Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Harry Cassin Managing Editor


Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

« Najib charged with money laundering | Main | Alison Taylor: Do compliance officers have a role in corporate activism? »
Tuesday
Aug072018

Andrew Gordon: Why it’s integrity that matters

Despite regulators across the world getting tougher on corporate bribery, levels of perceived corruption appear to show no improvement since 2012. But instead of asking whether regulators are doing enough, maybe the question is whether businesses are doing enough.

In 2018, EY published its 15th Global Fraud Survey, which gathered the opinions of 2,550 senior executives across 55 countries and territories. A key finding was that, despite $11 billion of financial penalties being imposed by regulators across the world since 2012, 38 percent of respondents still believe bribery and corrupt practices remain prevalent in business in their country.

Levels of perceived corruption between countries are not uniform of course. Significant differences exist between geographies, with 20 percent in developed markets indicating that bribery and corruption occurs widely in business, compared with just over half (52 percent) of those in emerging markets. However, the lack of improvement at a global level shows that unethical behavior in business remains a daunting challenge for any business, especially those operating across multiple countries.

But given increased enforcement, why do levels of corruption remain so high?

One contributing factor is the frequent lag between the introduction of stronger anti-bribery laws and reduced levels of corruption. The last few years have seen dramatically increased penalties being imposed by Brazil, the Netherlands, the UK and Switzerland, among others.  Brazil, for example, introduced The Clean Companies Act in 2014 yet today 96 percent of Brazilian respondents indicate that corrupt practices still occur widely in business -- an increase from 80 percent in the intervening four years. In the United States, however, where enforcement of the Foreign Corrupt Practices Act intensified in the mid-2000s, perceived levels of corruption fell this year to 18 percent, an improvement from 22 percent in 2014.

So, while legislation certainly has the ability to focus the mind and encourage some organizations to get their house in order, it’s often not until enforcement grows more robust that there is a more noticeable uptick in compliance and improvement of standards.

But more interestingly, the results from the EY survey highlighted another potential issue: the mismatch between ethical intentions and the conduct of companies when it comes to anti-bribery and corruption.

Ethics and integrity appear to be a high priority for corporate executives, with 97 percent of respondents recognizing the importance of their organization being seen by others to operate with integrity. Yet 13 percent of respondents indicating they would justify making cash payments to win or retain business, a figure which rises to one in five among those that are under the age of 35.
 
Part of the issue lies with understanding who should be taking primary responsibility for ensuring that employees behave with integrity. We found that less than a quarter of respondents felt that individuals should take primary responsibility for behaving with integrity, while 41 percent say it is management’s primary responsibility. Interestingly, those respondents that did not believe it was primarily an individual’s responsibility, are significantly more likely to justify inappropriate conduct, including making cash payments to win or retain business.

This is also coupled by some level of disillusionment as to whether companies follow through on their good intentions when it comes to a "zero-tolerance" approach. While 78 percent of those asked believed their organizations have the clear intent of penalizing misconduct, only 57 percent are aware of people having actually been penalized.
 
So, what’s the solution? While there is no silver bullet, management teams must identify and address the root causes of unethical conduct in their organization. In short, integrity needs to sit right at the heart of a business, prioritized on the boardroom agenda, and effectively communicated and instilled to all employees and third parties.

Compliance programs need to keep pace with the impact of rapid technological advancements and the increasingly complex risk environment on business operations. More robust risk management should be considered a strategic means of improving business performance.

While corruption remains prevalent, businesses continue to be vulnerable to significant financial and reputational harm, so the pressing challenge for management and the board is to build a robust culture of integrity and compliance in which employees do the right thing because it’s the right thing to do, and not just because a company code of conduct says they should.

When integrity sits at the heart of a business, it not only informs the approach to regulatory compliance, but ensures employees are aligned to a common view of ethical behavior and so strengthens the business from within. The goal, therefore, is combining a culture of integrity with robust compliance programs and leading-edge analytics to stay ahead of emerging risks.

