What is an Ethics and Compliance Programme? And why do businesses need them? In this blog, we try to provide some easy answers to these basic questions.
Ethics remains one of the universally accepted core values for businesses. Jurisdictions across the globe criminalize bribery. Yet, corruption remains a major challenge to businesses and economies. There is a growing realization that for businesses to not only eliminate the risk of prosecution, but also to thrive, they must institutionalize processes which prevent corruption. And that is where Ethics and Compliance Programme comes into picture.
There are numerous advantages of having an Ethics and Compliance Programme. Quite obviously, it helps eliminate the scourge of corruption. It also helps companies protect their reputation. Empirical evidence suggests that ethical organisations are more cost efficient and profitable in the long run. Smaller companies with a strong commitment to ethics are more likely to secure business from big corporations. Also, the so-called long arm anti-corruption laws of US, UK, France, Canada and many other countries mandate deployment of adequate safeguards to prevent unethical behavior in the organisation. So, it makes eminent sense for every business to work in the direction of developing an Ethics and Compliance Programme, irrespective of the lack of any such requirement under national laws.
Simply put, an Ethics and Compliance Programme is a set of best practices, procedures and safeguards for helping prevent persons associated with businesses from indulging in corrupt and unethical conduct. A good starting point can be having an Ethics Policy or a Code of Conduct. Depending on the specific needs of a business, there may also be a need to have more granularity, such as, a policy and thresholds for giving and receiving gifts, a guide for vendor engagements, a travel and reimbursement policy for hosting public officials, so on and so forth. Such policies help bring objectivity and make it possible to enforce rule-based discipline.
Alongside the deployment of a Code of Conduct, it is equally important to methodically carry out a corruption risk assessment. A cure can be planned only when a diagnosis has been carried out. And the diagnosis will be unique for each case. The corruption risk scenarios for say, an FMCG manufacturing company, a pharmaceutical trader and an ITES unit will not be the same. Therefore, a risk assessment will involve a study of the industry, drawing up a catalogue of scenarios, knowing the business from the inside by interviewing the managerial as well as operational people and simulating situations. Once all the probable risks are mapped, a corresponding action plan would be drawn to eliminate them in a time-bound and measurable manner. This exercise of risk assessment should be periodically repeated to address evolving practices of corruption.
Furthermore, communication and training are essential pillars of such a Programme. While there may be some common elements across all businesses for such communication and training, it is essential to tailor the message to make it relevant and understandable for the target audience. Within the same organization, not all employees would have the same exposure to corruption. Therefore, based on factors such as exposure to public officials and power to make financial decisions, the population can be graded, for specific sensitization needs.
Apart from putting in place policies and systems, it is also important to designate someone with the requisite skillset to deploy, monitor and report on the Programme. An Ethics Officer or Integrity Officer helps drive an ethical culture in the organization and is the veritable conscience keeper of the organisation. A senior officer of the company who has the wherewithal and authority to demand action from other employees is usually designated for this role.
The success of an Ethics and Compliance Programme rests on reporting of unethical situations and taking adequate action. Therefore, defining adequate reporting channels is critical. Equally critical is putting in place an effective whistleblower policy which protects informants from any kind of retaliation. Once an ethical situation is reported, an investigation by a person trained to investigate ought to be launched. If an employee is found involved in an unethical conduct, consequences must follow and such consequences must be commensurate with the severity of the breach. Therefore, service rules of the organisation must provide for adequate sanctions for ethical misconduct and objective criteria for applying them.
Accurate and transparent financial record keeping as well as adequate internal control are two more building blocks of the Ethics and Compliance Programme. They help in not only preventing fraud but also in detecting one. They also help in monitoring the efficacy of training, risk assessment and other actions taken to establish an ethical culture.
Having a robust due diligence tool and process for vetting all potential clients, vendors, partners and agents is also an important means to keep risk of corruption at bay. The ethics due diligence is much more than a mere Know-Your-Customer (KYC) check. Many effective tools are available today which help check risk of exposure by identifying prior sanctions, adverse media reports, legal actions, enforcement actions, affiliation to politically exposed persons etc.
All Ethics and Compliance Programmes require regular audits to check their working. Audits ensure that the Programme is not just a paper tiger. It also helps identify areas of improvement. An audit checks the availability and adequacy of components detailed above on measurable parameters. Usually, such audits include interviews, questionnaires, sampling, testing and site visits. Audit recommendations are followed up after an interval to assess improvements.
An Ethics and Compliance Programme can succeed only when there is a top-down commitment to ethics. And even as senior management’s personal integrity is a sine qua non, it is just not enough. Leaders must drive the message to the rank and file by regularly communicating on the topic of ethics and by personally ensuring effective implementation of the Programme.
The benefit of running an ethical business far outweighs the cost of running a dubious one. And an Ethics and Compliance Programme with all the right elements is just what the doctor ordered.
