Richard Messick: The Missing Ingredient to Corporate Integrity — Enforcement
To achieve accountability, businesses need to foster a culture of integrity.
In recent years, significant efforts have been made to create global rules to prevent businesses from taking part in corruption, from the US Foreign Corrupt Practices Act and the UK’s Bribery Act to the UN Convention Against Corruption. This is continuing to gain interest among policy makers, including the G8 and G20, while additional frameworks are being put in place to prevent tax evasion and related activities through which corporate interests can undermine the public good. This is as it should be —corruption and a lack of integrity exacerbate inequalities, sap trust and undermine shared prosperity.
Meanwhile, most businesses — particularly multinationals — have developed robust anti-corruption compliance programs that encompass everything from risk-identification measures to mitigating activities to internal control mechanisms. Of late, these kinds of programs have allowed a number of companies to identify and report wrong-doings, such as Louis Berger and Merrill Lynch.
The problem with these efforts, however, is that while they might fight corruption, they are not building a culture of corporate integrity. Laws are seen by many as expensive and tiresome to enforce, while compliance programs are often “check-the-box” exercises to fulfill requirements without truly changing behaviors. Competition is intense, and the profit-motive is often overwhelming. If you think of the largest corporate corruption scandals of the past decade — Siemens, Walmart, Volkswagen — these companies all had large compliance programs that were clearly ineffective. The problem is not a lack of rules and regulations — it is the lack of shared, accepted values of integrity that underpin honest business practices.
So how can we ensure that corporations avoid corruption and encourage accountability? We have to move beyond compliance motives centered on preventing business risk, reputational damage or criminal and civil charges — and instead build a values-driven, self-sustaining culture of integrity. Here are a few key steps:
1. Companies need to generate an environment of trust. Employees must feel encouragement and support — rather than fear, retaliation or embarrassment — for mistakes, wrong-doing or whistle-blowing. This starts at the top — leaders should embody trustworthiness and indicate that integrity is a quality that is prized above all else. It can then be reinforced and shared within the organization at all levels through highly visible, often articulated and well-integrated corporate values. Codes of ethics should be regularly reviewed and updated with inputs from employees, not just when there is a violation or a change in leadership. Integrity is not a static concept, but a dynamic reflection of collective aspirations.
2. Businesses must make integrity practical and fun through tools that move well-beyond “of-the-shelf” briefings and trainings. Ethics roundtables, integrity newsletters and targeted in-house campaigns can all spread awareness and build engagement. Arcelor Mittal hosts an Ethics and Compliance Day every year the day after International Anti-Corruption Day — complete with quizzes, surveys and feedback sessions. Lockheed Martin uses Ethical Minute role-play videos to highlight ethical dilemmas. Other companies have put up accountability scoreboards or even printed company values on candy left as snacks around the office. The more creative the approach, the more a community can be built around integrity.
3. Hotlines to anonymously report violations are necessary — but mechanisms that also allow employees to highlight good behaviors or examples of accountability are a useful addition. Companies have run “compliance champions” competitions through which employees demonstrating integrity can be recognized publicly. At the Accountability Lab, we’ve been running a TV show called Integrity Idol, where citizens can nominate and vote for honest government officials — the same would work for large corporations. Through efforts like these, we can move towards “naming and faming” people with integrity, rather than “naming and shaming” the law-breakers.
Finally, this is no longer about singular, internal efforts around values and ethics. It is essential in a globalized marketplace that businesses demonstrate their ethical values through the organizations and clients with which they chose to work. Due diligence and relevant contractual monitoring within supply chains and partnerships are essential to understand whether third parties conduct business with integrity. Apple took a huge hit after poor labor practices were exposed at its Chinese supplier Foxconn, for example; while Castrol, Continental and Johnson & Johnson are no longer associating themselves with FIFA after the recent corruption scandals.
Building a culture of integrity is not easy, nor are there quick fixes. But in the long run, efforts along these lines are absolutely essential if we are to fight corruption and avert unethical business practices. Laws and rules to enforce accountability are important, but if they are not based upon a global corporate culture that values integrity, compliance is impossible.
