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30 May, 2023

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What scandal is waiting to be exposed at your company?

by Patricia J. Harned and Larry D. Thompson

Non-compliant conduct is already taking place somewhere inside your operations. And scandal is one of your greatest business risks.

Businessman surrounded by news reporters

Image: Microgen/Shutterstock.com

If you are like most people, you regularly peruse the Wall Street Journal, taking in the reports about market trends, investor activities and/or political moves that could impact your company’s operations. When you get to stories about businesses embroiled in scandal, you are drawn to the details in the same way that you can’t help but stare at a bad car accident on the highway.

While you may feel empathy as you read about executives leading their businesses through the minefields of scandal, it’s also easy to dismiss the possibility that a something similar could take place in your organisation. We’ve got good systems and controls, you may say to yourself. This will never happen to us.

It’s easy to dismiss the possibility that a something similar could take place in your organisation

Unfortunately, we have some bad news for you. Non-compliant conduct—the kind that could disrupt your organisation—is already taking place somewhere inside your operations. Right now, today, there is a scandal waiting to happen at your company.

We say this because in 2020, half of all employees in the United States and a third of workers in businesses around the world witnessed at least one act that could be considered non-compliance with company policy or a violation of the law. While 86% of those employees notified someone in management, the majority of that wrongdoing was allowed to persist for quite some time.

These and other statistics, released this week by the Ethics & Compliance Initiative, paint a dire outlook for business integrity around the world. It is all but certain that tomorrow’s WSJ will be as newsy as today’s edition with stories of scandals, because leaders aren’t doing enough today to prevent it.

Compliance and culture

Our most recent research shows that organisational culture is key, yet only one in five companies has the kind of workplace environment that actually reduces non-compliance, encourages safe reporting of suspected wrongdoing, and prevents retaliation when employees notify management of problems ahead.

There are some things that you can—and should—do to mitigate the likelihood that your organisation will be the next scandalous headline in this publication. Step one is to implement a high-quality ethics and compliance programme. You must go farther than the implementation of a code, compliance training and a hotline. The key is to identify and weave a set of core values into the daily language of your company, to set performance expectations related to integrity, and to reinforce the standards.

it is essential that you ensure that individuals are held accountable when they engage in wrongdoing, and that you are transparent with your stakeholders

Second, culture must become one of your personal priorities. Talk as much as you can about the importance of integrity and raising concerns. Assess your culture and identify the individuals and practices that are drivers of employee conduct. Incentivise individuals who take steps to make integrity a priority. Our research shows that if you can do these things, good conduct will increase by as much as 467%.

Finally, it is essential that you ensure that individuals are held accountable when they engage in wrongdoing, and that you are transparent with your stakeholders. When accountability vanishes and employees no longer trust leadership, they are far more likely to go outside the organisation to make problems known.

It may seem like tending to organisational culture and promoting core values shouldn’t be responsibilities that fall to you. But like it or not, you have a bigger influence than you may think; the tone coming from a single business leader can reduce organisational wrongdoing by as much as 50%.

Think of integrity as one of your company’s most important assets, and the likelihood of a company scandal as one of your greatest business risks. The effort begins with you.

Larry D. Thompson is chair of the board and Patricia J. Harned is chief executive officer at the Ethics & Compliance Initiative.

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For thoughtful journalism, expert insights on corporate governance and an extensive library of reports, guides and tools to help boards and directors navigate the complexities of their roles, subscribe to Board Agenda

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