Compliance in the News (again!)
March and April have been big news months for stories about ethics in the business world. In case you have missed the news stories, here are some examples of what has been going on:
- Total was charged with corruption over the Iraqi oil-for-food project. Christophe de Margerie, the Total Chief Executive, was one of a number of people indicted
- Three UK board members of French infrastructure company Alstom were arrested in dawn raids on suspicion of bribery, corruption, conspiracy to bribe, money-laundering and false accounting
- The US chemicals group Innospec was fined £12.7 million in the UK after admitting to bribing Indonesian officials
- Four China-based executives of mining giant Rio Tinto were jailed after admitting to bribery and espionage charges
- BHP Billiton is in talks with the SFO and the SEC about possible corruption involving bribery of foreign government officials at some of its exploration projects, thought to be in the Democratic Republic of Congo and Cambodia.
- Goldman Sachs stands accused of fraud and creating deals that were bound to fail and is now under investigation by the SFO and SEC
All of the companies involved have compliance programmes and codes of conducts in place. In some of the examples, the specific incidents took place some time ago and the company concerned will no doubt argue that it has strengthened its internal procedures since this time. Nonetheless each example is at best embarrassing and at worst presents a material risk to the on-going business of the organisation. Why do individuals behave contrary both to the law and often their own company’s code of conduct?
i2a’s research indicates that the most common reasons for individual lapses are situational, i.e. they arise from the situation the individual finds themselves in, rather than from an intent to break the rules from the outset. Here are some of the common reasons for situational lapses:
- An individual is unaware of the rules and/or of his/her responsibility to enforce them. Despite the growth of Compliance Officers and corporate Codes of Conduct in large enterprises, engagement with employees about the issues is still limited. In these cases, compliance becomes a tick-box exercise and employee behaviours don’t change.
- An individual feels pressured to act unethically because of the behaviour of others. Culture plays a big role and examples of “it’s OK to do this; we have always done things in this way” are prevalent. Peer pressure is powerful and may be less direct or obvious that managers think.
- Individuals will often weight tangible, short-term gains much more heavily than distant, abstract harm. So, for example, acting to meet this year’s sales targets, and earn the appropriate bonus, seems worthwhile because ‘no one will know about X and it’s less important anyway’. People need to better understand the actual risks and rewards involved.
- Individuals override their own ethical judgements and defer to the corporate rule book. Codes of conduct, when implemented poorly, can weaken employees’ abilities to exercise their own ethical judgments. This leads to the “it doesn’t actually say I can’t do this in the code” type of thinking. Codes of conduct, or equivalent documents, can never legislate for all eventualities. Effective compliance is based on strong corporate values and understanding the ethical principles.
We at i2a know that achieving effective compliance extends far beyond a code of conduct. It depends on linking corporate values with employee behaviours, everywhere and everyday. It’s not easy to achieve, but the rewards make the journey worthwhile, and the costs – both financial and reputational – of getting it wrong are increasing every month. No Chief Executive wants to be part of next month’s headlines.
This blog was written by Andy Tomkins
