(Second of two parts)
The EY Global Integrity Report 2022 shows us that 97% of survey respondents — consisting of 4,762 board members, managers and employees from large organizations in a wide spectrum of industries, including financial services, government and public sector, consumer products, manufacturing, life sciences, professional services and others from 54 countries in North and South America the Far East, Western and Eastern Europe, and the Middle East, India and Africa — place a high value on corporate integrity.
However, the report also shows that organizations are struggling to close the gap between reality and rhetoric. As organizations rewrite the processes for digital transformation and recalibrate how and where work is performed, they can seize an opportunity to close the gap between what they say and what they do. Integrity in business is not confined to ticking boxes in compliance and risk management; it is about securing the organization, its reputation, and its assets — all of which drive sustainable, long-term value.
While the report did not include respondents from the Philippines, we believe that the insights from the report offer much food for thought for local business leaders who place great emphasis on corporate governance and integrity.
The EY Global Integrity Report 2022 provides insights on accelerating the integrity agenda, and in the second part of this article, we discuss how companies can create an optimal environment that encourages integrity, and how the integrity agenda can be innovated and transformed to minimize external threats while protecting value.
CREATING THE OPTIMAL ENVIRONMENT FOR INTEGRITY
The report indicates that integrity standards have dropped in the aftermath of the pandemic, with 42% of board members agreeing that unethical behavior from senior or high performers is tolerated in their organizations and 34% agreeing that it is easy to bypass business rules. At the same time, 18% of board members are willing to mislead external parties such as regulators and auditors. In addition, 15% expressed a willingness to falsify financial records, and 14% said they would offer or accept a bribe.
It becomes even more imperative for employees at all levels to understand that these violations bear consequences, and in being able to report such acts without the fear of negative consequences. The report shares that too often, employees feel that reporting violations won’t trigger change, with 38% of survey respondents saying that the main reason they do not report is the concern that no action would be taken against the violator anyway.
The report also highlights the gap in perceptions of board members (47%) on how easy it is to report violations, compared to the views of employees (25%).
Companies must be able to create an optimal integrity environment where management and employees trust that whistleblowers are protected, and where values are shared across every level of function and seniority. In fact, the extent to which companies can protect whistleblowers in their organization should be a benchmark of their integrity culture.
There must be a high degree of transparency, with a culture that has a zero tolerance of transgression. A progressive integrity agenda extends beyond opportunistic compliance, where people do something simply because it is not illegal under the law; restrictive compliance, where people are prevented by the law from doing something; and the avoidance of litigation, where people do something to avoid being sued.
The pandemic showed us that when the global economy experiences a crisis, many companies depended on the rescue interventions of Government authorities and taxpayers. Companies have the responsibility of managing resources for the common good and acting ethically, as employees, shareholders, consumers and the community at large expect them to do so.
INNOVATING AND TRANSFORMING THE INTEGRITY AGENDA
The accelerated reliance on digital platforms and automation raises important risks, as data systems become increasingly fundamental to the operation of a business. Issues such as data completeness, data quality and AI models that do not perform correctly are no longer only technical problems to be managed by IT colleagues. Data systems that are critical to the business require many stakeholders involved in curating and shaping these systems, addressing any challenges with urgency. This blurring of boundaries is not confined to the digitalization of business operations and transactions, either — it is also increasingly blurred by third parties such as suppliers, vendors and contractors.
The report shares that the overall confidence that third parties abide by relevant regulations and laws is high at 83%. However, while 47% of board members have the highest level of confidence, only 28% of employees believe the same. The report also indicated that different roles tend to have different levels of confidence in the integrity of third-party suppliers (86% of IT departments compared to 71% of legal departments).
The report shows how easily mismatches can develop between the perceptions of the board, their employees and various groups in an organization, increasing the need to close the distance between all the groups and hierarchal layers comprising an organization. By tightening the connections between its parts and functions, an organization can deepen a shared integrity culture. As companies emerge from the pandemic and start looking to fill resource gaps with third party contractors, aligning them to the integrity culture of the company will also be vital.
Organizations that leverage technology to further enable risk mitigation efforts will gain greater visibility into their risk landscape and the effectiveness of their compliance program as a whole. Leaders will need to ensure that technology is an integral part of their compliance strategy to make the most of these advancements, harnessing forensic technology solutions to identify hidden risks and using benchmarking to understand outliers. With technology able to advance the integrity agenda beyond merely checking travel and entertainment expenditure lines, data will be likewise capable of increasing the transparency of all company interactions and transactions.
BUILDING A CULTURE OF INTEGRITY
Focusing on technology-driven and data-centric ways to monitor one’s integrity culture and build the necessary controls, insights and process allows companies to transform their compliance programs, creating long-term value. Increasing volumes of data can be utilized as an opportunity to aid in the combat against fraud, but it should be recognized that systems and processes are not the source of fraud: humans are.
This means that the best compliance frameworks can be breached if a culture of doing the right thing is not established at a fundamental level, making building a strong integrity culture as important as the control environment. The report shows that while the integrity message is reaching people, the appetite for malpractice is growing. Companies must therefore continue communicating and building awareness by educating instead of training, ensuring that everyone understands the “why” of business integrity as much as they do the “what.”
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 author and do not necessarily represent the views of SGV & Co.
Roderick M. Vega is a partner and the Forensic and Integrity Services leader (FIS) of SGV & Co.