A business ethics expert warns that companies need to build a genuine ethical culture, especially those with international operations.
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When does corporate hospitality slide into the moral grey zone of backhanders and baksheesh? At what point does a generous gift to a potential overseas client become a bribe? And when does aggressive tax management cross the line into unethical tax avoidance?
Questions of corporate morality are increasingly finding their way onto the boardroom agendas of global businesses, says Philippa Foster Back, director of the UK’s Institute of Business Ethics.
“Large multinationals are looking at a whole array of potential risks based around ethical dilemmas that may trip up their corporate reputations at any time,” she said on a recent visit to New Zealand, where she ran seminars for a range of organisations, including the Serious Fraud Office, the State Services Commission, Zespri and Ports of Auckland.
But adopting an ethical business framework is about more than writing a code of ethics and hanging it in the lobby. Enron proved that. “They had a code of ethics, and they were seen as one of the best corporate-responsibility companies,” says Foster Back. Yet when former chief financial officer Andy Fastow asked that the code be suspended, the board of directors agreed – twice.
Building a genuinely ethical business culture requires leaders who set an example, regular internal communication about ethical and moral dilemmas, training to help staff make difficult choices, and guidance on the standard of behaviour expected. “You’ve got to really actively embed, and almost test, that staff have understood – through staff surveys, newsletters and cameos of ethical dilemmas. So you create a sort of ‘coffee machine’ chat that gets people talking about dilemmas.”
Companies also need to demonstrate through third-party audits that they are doing what they say they are doing. Foster Back says an active “speak up” policy – what New Zealanders might call a whistleblower policy – is also essential to give staff a safe way of reporting ethical breaches without fear of dismissal or repercussions.
The UK’s Bribery Act, which came into force on July 1, provides further motivation for company bosses to sharpen up ethical standards within their businesses. The legislation – seen as heralding a tough new chapter in global anti-corruption enforcement – makes it an offence to fail to prevent bribery. It covers private companies as well as government agencies.
New Zealand companies with international operations ought to take note. Foster Back says any company that has a place of business in the UK and fails to prevent an act of bribery could be liable. For instance, if a New Zealand company with a presence in the UK pays a bribe to a Chinese customer, thereby disadvantaging a British competitor, that competitor could complain to the authorities and the New Zealand company could face prosecution in the UK.
Given that 4% of New Zealand companies surveyed in the 2010 Global Corruption Barometer reported paying a bribe in the previous 12 months, the risk may be more than merely hypothetical. Foster Back says if a company can demonstrate it had “adequate procedures” to prevent bribery, it would have a defence – “in other words, if you assessed the risk from the business you are doing, including the risk that your staff would be asked to pay bribes, if you have given them training, made them aware of the risk and taught them how to say no … if you have done due diligence and chosen agents with care, and have an ongoing programme of monitoring”.
Given the culture of gift-giving and lavish hospitality in some export markets, the line between respecting the client’s culture and outright bribery can easily be blurred. Foster Back says companies may therefore need to document those issues, identify the risk that staff will descend a slippery slope from legitimate relationship-building to backhanders, and spell out how that situation will be dealt with.
In the absence of “adequate procedures”, liability can be sheeted right up to the top of the company that has failed to prevent the act of bribery – in other words, the directors. It’s only a matter of time before the new UK law is tested, Foster Back says, and international interest in its application is high. The EU is watching closely, as is the US, where there is talk of beefing up the Foreign Corrupt Practices Act.
“And I have reason to believe from some of the discussions I have had down here that New Zealand authorities are also looking at it very closely and saying, ‘If this is the way the world is going, then we should be doing it, too.’”