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Putting integrity on the management agenda

In a world of changing business models, the explosion of data, increased regulation and enforcement, the integrity of an organization becomes the most important driver for ethical business.


Ninety-seven percent of respondents recognize it is important that their organization acts with integrity and rank “operating with integrity” at the top of their list of what they would like people to say about their organization.

Interestingly, although 43% of respondents recognize the importance of demonstrating integrity to avoid regulatory scrutiny and penalties, they also see integrity as a business advantage. Customer perception, public perception, successful business performance, recruitment and retention of employees were deemed more important benefits than avoiding scrutiny and penalties. Respondents from developed markets saw a broader range of benefits than those from emerging markets of their organization demonstrating integrity.

The link between integrity and successful business performance is supported by research performed by Ethisphere Institute, which found that the World’s Most Ethical Companies outperformed the US large cap sector by over 10% over a five-year period. *

 

 

Acting with integrity makes it easier for organizations to operate, reducing scrutiny and fines, attracting the best employees and customers. It is therefore not surprising that respondents believe that successful business performance and improved customer and public perception are important benefits of integrity.

 

Despite respondents recognizing the importance of integrity, we continue to see a prevalence of fraud and corruption, as well as significant business failures.

The results show a mismatch between the 97% of respondents that believe it is important to demonstrate their organization acts with integrity and 13% who would still justify making a cash payment to win a contract.

A potential explanation for this mismatch is that there is little or no clarity as to who in the company is primarily responsible for ensuring that employees behave with integrity. This appears to be common across industry sectors and geographic regions.

We found that fewer than one in four respondents believe that individuals should take primary personal responsibility for behaving with integrity. On a regional level the outliers are Oceania at 38% and Japan at only 4% who believe that individuals should take personal responsibility. The remainder believe the primary responsibility for ensuring integrity sits with other groups in the organization such as human resources, compliance, legal, senior management and even the board.

 

We also found that the group who did not believe it was primarily an individual responsibility to ensure that employees behave with integrity is significantly more likely to act inappropriately, including making cash payments to win or retain business. These same respondents are also more likely to extend the monthly reporting period or change assumptions that determine valuations or reserves in order meet financial targets.

 

 

The importance of integrity in a changing business environment increases as compliance functions, regulators and enforcement agencies may struggle to keep up with the pace of change. Business leaders should focus on instilling the concept of employees taking individual responsibility for the integrity of their own actions.

The Integrity Agenda —intentions, conduct and measurement

The announced intentions of an organization may be clear: policies and codes of conduct are in place, senior leaders demonstrate commitment via formal and informal communications. Yet, recent high profile scandals at major corporations show that aberrational misconduct by executives has persisted and gone unnoticed for long periods of time. When the misconduct finally surfaced publicly, expensive investigations have ensued, fines have mounted, and individuals have been prosecuted, while market values have declined.

 

 

The Integrity Agenda has four foundational elements that align an individual’s actions with an organization’s objectives. The core challenge is influencing behavior over diverse and dispersed employees and third parties amidst intense competitive pressures and rapid technological change.

 

”2018 world’s most ethical companies,” Ethisphere website, www.ethisphere.com/2018-worlds-most-ethical-companies”, accessed 12 February 2018.

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