EY views the presence of integrity as the foundation for trust. Given this, integrity is by now a widely recognized attribute of a successful, sustainable company and the foundation for embedding trust among employees, customers, and other stakeholders. The potential investment gains that could be achieved by eradicating fraud and corruption are sizeable.
Forward-looking companies operate with integrity, not just to avoid fines or penalties, but to maintain their good reputation and successful growth. The link between integrity and successful business performance is supported by research by Ethisphere, which found that the World’s Most Ethical Companies® outperformed the US large cap sector by 14.4% over a five-year period. The EY 15th Global Fraud Survey found that customer and public perception, business performance and talent—both recruitment and retention—were all higher-ranked benefits of integrity, and not merely means for avoiding regulator’s scrutiny. Companies today are increasingly viewed as social actors impacted by, and potentially influencing, social norms and wider issues—from immigration policy and climate change to lesbian, gay, bisexual and transgender (LGBT) rights. We are, the business media proclaims, in the era of “CEO activism,” with chief executives taking public stances on wider social and political issues. Moreover, companies’ innovative ventures into domains such as artificial intelligence (AI) and big data are setting off debates about digital ethics and technological social responsibility.
The importance of integrity will only grow as a corporate priority in the future. Investors want companies to articulate their longer-term vision and purpose, such as reporting on how the business aligns with climate goals. Studies show that younger workers put more priority on social purpose and positive impact in their career decisions than their elders did. Purpose- and value-driven organizations will fare better in the war for talent.
Social media and digital platforms add a new level of information that can affect perceptions, and reputational risk. Customers also have greater insight into the conduct and management of brands in today’s media-saturated age. Ted Acosta, EY Regional Managing Partner, Latam South (formerly Americas Vice Chair, Risk Management) says, “Employees can blog or post about what their company does or does not do. A lot of this material is read by other people (including prosecutors, investigators, and journalists). You should be mindful there is an additional level of information about you out there now.”
But while the business case for integrity is well established, there is an inherent challenge in moving hundreds, thousands, or even hundreds of thousands of employees, agents, and suppliers from principles and ideals to practice. The media is continually covering new scandals, ethical lapses and compliance failures—from trader misconduct to money laundering, and large-scale bribery and corruption. Long and complex supply chains, from fashion and food to smartphones, can increase the risk of a firm’s entanglement with modern slavery, child labour, environmentally harmful production methods or worker exploitation.
Bad practices are not confined to marginal firms in unregulated environments. Infamously, some of the biggest brands in the world have been involved in these practices. Worse still, unethical practices can exist for weeks, months or years before being discovered, and leave a “breadcrumb trail,” suggesting wider awareness and acceptance of their existence in the company.
Acosta continues, “Your company’s performance on culture, ethics and compliance matters not just for external constituents, such as journalists, prosecutors or politicians, but it also affects how your own people think of the company.” Companies may explain away instances of misconduct as the result of a rogue staff member acting in a consciously unethical way. But if companies take integrity seriously, they might also find broader patterns of unethical or illegal behavior, and gaps in governance, controls and information. These gaps include business units with corrupt business cultures into which senior management has an inadequate line of sight; compensation systems that coerce employees into making unethical decisions; fear of speaking up; controls that do not extend to agents, representatives, and suppliers that create legal and ethical risks. “Risk can never be entirely eliminated, but it can be reduced if a company measures its progress and tracks how risk dynamics change over time,” says Jon Feig, Partner, Ernst & Young LLP United States, Forensic & Integrity Services. “This entails asking far-reaching questions: are investments that companies are making—such as those for “tone at the top” training, controls, reporting systems and cultural reforms—protecting the organization and its employees from legal and ethical risks? Are those investments strengthening the organization’s ability to build stakeholder trust, innovate and expand into new markets?”
About the Author:
Andrew Gordon is EY Global Forensic & Integrity Services Leader, with over 30 years of experience in complex, cross-border financial fraud investigations with a wide range of clients and sectors. He has worked alongside international law firms, reporting to regulators and law enforcement agencies on a range of issues pertaining to fraud and corruption. Andrew has direct access to a wealth of talent and knowledge across the global EY network, including 4,500 Forensic & Integrity Services professionals in more than 75 countries. He is a Fellow of the Institute of Chartered Accountants in England and Wales.