Prioritizing the integrity agenda in times of uncertainty (First part)

Roderick M. Vega

First of two parts

Pressure from the COVID-19 pandemic on emerging market economies continues to impede business growth. Economies and companies all over the world are seeing unprecedented challenges and difficulties, which have further exacerbated potential integrity issues. According to the emerging markets perspective of the EY Global Integrity Report, corruption and fraud still pose a major threat to long-term success for businesses. While regulatory regimes and activities designed to strengthen company integrity have increased during the recent months, the remote working conditions and regulatory scrutiny following the New Normal have only aggravated existing issues while presenting new ones.

The Global Integrity Report, conducted by global market research agency, Ipsos MORI, surveyed more than 1,700 employees from across all levels of large organizations in 21 emerging market countries. It presents relevant insights into the ethical challenges the organizations faced. From board executives to staff members, nearly 63% of the respondents believe it is difficult to maintain standards of integrity during periods of uncertain market conditions or periods of accelerated change. However, the report also reveals that emerging market businesses push efforts to mitigate misconduct, with 44% sharing how much easier it has been to report misconduct in the past three years, and 55% saying their management regularly communicates the significance of operating with integrity.

The report discusses four key areas — ranging from cybersecurity to raising corporate integrity higher in the management agenda — that organizations must focus on in their integrity agendas. By considering how the respondents dealt with these areas of risk, businesses may gain insights into how to overcome some of the challenges to post-pandemic recovery. The first part of this article will discuss prioritizing corporate integrity and encouraging the use of whistleblower channels.

The reputational damage from corporate integrity scandals can heavily scar the reputations of both the companies in question and their stakeholders, damaging even executives who are clearly not involved in such scandals. Stakeholder relationships are also impacted, compromising the long-term value of the involved business.

It is critical for organizations to build an integrity agenda from the top and clearly communicate the relevance of acting with integrity. Corporate integrity is not a mere act of compliance — to act with integrity is both the right thing to do and a means to differentiate the business.

Though frequently highlighting the importance of integrity in company-wide communications is an important step, actual action plans are much more significant. Senior management must reinforce their integrity message with clear examples, institute key performance indicators (KPIs) and have clear and quantifiable metrics to gauge the impact of their integrity initiatives.

Formal policies and programs will provide an avenue for top management to set an example, emphasizing that everyone will be held responsible for their actions regardless of rank or individual performance.

All employees should be heard. To truly embed integrity into an organization, it is critical to foster a culture of speaking up and active listening. Developing the right reporting channels not only provides a clear indicator of how the organization truly embraces integrity — it also discourages individuals from reporting issues directly to regulators or the media. Whistleblowing about unethical behavior can result in high-risk situations that may affect the reporting individual’s safety or lead them to fear reprisal both personally and professionally. The report states that 37% of the respondents in emerging markets do not report concerns about integrity due to apprehensions about their careers, while a worrying 29% choose to keep their concerns private due to fear of their own personal safety.

However, progress is still being made, particularly in emerging markets, with 44% of companies saying it is easier to report concerns in the past three years, and 31% sharing that their companies offer more protection to whistleblowers compared to before. This is driven in part by tighter regulations in emerging markets, but it is also in the best interest of the company to make the whistleblowing process as easy as possible. Employees who are unable to bring their issues to management may instead go directly to a regulator or to social media, leading to a much higher risk of reputational damage. On the other hand, fostering “psychological safety” among employees can help drive productivity, employee satisfaction, and even workplace innovation.

As a key pillar of any organization’s corporate governance framework, whistleblower programs require board oversight to be successful. Employees need to feel safe to report misconduct and believe that it is both a practical solution and in the best interest of the organization. Companies should provide multiple channels to report concerns so employees can choose an option that is comfortable and advantageous to them.

A minimum requirement to consider for a whistleblowing mechanism includes a formal system that efficiently normalizes the process, such as case management, resource allocation, and clarity regarding how to speak up. Protection is also imperative, and anonymous complaints must be addressed by stakeholders.

In the second part of this article, we will discuss the need for an increased focus on data protection and cybersecurity, and the need to address integrity issues in third party providers.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Roderick M. Vega is a Partner and the Forensic and Integrity Services (FIS) Leader of SGV & Co., and Dennis F. Antonio is an FIS Senior Manager of SGV & Co.

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