_____

Andrew Gordon (pictured above) is the EY Global Leader, Forensic & Integrity Services. He can be contacted here.

Reader Comments (7)

It's important to add that while integrity is important it must be driven by ethical values. A person can be principled -- have integrity -- and have the courage of his/her convictions but act unethically. Adolph Hitler comes to mind. He deeply believed Jews were the source of the problem for Germany and acted in accordance with his principles to exterminate them. In business, an egoistic CEO might believe that maximizing executive compensation is a right and pursue all means to manipulate corporate profits to reach the goal. integrity means to act in accordance with principles such as honesty, fair mindedness, respect and responsibility and to do what is best for employees and other stakeholders.
August 7, 2018 | Unregistered CommenterSteven Mintz
Paying a bribe is the thin end of the wedge!

Integrity and honesty are bed partners, and I am slightly bemused by the slightly strange analogy with Hitler! Surely it is safe to assume that we start from the level playing field that represents sanity in the ethical mind?
August 8, 2018 | Unregistered CommenterSimon Baker
Building an authentic high integrity company (we call it trustworthy) must be a top-down strategy and simply cannot happen without 100% buy-in from the Board of Directors and its C-Suite. As Steven Mintz noted above, it's about honesty, fair mindedness, respect and responsibility. I would add accountability and shared purpose. This requires a committed shift in the leadership mindset away from short-term shareholder maximization governed by rules and regulations, and Wall Street pressure (a stuck in the 80s approach) to one of long-term voluntary stakeholder focus and engagement. Some companies are getting it "very right" while the majority spend inordinate amounts of time extinguishing fires caused by the low trust environment they themselves have created.
August 8, 2018 | Unregistered CommenterBarbara Kimmel
Andrew- well thought out and executed piece, Glad to see you are still fighting the good fight as a fellow "anti-corruptionista". Cheers from an old friend / colleague in Canada. .
August 8, 2018 | Unregistered CommenterFrederic Miller
As a whistleblower revealing corporate executive fraud and non-compliance, I find the perception index ridiculous. Companies can laud values and join or contribute to anti-corruption initiatives as a way to conceal corruption, for one thing. I would say look at human resource statistics and anonymous surveying to really understand corruption. In corrupt organizations, HR will try to bully, terminate, and blacklist whistle blowers. Improve whistle blower protection and demand a high threshold of documentation to justify terminations would help reduce corruption. Hierarchical organizations with income and authority are held by a few is recipe for corruption. Third party compliance, like auditors, would also help.
August 8, 2018 | Unregistered CommenterSteven Kalavity
Compliance programs that prevent or impede payment of bribes can, at most, only contribute to a reduction of corruption. The reason that people pay bribes is because other people ask for them. The adoption of ISO 37001 is demonstrating a difference in approach to the fight against corruption. Most certifications in Europe and Brazil are of commercial companies, that certify systems to prevent people paying bribes. Most certifications in Asia, and interestingly Peru, are of public bodies, that certify systems to prevent people asking for bribes. Furthermore, bribery is only one manifestation of corruption. Bribery is almost always accompanied by nepotism and favouritism. To reduce corruption requires a more comprehensive strategy, with multiple, coordinated measures. Compliance alone will not succeed. Simply penalising payment of bribes will have as much overall effect on corruption as a stationary marked police car with a radar gun has on speeding.
August 10, 2018 | Unregistered CommenterAnthony Mason
corruption is highest at political levels in Africa and this seems to create a pervasive effect on corporate corruption. corruption in such cases may be difficult to eliminate unless there is a culture mindset towards corruption from top executives and political leaders. offering bribes is taken as a norm in some countries and may not be looked at as an evil by the general public until it impacts on life threatening cases as in Health centers where treatment may be denied until a bribe is paid. only then does it into public domain. so how do we handle such epidemic bribery levels.
August 13, 2018 | Unregistered CommenterKandole Patrick

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
All HTML will be escaped. Hyperlinks will be created for URLs automatically.