We often associate questions of ethical conduct with individual actions relating to particular scenarios, such as those involving healthcare. While it’s true that ethics and conduct are matters under the control of humans, financial companies and other entities also have ethical responsibilities, typically enshrined into a corporate code of conduct. However, the corporate code of conduct itself is simply a document. When the principles it outlines aren’t adhered to, and unethical behavior becomes the norm, disaster can ensue. We don’t need to look very far for examples.
In the summer of 2020, German fintech giant Wirecard suddenly collapsed, owing creditors almost $4 billion. It turned out that the company was missing cash reserves to the tune of $2.1 billion. This was unveiled after auditors from EY refused to sign off on the 2019 accounts. The Financial Times had been investigating the company for years, regularly publishing articles that flagged questionable financial practices. CEO Markus Braun rightly took the fall, but it is implausible that he acted alone.
In an increasingly interconnected business landscape, the risks of poor ethics aren’t confined to corporate silos, either. In 2019, Apple was implicated in a breach of labor regulations linked to its manufacturing partner, Foxconn. The company was overutilizing its temporary workforce to bypass employment laws covering overtime and paid leave.
Benefits Beyond Risk Mitigation
As much as poor conduct standards create unnecessary risks for companies, promoting good ethical practices should be about more than simply avoiding pitfalls. The annual World’s Most Ethical Companies list features many long-established companies and household names, including IBM, Avon, Kelloggs, Mastercard, and Pepsico.
That isn’t a coincidence. Robust standards of conduct and ethics are a matter of competitive edge. Being able to consistently outperform the market relies on hiring top talent, securing best-in-class suppliers, and ensuring that a company can sell its products and services even in a competitive environment. 71% of professionals say they’d be willing to compromise on pay to work for a company they believe in, and 70% of millennials consider company values before making a purchase.
Therefore, there’s no question that robust ethical standards are integral to the success and longevity of corporations.
Challenges with ‘Code of Conduct’ Compliance
So why do companies struggle with it? There can be various reasons. In larger organizations, it can be difficult to get management buy-in at all levels, resulting in a disparity in how standards are upheld between different parts of the company. Compliance departments may not feel empowered, particularly in companies where compliance is seen as a paperwork exercise.
The paperwork itself can be another blocker. Compliance teams are still often bogged down in archaic processes involving Excel spreadsheets and Word documents. In this case, they don’t have the time to engage in more value-add activities like training, education, or effective policy management. Code of conduct compliance risks becoming an annual box-ticking exercise rather than weaving ethical standards into the fabric of the organization.
In these cases, poor ethical standards can creep in over time as minor incidents get overlooked. Eventually, a code of conduct can become little more than just another policy document.
Leveraging Technology to Embed Compliance
How can organizations prevent this from happening? They must adopt appropriate systems and processes to ensure that standards of conduct and ethics are embedded into the corporate culture and mindset. Technology is a key enabler here, as it can help ensure that compliance teams can reach further with the resources they have.
For instance, many compliance teams can spend endless hours reviewing, editing, and updating policies because their governance processes require multiple levels of sign-off. Governance, risk, and compliance software tools can reduce much of this work with automated processes for drafting, editing, reviewing, and publishing policies. In-built version control helps keep libraries up to date and provides a transaction record showing actions, decisions, and approvals.
Similarly, some of these tools also have a feature that automates the attestation process, making it easy to reach all employees and even third parties and pull reports to demonstrate compliance during audits.
Creating a Strong Culture of Ethics
By eliminating manual, resource-heavy activities through technology, organizations can gain several benefits, not least reducing the risks of human errors or oversights. Furthermore, companies can redeploy compliance efforts into other activities that promote a strong culture of ethics and conduct. According to Michael Volkov, CEO of The Volkov Law Firm and expert in compliance, “Corporate compliance is going through its biggest revolution. This shift to embedded compliance and a change in culture is happening and will be crucial for financial institutions in the future.”
For example, a survey conducted by the World’s Most Ethical Companies found that its honorees consistently demonstrated a commitment to training activities, with over 75% having training plans that extend multiple years into the future. 87% conduct ethical culture assessments among employees, 87% use periodic “compliance roadshows,” which have now shifted to virtual events.
Other activities could include helping managers to understand how they can incorporate code of conduct and ethics into performance evaluations or developing incentive programs; they also can make their employees aware of the Ethical Code of Business Portal that is available online so that they know that the standards of their organizations are high. Similarly, compliance teams can also direct these efforts to ensure that third parties comply with their corporate standards. This has been the culmination of a movement of over 20 years. We have seen aggressive enforcement coupled with demands for better compliance programs and a commitment to ethics.
Strong communication is the heartbeat of a company and is essential to driving a solid and shared culture of ethical standards. Without communication, trust can be quickly eroded. Trust is central to employee engagement, and, as a result, productivity is vital as well. It can also make staff more comfortable in their work environment, thus enhancing talent retention. In an ever-changing business environment that’s often beset by risks, the value of upholding a high standard of ethics and corporate conduct should not be underestimated. By embracing technology to make compliance more dynamic and efficient, organizations have an opportunity to reduce their exposure to risks and gain an edge over the competition.