Integrity needs to be defined, recruited for, and enforced. “Does
your colleague possess integrity?” “Yes” is an answer to this
perfunctory question. Full marks. But when I define integrity to include
avoiding conflicts of interest, consistency between what is said and
done, ethical conduct, and trustworthiness – and guarantee anonymity, I
get a spread of performance scores. Those who do not possess integrity
in the eyes of their colleagues are poison and should are extracted from
any board or a senior management team. They never should have been
elected or hired in the first place, which is a recruitment failure.
Fraud,
toxic workplaces, bullying, harassment and pressure do not occur in a
vacuum. Many people in the company know. The issue will not go away,
will only get worse, and is a latent legal, financial and reputation
risk.
For bad news to rise, boards need to ensure that protected
channels exist and are used – including for a director or executive to
speak up in confidence, and for an independent consequential
investigation to occur.
Ethical reporting also needs to assure
anonymity to the fullest possible extent to receive reliable
information. If a whistle-blowing program has any manager as the point
of contact, it is not effective. Whistle blowing, culture surveys, and
ethics audits should be conducted independently and reported directly to
the board without management interference.
Frequently, I find ethical design and implementation failure are the
culprits, with codes of conduct, conflict of interest policies,
whistle-blowing procedures, culture and workplace audits, and education
and communication being perfunctory at best, overridden by management at
worst, and not taken seriously by employees or key suppliers, with
minimal assurance and oversight by the board.
Complacent boards
and executives are the last to know and deny any wrongdoing, having
creating the conditions for fraud to flourish. Shockingly, lacking any
pride, in full denial, and further reinforcing their entitled
self-serving mindset, they refuse to resign.
After ethical failure
happens, executives argue that it is a lone rogue employee or an
isolated incident. Nothing could be further from the truth. It is an
employee who reflects the true and actual culture, internal control
environment, and practices of the organization, and who is attracted to
and flourishes within them. There is no such thing as a rogue employee.
It is a board that approved the conditions that management proposed
within which employees operate. The board’s leverage of approval,
documentation and questions went unused and unasserted. They are the
very people who should not be overseeing subsequent reforms, as they are
assessing their own shoddy work.
This lax control environment, where self-interest is pursued and where pressure is applied, is the heart of ethical failure.
There
is a shocking lack of internal controls over employee and agent
behavior that I have found in corrupt jurisdictions in which Western
firms do business. This means, not only is the potential for fraud
rampant, but also that costs of compliance are being borne by companies
who do not bribe and have proper controls. They are penalized for doing
things right.
Furthermore, there are corrupt jurisdictions whose
companies and government officials offer and receive bribes and
advantage themselves over Western counterparts, including in Russia,
China, India and MENA. The most recent example is bribery allegations at
FIFA. This unequal playing field puts Western companies – in the US,
UK, Canada and elsewhere – at a disadvantage, when competing for
business, opportunities and contracts.
This is why Western
governments are seeking to put their countries and companies in the most
competitive position possible. They are enforcing anti-corruption laws
using long arms of justice to prosecute bribery. They are also debarring
companies from government contracts who commit ethical breaches. This
debarment is a powerful motivator to spur investment to internalize the
costs of internal controls over integrity.
Western industry will
mistakenly argue that integrity laws will disadvantage them or cost
their industry jobs, but the reality is the opposite. Tough integrity
laws will prevent substandard competitors from offering bribes, will
disincent recipients from receiving bribes, and will strengthen Western
companies who compete on the basis of price, quality and service.
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