An Organizational Response to Global Compliance Challenges
Updated: Sep 11, 2020
The following is part II of a guest post by Alison Taylor and James Cohen. Part I can be found here.
A consensus has emerged as to what an effective anti-corruption compliance program looks like – its components and success factors. At the same time, it has become clear that compliance programs don’t exist in a vacuum; the effectiveness of any process is driven by its surrounding culture. Regulators and compliance teams are drawing inspiration from leading academic thinking on behavioral risk to frame their approaches and are finally moving ethics to center stage. This means moving on from “rogue employee” theories of how corruption occurs while considering the role played by strategy, leadership, incentives, and goals in inadvertently socializing corrupt practices. While compliance officers can tackle some of these issues via tools to measure culture and employee engagement, they also need to work with other teams to drive values and ethics throughout a business. Training on accountability and anti-corruption measures need to be tied to the achievement not just of sales but corporate values, too. Frontline sales and operations personnel need to know how to mitigate corruption risks, as well as to know why mitigation is crucial to a sustainable and ethical business model.
The ethical challenges facing companies today go far beyond the traditional control remit of compliance teams. Companies need to consider organizational context, as well as emerging corporate responsibility issues such as human rights, climate change, and inclusive economic growth. It all speaks to a future in which those charged with compliance and ethics functions do not simply police the enforcement of existing rules but are independent, empowered, and ready to meet the most pressing challenges now facing enterprises. Companies that do this will be rewarded with more engaged, purposeful teams, enhancing their ability to retain and motivate younger employees. Compliance officers will increasingly become agents of change, taking ownership of company values and culture.
Supply Chain Oversight Gets Serious
The effectiveness of due diligence and supply chain oversight, much of which relies on contractual provisions and audit models, is increasingly being questioned as labor rights violations continue to be revealed. So far, public concern and business action has focused on such specific issues as conflict minerals, apparel manufacturing in Asia, and forced labor in the Middle East. This reflects a response to specific rights violations among workers in these supply chains. Comparable incidents are certain to occur in the future, and these will lead to focused, issue-specific consumer scrutiny, pressure for industry collective action, and targeted regulations.
The current approach of self-regulation in supply chains is likely to become untenable in the face of increasing transparency and awareness. Governments may seek a greater role in the regulation of corporate supply chains and the expectations placed on companies. The California Transparency in Supply Chains Act and the U.K.’s Modern Slavery Act represent early moves toward the same standard. Given the immense practical complexity that this presents for businesses, we might expect to see the emergence of an “adequate procedures” framework analogous to the emerging global consensus on anti-corruption compliance. A structured approach to identifying, managing, and mitigating supply chain risk will not protect companies entirely. Some leading companies are already taking a more proactive approach to transparency in this area by disclosing identified problems and driving cooperative approaches to help tackle them.
Toward Systems Thinking
Corruption has long been approached with the implicit attitude that it is a victimless crime that simply greases the wheels of bureaucracy. This view is quickly evolving now that it has become impossible to ignore the links between corruption, poverty, conflict, and human rights violations. Because of corruption, kleptocratic regimes that abuse human rights and perpetuate conflict as a means to retain power can funnel their money offshore and sustain illicit revenue. As the links between corruption and conflict grow more prevalent, companies may come under increasing pressure from governments and civil society to pull out of projects that sustain corrupt regimes.
Corruption-risk assessments need to move on from approaches designed to detect the risk that operational bribes will be paid by employees and third parties. Companies will need to consider the wider systemic context in which they operate, which means understanding impact as well as risk. Human rights impact assessments will become standard practice. The mapping of business and political networks will help companies determine how their business partners might be helping to sustain corrupt national systems, thereby enabling them to eliminate such relationships.
Compliance and ethics departments will need to incorporate into their strategies the connections among corruption, human rights violations, and the conflicts they drive. They must underline not just the legal ramifications of corruption but its larger impact. As more governments, multilateral organizations (such as the UN), and civil society groups embrace the need for cross-sector responses to combat corruption, companies should expect to be drawn into participating in expansive anti-corruption networks.
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