Business ethics is a commitment. It is an action. Before an organisation can consider its governance a strength, it needs clearly defined values that guide decision making and behaviour at every level. It needs a mechanism in place to measure ethical performance. It needs a plan for continually identifying, investigating and managing risk.
The strongest organisations hold their guiding values so closely that they are known not only by leadership and employees, but also by shareholders and customers.
Companies thrive on healthy relationships with shareholders, customers and employees. Unethical practices destroy relationships. A lack of solid, well-planned corporate governance is a vulnerability that inevitably becomes public.
Constant court battles, penalties, bad publicity, and embarrassing scandals are not just major red flags for consumers looking for secure investments. They discourage customers, drive out talented employees, and with top-tier talent eager to work for companies dedicated to transparency and ethical operations, they make recruitment an impossible task.
Still, it seems that every day brings news of bribery scandals, corporate leaks, human trafficking investigations and corruption of all sorts. The constant stream of stories involving organisations behaving badly has fed public cynicism and distrust — sentiments that recent trends suggest have reached a tipping point. Simply put, people have had enough of corruption and unethical behaviour. Demand for transparency and accountability is strong.
In one sense, this is not a revelation. Corruption in business and government has always been despised. But for years, corruption in some industries has been perceived as unavoidable and too costly to eliminate. Essentially, participants have chosen to pass unethical practices off as ‘the cost of doing business’ or ‘business as usual’ to justify looking the other way.
But in another sense, it’s worth considering that as consumer expectations of service have changed, so have expectations of corporate responsibility. Just as an organisation cannot afford to ignore changing economic conditions, it cannot ignore changing social conditions.
Recent global trends in popular demonstrations, media scrutiny, government action and judicial focus have shown that passive acceptance of corruption as an unfortunate but necessary evil is rapidly disappearing.
A Time For Transparency
For many countries, the road from adopting anti-corruption regulations to actively enforcing them has been long. But without question, the pace has quickened dramatically in recent years.
We can all agree that this is a development worth celebrating. As cultures around the world commit to demanding a higher standard of transparency, integrity, and responsibility from businesses and governments, we move closer to an undeniably better, safer environment for everyone. We move toward a more stable economic, political and regulatory environments.
Societies connect in new ways every day. Information today is shared at lightning speed and judgments are made just as quickly. So, when damaging news or allegations regarding a company is leaked, it is instantly shared around the world and a storyline is developed. A reputation for integrity and transparency is the best defence. But it can only be earned. In a world where secrets no longer stay secrets for long, transparency is crucial.
Now, more than ever, organisations must be relentlessly focused on managing third-party risks with a heightened value on transparency. One incident in an inadequately managed and monitored supply chain can have destructive consequences that could tie an organisation up legally and financially for years.
Third Party Risk Management
At CRI Group, we tell our clients that when it comes to third-party anti-corruption management, a strong initial risk assessment is key. Knowing what risks third-party vendors present drives a broader strategy based on constant assessment, analysis, training and monitoring.
This is not a simple task, as companies evolve over time. A vendor that represents a low risk one year may become a major vulnerability the next, becoming an unknown threat. Similarly, a vendor considered high risk one year may drastically improve its risk profile the next and no longer demand the time and effort necessary for heightened scrutiny.
With a strong programme in place to continually monitor and evaluate vendor relationships, organisations can be assured that resources are being properly appropriated to reduce risk.
A recent bribery scandal involving Alcoa Inc., the largest US manufacturer of aluminium, resulted in a penalty of $384 million. The charges stated that a closely held subsidiary of Alcoa bribed officials of a Bahraini state-controlled aluminium smelter.
This incident and its resulting consequences could have been prevented had a comprehensive programme been in place to detect and prevent unethical action. The Securities and Exchange Commission released a statement that read, in part: “It is critical that companies assess their supply chains and determine that their business relationships have legitimate purposes.”
