Andrew Gordon: Why it’s integrity that matters
Tuesday, August 7, 2018 at 8:28AM
Andrew Gordon in Global Fraud Survey

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.

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

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
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