically, but it may just be in order to follow the rules, or out of fear of getting caught, rather than any genuine desire to do the right thing. Why isn’t that enough? First, because policies and regulations tend to draw on past experience to prescribe minimum expected standards so are always playing catch-up. Second, they tend to focus on common scenarios, yet in a rapidly changing global business landscape they can’t cover every eventuality, predict every situation or cater to the true complexity of ethical ‘grey areas’.

Integrity doesn’t just stem from following the letter of the law: it comes from empowering employees to consiste...