How the private sector is dealing with corruption
The private sector needs to move beyond compliance and understand its responsibility to society through operating ethically
How widespread is corruption in the private sector, and what impact does it have on the economy and other stakeholders? SA has growing expectations that corruption in both the public and private sectors will be dealt with decisively, but scandals linked to public sector and corporate dishonesty continue to occur.
This has major implications for taxpayers, citizens and the integrity of the state. The real cost of corruption is not just financial loss, reputational damage and penalties — it includes the loss of jobs that would otherwise have been created, loss of income tax due to illegal cash outflows, negative impacts on socioeconomic growth, and the stunting of competitiveness in the country.
The multidivisional structure of corporations, the ways that remuneration and reward are structured, and the approaches of middle and senior leadership result in constant conflict between doing what is right and “the way we do things”. This perpetuates corruption through habituation, which is often integral to the culture of organisations.
The National Business Initiative’s (NBI) ethical leadership and anti-corruption programme aims to facilitate constructive engagement, dialogue and education about ethics and anti-corruption in the private sector. To do this, we are developing an online training platform to simultaneously create understanding and awareness, while addressing the behavioural aspects that underpin corrupt practices.
80% of the sample had been publicly named in unethical scandals in the past five years
The first phase of the project is a research process that interrogates companies’ existing anti-corruption approaches. To guide the research, the NBI has developed a benchmarking tool that assesses private-sector approaches based on indicators related to anti-corruption interventions.
The second phase of the project is research that takes forward the 2016 transparency in corporate reporting report. The work is undertaken by Corruption Watch (the SA chapter of Transparency International) and the Overseas Development Institute (ODI), in partnership with the NBI.
The results of this work will underpin the development of an open-source training platform. This work is also one of the commitments made by business at the presidential jobs summit.
The NBI recently used the tool to assess 50 of the largest companies on the JSE. Like other studies evaluating large corporates, the companies were not picked to reach industry-wide conclusions, but to explore performance against existing ethics and anti-corruption approaches.
Data was collected based on publicly available information. Our analysis revealed that 42% of the companies evaluated reported having an anti-corruption policy. There are very low ethics officer appointments across most of the companies. The whistle-blowing reports, hotlines and tip-offs seem to be well endorsed — however, only 16 of the 50 companies reported that senior management reviews and tracks whistle-blowing cases.
A key finding was that 80% of the sample had been publicly named in unethical scandals in the past five years. This observation is concerning as it amplifies a wide trust deficit between the private sector and society. Five of the top 10 companies had had unethical practices or dilemmas reported and only one of the bottom 10 companies in the overall index was not implicated in unethical practices or dilemmas.
This study highlights the need to move beyond compliance towards a private sector that understands its integral responsibility to society through operating ethically.
In listed companies, it is mandatory to appoint a company secretary and most large companies invest heavily in compliance, but the appointment of ethics officers should be prioritised. The HR department’s interactions with the workforce can be used to reinforce an ethical company culture and give guidance about common beliefs, practices, and traditions. HR can also provide counselling for any psychological support whistle-blowers may require.
Ultimately, the greatest guarantee of an ethical company is the tone set by the board and management in driving a zero-tolerance approach to unethical or corrupt business practices. A values-based approach is fundamental to creating and promoting an ethical culture. However, our study shows that some organisations do not articulate their values, nor demonstrate how values are integrated in their strategy and activities.
We consider this a shortcoming that is imperative to address. Organisational values are the invisible hand that drives behaviour.
• Yawitch is CEO of the National Business Initiative (NBI). This article first appeared in the 23rd edition of the Trialogue Business in Society Handbook, which can be found on the www.trialogue.co.za/publications.
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