Investors are demanding ethics management information, but organisations struggle to collect it

Although companies and organisations have beefed up their ethical architecture significantly since 2008, staff still feel pressured to compromise these standards, according to new CGMA research.

The 2015 survey of nearly 2,500 CGMA designation holders and CIMA students found that 82% of the companies represented have a code of conduct or similar document to guide staff about ethical standards in their work, compared with 72% in 2008 and 80% in 2012. Seventy-three per cent of respondents said their organisation lived up to the standard of behaviour set out in the document.

The number of organisations that provide an ethical advice hotline for reporting conduct that contravenes the code of ethics has also risen, from 40% in 2008 to 49% in 2012 and 59% in 2015.

There has been a particularly significant increase in the number of organisations that offer incentives to staff for upholding standards of ethical conduct, from 19% in 2008 to 25% in 2012 and 46% in 2015.

Meanwhile, 72% of those surveyed agreed that their employer disciplines unethical behaviour. These findings would seem to suggest that the foundations on which to promote good conduct are in place.

Despite the increased prevalence of ethics policies and behavioural standards, professionals around the world are feeling pressured to compromise these norms, and bribery remains a concern for businesses.

In the UK, 30% of respondents said they felt pressure from managers or colleagues to compromise their organisation’s ethical standards, up sharply from 18% in 2012.

These codes and standards were developed in the context of heightened scrutiny following the financial crisis and high-profile scandals, so one possible explanation might be that as the recovery gets underway, practice has reverted to business as usual. Alternatively, it may be that precisely because of the stronger emphasis on highlighting corporate ethics, there is a greater awareness of potential issues amongst staff, causing them to call into question things that they would not have a few years ago.

In contrast to the trend in the UK, the percentage of respondents in India who felt under pressure to compromise ethical standards fell from 51% in 2012 to 45% today. This would appear to reflect the fact that many of the respondents are from global corporations where the spotlight is being shone on ethical standards and positive change is being effected, enabling ethical conduct.

In terms of specific ethical challenges, bribery was found to be a relevant issue to 80% of respondents’ organisations, despite the fact that 57% of the organisations covered have specific anti-corruption guidelines and 44% have a well-understood process for conducting corruption risk assessments. These findings highlight a mismatch between awareness of bribery as a risk and actually having systems in place to help prevent it, and reveal that many organisations still have work to do in this area.

Businesses must incorporate human rights issues into risk assessments

Human rights issues such as child labour, forced labour, and dangerous working conditions have become much more prominent in the media and in the minds of consumers, in light of cases such as recent garment factory disasters and construction deaths related to the 2022 World Cup in Qatar. In the 2008 edition of the survey, 55% of respondents flagged human rights as an issue relevant to their organisation. Today, this figure has increased to 68%, and the area is set to gain further importance.

Anti-corruption measures have been in place for several decades, but it is in the past several years that the repercussions have been acutely felt among businesses and, consequently, real change has occurred. It took time for any cases to be brought to trial under the US Foreign Corrupt Practices Act, which was enacted in 1977, but then in 2010 alone, there were 73 actions.

The UN Guiding Principles on Business and Human Rights, known as the Ruggie Principles, which were published in 2011, provide a framework for companies to start addressing issues such as labour and land rights. The UK government set out its guidance for companies on integrating human rights into their operations in 2013, and several other national governments have followed suit. 

Now that these frameworks are in place, issues related to preventing human rights abuses are likely to be embedded into corporate structures and policies in a much shorter time frame than it took for corruption to be addressed. Organisations will have to take action accordingly to mitigate the risks in every single link in their supply chain. As a recent MIT Sloan review on the rising importance of human rights in business put it, “You may or may not agree, but what counts is that others do. … What matters is the traction they have gained and how they will shape regulation in the future.”

The CGMA survey found that 86% of respondents had not heard of the Ruggie Principles. However, of the 14% that were aware of them, nearly half were already implementing the guidelines. Overall, 13% of respondents (in line with the number who were aware of the principles) said that their organisation had conducted due diligence on human rights issues when entering new contracts. 

The CGMA report Managing Responsible Business 2015 Edition urges organisations to consider how the Ruggie Principles are likely to impact their corporate activities and value chains, recommending that risk assessment be conducted and that routes to remedy be put in place.

Twenty-six per cent of those polled stated that their organisations participate in collective action alliances related to anti-corruption. These arrangements are increasingly common, particularly in higher-risk markets. They bring together competitors in a particular sector, regulators, governments, and members of civil society to address a range of sustainability-related issues such as water shortages.

Collecting and reporting on ethical data

The CGMA report also notes that while investor demand for ethical management information is on the increase, just 36% of companies represented in the survey are collecting such data. Of those that do not collect ethical management information, 48% said they do not see the benefit in doing so.

To provide investors with a relevant insight into culture, the report suggests that organisations collect and report on the following data:

• What formal codes and policies are in place and adhered to?
• How many staff have had specific training courses related to ethical issues?
• How many conduct cases have been raised?
• What is the level of staff turnover?

—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.