Building corporate integrity systems to fully address corruption risks

Abstract

"The concept of integrity in companies refers to a holistic approach of doing business that involves the management, employees and shareholders in adopting actions and standards that provide for an effective defence against corruption and abuses. When a company has ‘high integrity’, conduct on the part of directors, management and employees is characterised by adherence to globally-recognised ethical standards, compliance with both the spirit and letter of the law and regulations, and promotion of responsible core values (e.g. honesty, fairness and trustworthiness). Ethical leadership, anti-corruption compliance systems and regulatory oversight are the principal ingredients for corporate integrity. But additional incentives, checks, and balances are necessary to make these elements more effective, assess their performance, plug loopholes and provide a second line of defence against corrupt behaviour. Only a comprehensive corporate integrity system can achieve these aims by building an inter-linking framework around four interdependent elements: Norms and cultures (e.g. codes of conduct, ethics and corporate citizenship); Governance (e.g. compliance systems, corporate governance and whistleblowing); Public rules and regulations (e.g. regulatory oversight and law enforcement); and Broader checks and balances (e.g. rating agencies, investors, employees, media and civil society watchdogs). The first component relies on companies adopting and enforcing global ethical standards that bind businesses and employees to shared principles (values, policies and attitudes) and practices (norms, systems and processes). However, their voluntary nature and their frequent lack of independent verification makes it difficult to assess whether related measures are working (see side bar). Governance frameworks, the second component, go a step further by establishing internal structures, processes and control mechanisms to prevent management or staff misusing their positions and power within the company for personal gain. A company’s top staff — the directors, chief financial and executive officers, general counsel and human resources head — must set the tone and lead the way in behaving with integrity and encouraging standards in the company, including on executive remuneration, levels of board oversight, financial transparency and whistleblower protection. Regulation and oversight by governments, the third component, helps to formalise and enforce such policies and practices. Yet effective regulation requires resources and political will, and these can vary considerably by country. In the case of public enforcement of securities regulations, South Africa spends four times the amount as France relative to its gross domestic product (GDP).1 Checks and balances on the system, the fourth component, are provided by a mix of players, including employees and larger shareholders, auditors, legal service providers, rating agencies and investment analysts, as well as investigative journalists and civil society organisations (CSOs). The effective engagement of each of these actors comes with its own challenges and depends on a wide range of policies.