Retaining talent through ethical business practices

SUITS THE C-SUITE By Roderick M. Vega

Business World (06/22/2015 – p.S1/2)

As businesses and companies become increasingly global, fraud, bribery and corruption become even more pressing concerns. Discerning executives know that companies which become involved in bribery and corruption scandals could face losses in terms of resources, clients, and reputation. Financial outflows, time lost to possible investigations and litigation, and damage to brand and relationships are all risks associated with corruption.

There is, however, another asset which businesses stand to lose: their valuable work force.

A recent Ernst & Young (EY) report titled “Fraud and corruption — driving away talent?” revealed that 74% of 101 employees polled from businesses in the Philippines would be unwilling to work for, or would even resign from, companies and organizations that are perceived as being involved in major bribery and corruption cases. In the rest of the region, 78% of 1,508 respondents interviewed in 14 Asia-Pacific markets similarly said they would be repelled by unethical business practices. Thus, anti-corruption strategies and fraud prevention is now not just an issue that goes beyond legal concerns and compliance, but is also a key factor for recruitment, talent retention, and business continuity.

The EY report recommends five areas that companies need to address to keep their people engaged.

First, strong ethical leadership is vital. This way, stringent compliance is embedded across the organization. Executives and senior managers should go beyond simply launching an anti-bribery and corruption (ABAC) program but, instead, should also continuously be role models and communicators of ethical behavior. Furthermore, non-executive directors at the board level should develop the habit of asking tough questions to hold management accountable. According to the report, 30% of local respondents think their colleagues are aware of fraudulent activities but don’t do anything about it. Moreover, roughly two in five (41%) have seen colleagues being promoted despite their questionable ethical standards.

Management may be reassured to know that employees will likely support strong action. Among the local respondents, 65% disagree that having an ABAC policy will harm a business’ competitiveness in the Philippine market, compared with just 49% recorded for the wider Asia-Pacific. Moreover, 61% of local respondents — compared with only 41% in the region — also reported that regulatory activity in the past two years have had a positive impact on their organization. This indicates that retaining talent goes beyond just providing competitive salaries and benefits. Employees must also have confidence in their organization’s ethics.

Second, ABAC policies and guidelines must be relevant to be truly effective. Employees need to understand what is required of them and they must buy into the importance of the ethics program. The report recommends using local context and examples during ABAC training, as well as translating codes of conduct into the local language. While 93% of the local respondents say they have a code of conduct, 30% say it’s not available in the local language and 54% think that it should be more flexible for local offices. Furthermore, despite 84% of employees in the Philippines saying they have an ABAC policy, only 65% have received related training. Of those who have received ABAC training, 24% think it is not customized enough for the local market.

The third call to action has to do with stepping up scrutiny of those third parties with which a company does business. More than two-thirds (66%) of local respondents think third parties are a risk to their business in relation to ABAC compliance. Organizations need to monitor joint venture partners, key vendors, distributors, agents, and the like. Business leaders also need to be aware of risks posed by transactions with these third parties. Furthermore, those involved in mergers and acquisitions should be always be careful to include fraud, bribery, and corruption concerns in their due diligence.

Fourth, companies should look into adopting forensic data analysis (FDA) to reinforce their fraud, bribery, and corruption risk management strategies. FDA can identify unusual transactions by using a combination of statistical analysis, data visualization, and text mining.

Applying FDA over large data sets can help uncover anomalies, potential unethical behavior or suspicious transactions. In this way, companies are able to pursue ABAC compliance in a more efficient and effective manner.

On a related note, companies would also do well to step up their data security training and cyber breach response programs to guard against cyber attacks. Some 37% of the local respondents said they are worried that their organization will be at an increasing risk of cyber attacks over the next few years, while more than half (56%) of the respondents believe that their organization is fully prepared to protect itself against these threats. To address this, companies should conduct a cyber threat assessment and also get board-level support for security transformation. Establishing a security operations center with monitoring procedures and response actions is recommended, as is testing the cyber breach response program.

Finally, companies need to enhance the implementation of whistleblower hot lines. More than just setting up a hot line for employees to share suspicions of fraudulent activities, management must provide employees with assurances that their reports will be dealt with in a transparent yet confidential manner and that they will be protected from retaliation. Although 72% of local respondents say that their organizations would support whistleblowers, 37% are reluctant to use a whistleblower hot line due to fears of insufficient legal protection and concern over confidentiality. As employees may prefer to deal with someone from outside the company, organizations should consider using an independent third party to receive and investigate complaints.

With business activity growing in the Philippines and the rest of the region, the war for talent can be expected to continue. Companies need to take note that by managing fraud, bribery, and corruption risks, they can better attract and retain top talent.

Roderick M. Vega is a partner in SGV & Co.’s Assurance practice under the Fraud Investigation and Dispute Services.