Daily dose of dilemmas
- During a regular tax audit, the inspector offers your company to hire an accountant of his choice for Rs. 1 Lakh or the investigation would not be wrapped up. What shall you do?
- A labour dispute which has risen due to unforeseen circumstances is implied to be settled only after payment of a certain amount to a political party. Would you pay?
- To drive business growth, management suggests window dressing of financial performance. Would you succumb to the order?
- You realize that your relative is involved in insider trading. Would you ever blow the whistle?
Have you ever come across such a dilemma in your daily life?
Many noted organizations have codes of conduct, documented policies and stringent internal controls in place. Despite the framework, they are grappling with such situations for years. With time, the risk of non-compliance and unethical behavior is intensifying due to following reasons-
- Globalization and exposure to different markets
- Stringent norms against non-compliance
- Increase in the number of regulatory bodies of the world
Organizations across the globe are facing difficulties in eliminating the subtle form of frauds which are all pervasive and common rather than the big ticket frauds which are easy to notice. Rather, it is the culmination of such small frauds that results in earth shattering scams. Also, a recent survey of WEF (World Economic Forum) identified the greatest obstacle to conducting business in developing countries as corruption. According to the survey, it is the biggest problem in Russia, the second biggest in India and the fifth biggest in China and South Africa.
Why do businesses indulge in corrupt practices?
Reasons are many! Most of the organizations do not have firm policies in place which tend to act as a mechanism against corruption. And if there are documented anti corruption policies, they prove fruitless when it is done by a group of employees/ management with a common goal in mind. Thus, we can say that corruption is a two-way street. Some indulge in corruption to avoid the lengthy procedures, while some do it combat harassment by corrupt officials. In the end, everyone has one explanation – “Everyone else is doing it!”
How do you stand out?
Organizations should view it as an opportunity to grow and prosper. Having a strong ethical value system in place acts as an investment for sustainable future. Research suggests that such proactive steps can be easy to implement in countries which have following characteristics :
- Free and plural press
- An independent judiciary
- Potential for collective action of citizens
- Rational community
It is obvious that when such conditions prevail in any country, it shall be easier for any entity to be strong enough to raise its voice against corruption! We see a lot of instances where citizens are reaching out to the world –
– Via NGOs and free press
– Use of Social Media to talk about a cause and create awareness
– Crowdfunding platforms to collect fund for noble causes
How do you develop this mindset in your organization?
Don’t ignore the ABCs
All organizations need to have the basic internal controls in place in all its functions. They eventually culminate in quality product and services. Monitoring and ensuring that these internal controls are functional should not be overlooked. Majority of us miss out on this step! As per an E&Y survey, only 35% of the companies have taken action against corrupt employees. Also , 1/5th respondents have agreed that their organizations have no internal control policies that they are aware of.
A few questions to ask yourself –
– Does the company have a formally documented policy in place?
– Are these policies functional?
– Is every employee aware of this policy via training, induction etc?
– Are the policies being monitored and updated from time to time?
– Do the authorized personnel take any action against the wrong doers?
– What is the process of investigation of fraudulent activities/scams?
A country is a reflection of its government and citizens. In the same way, employees and management build an organization’s image. Mostly , entities have a hierarchical structure in place to direct the flow of information. The employees look up to their executives as role models and follow the ways of their superiors. Thus, executives should be more responsible of all their actions. Transparency encourages a culture of accountability in the entire hierarchy. Character of the leaders generally determine the behaviour of the followers!
Small practices like punctuality, truthfulness and healthy discussions practices by the leader can often result in a sense of responsibility amongst the employees.
Invest in GRC functions
Organizations should focus on their business and the related stakeholders. They can divide them in 4 parts according to a certain HBR article –
- Indifferent stakeholders– The only thing that matters to them is whether an organization can meet their demands and expectations. They are totally indifferent to the ways used by the the organization to achieve it. Thus, they only focus on end results.
- Pragmatic stakeholders – This kind finds at least a little tangible value in partnering with an ethical organization
- Absentee stakeholders – They are the ones who are generally averse to participate in practices which lack ethical behavior because of the very high risk and uncertainty caused by the corruption
- Ethical stakeholders – These support an organization to enhance ethical standards even at a cost to themselves
Thus, an organization should bifurcate their stakeholders in 4 groups and invest in them accordingly.
Generally, companies refuse to invest in compliance functions like – Legal, Audit, Finance and eGRC tools. This is one of their biggest mistakes! In developing countries, where bureaucracy is strong, it is critical to have a powerful compliance function in place in order to survive and sustain! Taking shortcuts will definitely expose the company to a variety of risks by exploitative officials. Further, there is a risk of reputational damage. Evasion is easy. Staying compliant is difficult when you have no system in place!
Thus, a relentless commitment and focus to encourage ethical behavior combined with a strong determination to not compromise on sustainability for a short term cost is the need of the hour.Add to favorites