Company culture failing to support ethical behaviour

Company culture failing to support ethical behaviour


By Samantha White

Embedding an ethical culture remains a challenge for many organisations, and leaders are not doing enough to demonstrate that it is in employees’ interests to do the right thing, research from EY suggests.

Just 24% of UK respondents have frequently heard senior management talk about the importance of upholding ethical standards, according to the EY’s Europe, Middle East, India, and Africa Fraud Survey 2017. Although more than half of those polled had information about potential misconduct, factors preventing them from reporting these concerns included fears for their career prospects as well as for their personal safety.

Among the other findings in the survey:

Bribery and corruption remain widespread in many regions. The results of the survey, which included responses from a mix of employees in various job roles and industries across Europe, the Middle East, India, and Africa, suggest that bribery or corrupt practices remain widespread. In the UK, 25% of respondents felt that was the case in their country, 38% in Poland, 47% in Ireland, 66% in Russia, and 79% in South Africa.

Internal culture is failing to support whistleblowers. The survey found that 52% of respondents have had information or concerns about misconduct in their company. Of that number, 48% said they have faced pressure to withhold it. Asked to cite the factors that prevented them from reporting incidents of fraud, bribery, or corruption in their business:

  • 51% cited concern over their future career;
  • 46% fear for their personal safety;
  • 30% cited loyalty to colleagues;
  • 24% cited loyalty to the company.

There is a more fundamental obstacle to reporting suspicions of misconduct. Just 21% of those polled were aware that their company had a whistleblowing hotline. This underlines the work to be done by leaders in communicating the importance of, and the company’s policy and procedures on, ethical behaviour.

Furthermore, if employees do not feel secure in being able to report concerns, businesses are missing out on an important source of information which could help them identify and tackle misconduct.

Despite the barriers to reporting internally, 73% would consider providing information to a third party, such as a regulator, law enforcement agency, or the media.

There are also implications for talent retention: Almost half of respondents said they had considered resigning over the basis of these concerns, so failure to address misconduct may have a negative impact on employee retention.

Gen Y is more likely to justify unethical behavior. The research found that respondents from Generation Y (ages 25-34) were more likely than other age groups to justify unethical behaviour. For instance, 25% of Generation Y respondents would offer cash payments to win or retain business, compared to 14% of respondents from other age groups.

Members of Generation Y are also less likely to trust colleagues. Forty-nine per cent said their colleagues would be prepared to act unethically to boost their career progression, compared with around 20% of respondents as a whole.

Board directors and senior managers were also more likely to justify unethical behaviour than other employees. One in three directors or senior managers would feel justified in offering cash payments to win or retain business, compared with 20% of other employees. Similarly, 20% of the executive group would be willing to book revenues earlier than they should to meet targets, compared with 10% of others. 

There is a data privacy dilemma. The authors of the report suggest that companies should take advantage of new technologies and machine logic to detect misconduct. Potential data sources include email messages, instant messenger programs, feeds from security systems, phone calls, social media profiles, credit checks, and criminal record checks.

Seventy-five per cent of the employees who participated in the survey agreed that these should be monitored. However, there is a disconnect when it comes to employees’ own systems: 89% of respondents would consider it a violation of their privacy if one or more of the sources listed above were monitored.

The authors suggest that companies raise awareness amongst employees as to why they need to collect these data, and their role in preventing financial, reputational, or regulatory damage to the organisation. For instance, analysing data from email messages or building access logs can help identify threats such as theft, damage, or manipulation of company assets by insiders.

Regulation “has little impact on ethical standards in Europe”. Since the previous edition of the survey, there has been significant, high-profile regulatory action against companies found to be involved in bribery and corruption.

The authors note that in 2016, enforcement of the Foreign Corrupt Practices Act reached record levels, with 27 companies, including many based in Europe, involved in settlement agreements worth more than $2.5 billion. The UK Serious Fraud Office also reached a Deferred Prosecution Agreement worth about £500 million.

However, just 19% of respondents in Western Europe (up from 11% in 2015) and 22% of those in Eastern Europe (up from 16%) considered regulatory activity to be having a positive impact on ethical standards in their company.

Respondents in emerging markets were more positive about the impact of regulation. It was deemed to have the greatest positive impact in Africa (63%), followed by India (52%) and the Middle East and North Africa (48%).

The research also suggests protection for whistleblowers is increasing. In India, 27% agreed there had been an improvement over the last three years, and 24% in Nigeria.  

The idea of greater accountability for individual executives was welcomed. Seventy-seven per cent of all respondents believe that prosecuting individuals would help deter executives from committing fraud, bribery and corruption.

Samantha White (Samantha.White@aicpa-cima.com) is a CGMA Magazine senior editor.