While the trend toward cracking down on corruption is worldwide, regulations vary greatly from country to country, and from industry to industry. Recent years have seen major changes to, or introductions of, far-reaching legislation, including the UK Bribery Act, the Modern Slavery Act, and the FCPA (Foreign Corrupt Practices Act) in the US call for careful consideration. This makes compliance challenging for companies with broad supply chains.
A comprehensive third-party risk management programme, administered responsibly, is the only way to ensure governance standards are upheld throughout an organisation’s supply chain. Automated due diligence processes based on public records, with the promise of low- cost efficiency, is alluring. But relying on public records for identifying vulnerabilities across multinational vendor relationships is a half-measure.
Certainly, public records-based compliance will always be a basic component of a risk management programme, but person-to-person interaction is invariably the best path to meaningful insight into a third party’s reputation, practices and ethics.
Ethical Companies Are Strong Companies
The benefits of a company’s strong commitment to ethics and social responsibility go beyond the immediate gratification of simply doing the right thing. Certainly, a commitment to profitability is a central tenet of any successfull business. But the cost of pursuing profit blindly — without giving concern to the means of pursuit — must be reckoned with.
A reputation for ethical behavior is a crucial component for any organisation’s long- term success. Securing such a reputation requires a constant, deliberate effort toward building, maintaining, and protecting values that guide decisions throughout the organisation. It also requires a diligent effort to remain capable of adapting to an ever-changing environment.
Though the benefits of a strong commitment to social responsibility are great, building and maintaining high ethical standards is not easy. Even for companies with long-standing result-driven compliance programmes, performance according to these standards can fluctuate. Ethisphere and similar corporate ethics institutions reflect this reality in annual indexes and rankings.
A strong culture of social responsibility adds value to every interaction. When principles guiding ethical behavior become part of a company’s culture, the risk of focus shifting away from responsibility disappears. Principles handed down from the top become reminders — they become ‘how’ a company operates. We should hold ourselves to a higher standard. The principles guiding an organisation, when truly part of the culture and embraced at an individual level, become ‘why’ a company operates.
A Matter Of Leadership
An organisation’s ethical performance rises and falls with leadership. To truly instill an ethical culture, the leaders of the organisation must define guiding principles and values, clearly communicate them, and, most importantly, live them. Leadership must serve as daily examples of executing goals with integrity.
Employees will not embrace a proactive culture of responsibility without trusting that the organisation’s leadership is uncompromising in its dedication to doing the right thing every time, regardless of the cost. Hotlines and surveys are common tools organisations use to gauge performance in these areas.
At many companies, they are the only tools. We know well the flaws associated with relying only on the results gained from them. Ironically, the tendency for skewed results can largely be traced back to leadership. How likely would it be for an employee to report unethical behavior if leadership had not demonstrated a willingness to take it seriously?
Leaders should encourage and participate in constant dialogue around their organisation’s ethics. Annual retreats and frequent webinars simply are not enough. Meaningful discussions about transparency and ethics belong in every level and in every facet of an operation.
The commitment to social responsibility should be embraced as one that must evolve and grow with its surrounding culture.
When a company’s leadership publicly and internally puts their dedication to ethical practices at the forefront of the organisation’s priorities, it sends a powerful message to employees and customers. For some companies, a commitment to guiding principles becomes a valuable component of their brand’s identity.
The World Is Watching
Corruption is an ongoing storyline. It is now a narrative with which the public is constantly engaged. From Alcoa and Petrobras to the Panama Papers and FIFA, allegations catch fire quick and judgement from the court of public opinion is handed down just as fast.
These conditions lead to one unavoidable truth: It is time for all companies to step up the commitment to transparency and ethical practices. The due diligence requirements mandated by regulators must be considered a baseline. Companies must be vigilant in implementing strong anti-corruption programmes that extend to vendors. The world is watching, and expectations have never been higher.
Zafar I Anjum, is chief executive officer of CRI Group, a global supplier of investigative, forensic accounting, business due diligence and employee background screening services for some of the world’s leading business organisations.