(Top image: Courtesy of Thinkstock)
Blair Glencorse is Executive Director of the Accountability Lab and a Member of the World Economic Forum’s Global Agenda Council on Transparency and Anti-Corruption. Follow the Accountability Lab on Twitter @accountlab.
All views expressed are those of the author.
Corporate culture can only go so far. It’s vigorous law enforcement that creates the incentive for companies to operate with integrity.
In an ideal world, corporate integrity could be achieved through a voluntary approach: a warm, cozy company culture where everyone gets along and puts honesty above profit, personal or corporate.
This happy state is the product of four ingredients:
- Good corporate leadership — creating an atmosphere of trust and making it plain through word and deed that integrity is value above all else;
- Better, more creative approaches to building corporate integrity — going beyond those mandatory, boring training courses on compliance that employees must now sit through;
- Methods for celebrating honest behavior by employees — to complement hotlines for ratting out dishonest ones;
- Careful selection of the companies and individuals with which the firm does business — refusing to contract with the unethical ones and monitoring the conduct of those it does to ensure they toe the ethical line.
If only things were this easy. If only good corporate leaders grew on trees or at least were easy to spot in the crowd. Ask the Board of Directors of VimpelCom, how hard it is to pick good leaders. Thanks to a joint investigation by U.S. and Dutch authorities, the Dutch telecom giant learned that senior management had lied to them about a deal in Uzbekistan. After the board raised concerns about the potential for corruption, management produced an opinion from a major international law firm saying the deal was above board. But management hid from both the law firm and the board the firm details of bribery and conflict of interest which, after U.S. and Dutch prosecutors unearthed them, forced the company to settle a host of civil and criminal charges for just under $800 million.
In his column, Blair Glencorse is right to bemoan the sorry state of compliance training. Much of it is dry, boring and repetitive — and many employees resent the time they spend on it, knowing “real” work is piling up that will have to be done either after hours or on the weekend. Yet while Blair sees better training methods and teachers as the solution, just as good corporate leaders don’t grow on trees, neither do good teachers — as the history of education reform in the United States over the past decades has shown again and again.
As with Blair’s first two ingredients for fostering corporate integrity, it is hard to argue with to the other two: rewarding those employees who are honest and ensuring the corporation’s suppliers, customers and business partners are as honest as the day is long. But like the first two, both are easier said than done. Should those paid on commission be paid for refusing to sell to corrupt customers? Should those rewarded for holding costs down get a bonus when they eschew a low-cost supplier on integrity grounds? How about companies whose products contain rare minerals mined mainly if not solely in some of the, shall we say, “less ethical” environments in the world like Eastern Congo? Should they stop selling products sourced from offending environments?
The world would most certainly be a better place if all companies voluntarily embraced those four ingredients. But what incentive do they have? That is, beyond the satisfaction of contributing to the common good? And if a few don’t respond to that incentive, won’t it be hard for others to stay the course?
What’s missing is an incentive for a company to toe the line — no matter the quality of its leadership or the training its employees receive or whether honest employees are rewarded or what companies it does business with.
That’s where law enforcement comes in. If a company’s executives and board members know they can be fined — even jailed — if employees pay bribes or conspire with competitors or pollute the environment or otherwise violate the law, you can be sure strong, effective steps will be taken to ensure they don’t. Not only compliance training, not only employee incentive programs, not only care in choosing business partners — but other measures as well: stringent internal controls, rigorous external audits and other oversight mechanisms will be put in place to keep the board and those in the C-suite out of trouble.
Blair concedes that law enforcement has its place, but argues that without a corporate culture that values integrity, enforcement is impossible. I would argue just the opposite: It is vigorous enforcement of the law that creates the incentive for companies to operate with integrity.
But while we disagree on which comes first, I don’t think we disagree that both are essential. Just as it takes both blades of a scissors to cut, so it takes both compliance and law enforcement to foster an ethical business culture.
(Top image: Courtesy of Thinkstock)
Richard E. Messick consults for international organizations, development agencies, and non-governmental organizations on legal development and anticorruption issues. He was previously a Senior Public Sector Specialist in the Public Sector and Governance Group at the World Bank.