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Respondents tell us that senior managers are ignoring unethical behavior and condoning misconduct to meet business targets. The result is employees who can justify wrong-doing and organizations in which people do not feel comfortable reporting fraud, bribery and corruption.
The results of our 2017 survey indicate that certain unethical behaviors can be seen as acceptable in today’s workforce, particularly among executives. Of our respondents in senior management roles, 44% feel offering cash payments to win or retain business could be justified, compared with 29% of all other employees. These figures are higher than those in EMEIA, where one in three board directors and senior managers say they could justify offering cash payments to win or retain business, compared with one in five of other employees.
When it comes to bringing forward sales and booking revenues early to meet short-term financial targets, 45% of senior management thought this was justified. This is substantially higher than in EMEIA, where only one in five board directors and senior managers would be willing to act in this way.
Ethical standards are not improving because employees are receiving mixed messages from management. Senior managers must consistently model, encourage and enforce compliant conduct. Yet our findings suggest this is not happening in almost half of the region’s organizations. Forty-nine percent of respondents say that, even though they see senior managers saying no to bribes, those same managers would ignore the unethical behavior of employees if their actions helped to achieve corporate targets.
Our 2017 APAC survey finds that 87% of senior management could justify unethical behavior to help a business survive, compared with 77% of board directors and senior managers in the equivalent EMEIA survey. Approximately the same percentage (23%) of senior management in both geographies say they would deliberately misstate a company’s financial performance.
The 2017 survey results show that, despite ABAC policies being in place, misconduct is not being reported because employees and managers still feel under pressure to stay silent. Almost a third (32%) of respondents say the atmosphere in their organization means they do not feel comfortable reporting unethical behavior — a sentiment that is felt even more keenly at the top of some companies.
Two in five (41%) of respondents, and more than half (51%) of senior managers, say they have felt under pressure to withhold information about misconduct. The higher numbers of senior managers reporting this pressure may be because they are personally at risk of sanctions, or it may be that the misconduct is protecting leadership bonuses.
Tellingly, almost a quarter (24%) of respondents do not believe that management would protect people who report cases of fraud, bribery and corruption. Meanwhile, 21% believe that their organizations simply do not investigate breaches of ethical standards.
This level of mistrust is putting organizations at unnecessary risk. More than a quarter (27%) of respondents say they are aware of fraudulent activities, but don’t do anything about it.
These findings help to explain why, despite investment in compliance, employees are still engaging in unethical behavior, such as paying cash to win contracts or misstating financial performance. Making ABAC policies work requires behavioral change. Unless line managers ensure people feel comfortable to report misconduct, employees remain reluctant to do so.
Our survey finds that younger respondents do not fully understand what constitutes unethical behavior. Even though Generation Y employees (25-34 year olds) are the group least willing to work for unethical companies, they are more likely than any other age group to be prepared to offer cash payments to win or retain business — 38% compared with 28% of all other employees. Similarly, 42% of Generation Y would extend the monthly reporting period to meet financial targets, compared with 31% of all other employees. Whereas, when provided with more clear-cut choices, such as ignoring compliance controls, Generation Y responded in line with all other age groups that, this was not justified to meeting financial targets. These findings underscore the importance of companies providing younger staff with clear guidance and ethical training. These figures are higher than those found in EMEIA, where 25% of Generation Y would offer cash payments to win or retain business and 20% would extend the monthly reporting period to meet financial targets.
Just over half of our respondents (51%) believe that tough economic times are the reason for the increase in bribery and corrupt practices – and many employees are sympathetic to this view point. Asked if they personally could justify inappropriate conduct to help their business survive, more than two-thirds say they would introduce more flexible product return policies for customers. Almost a third (32%) would offer a cash payment to win or retain business. Here again, we find perceptions of leadership endorsement driving these inappropriate behaviors.
When asked whether they believed that management would justify unethical conduct to meet financial targets, 35% of our respondents say management would condone extending the monthly reporting period and 15% say management would justify deliberately misstating a company’s financial performance.
We can see this phenomenon playing out in corporate reporting: 50% of all respondents believe that companies in their country often report financial performance as better than it is.
In an uncertain, lower-growth environment, our findings reveal sales teams under pressure to manipulate sales results as well as finance teams under pressure to misstate results. Compliance teams need to act quickly to:
Despite an increase in the uptake of and willingness to use whistleblowing hotlines around the APAC region, our 2017 survey findings indicate that many employees still don’t trust that their organization will take action on whistleblowing complaints or keep them confidential.
In positive news, 10% more employees are willing to use a whistleblowing hotline than they were two years ago — 63% up from 53% in 2015. Fewer respondents are being deterred from using a hotline due to concerns about insufficient legal protection for whistleblowers (14% down from 19%) — reflecting the better protections that some governments have put in place over the last two years.
However, given the choice, only 27% of respondents would opt to report misconduct using their in-house whistleblowing hotline, with 23% preferring to go direct to senior management. In contrast, 39% would rather use an external channel, with one in five saying they would be most comfortable calling an anonymous law enforcement channel, such as the police or a government hotline.
This preference for external channels may stem from employees’ lack of faith in their organization’s willingness or ability to take appropriate action in relation to whistleblowing reports, or a perception that the external channel offers greater anonymity. Only 37% of respondents have confidence that a report to the company’s whistleblowing hotline will always be followed up.
The fact that one in five employees would rather take a misconduct report direct to law enforcement is an alarming development. If employees don’t feel comfortable using an organization’s internal whistleblowing hotline, their ethical imperative to report wrongdoing is taking them direct to the authorities — with the strong potential to lead to far worse financial and reputational outcomes than internal whistleblowing.
Without an effective mechanism to support early detection, unethical behavior can take years to uncover, leading to significant corporate financial losses over time. Having strong whistleblowing programs, which are typically the first and most common line of defense, is essential if organizations want employees to report misconduct early.
Since its establishment in the US in 2010, the SEC whistleblower program has bolstered the agency’s enforcement efforts. In 2016, the agency received 4,200 tips and issued awards totaling US$57 million — higher than all the award amounts in the previous years combined. The information and assistance provided by whistleblowers led to successful SEC enforcement actions that ordered US$584 million in financial sanctions, including more than US$346 million in disgorgement of ill-gotten gains and interest that were returned to harmed investors.
Respondents prefer to use external whistleblowing channels such as
systems. This is not simply about providing a whistleblower line; it is about building a system for whistleblowing that ensures matters are received efficiently and dealt with in a prompt, transparent, consistent and ethical manner.”