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Tuesday, 01 February 2011 21:16

Author: Sarah Schwab*| on 31 January 2011

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A significant number of employees are unsure over what acts constitute misconduct.

Recently published research by The Corporate Executive Board (CEB), the global research and advisory company, showed that organisations with strong corporate ethics and integrity delivered ten year total shareholder return (TSR) 16 percentage points higher than organisations with weaker integrity and ethics cultures.  

The groundbreaking study looking at the health of companies' ethical cultures was derived from analysis among 500 000 employees working in over 120 organisations globally. The research looked at elements of corporate culture including whether employees are encouraged and enabled to flag ethical or operational risks.

It found that those companies in the bottom quartile, with the weakest corporate ethics and integrity, are twice as likely to observe HR related misconduct compared to companies in the top quartile, those with the strongest cultures of ethics and integrity. Those companies with the weakest ethical cultures were observed also to be three times as likely to observe misconduct in areas such as conflicts of interest and accounting irregularities.

Specifically the research shows that South African companies report higher than the global average of observed misconduct - 19% of employees in South Africa reported observing misconduct compared to the global average of 15% and specifically, the South Africa reported rate was higher in several areas including:

  1. Discrimination (reported by 7% of companies in South Africa compared to the global average of 5%);
  2. Alcohol and drug abuse (6% compared to 3% globally);
  3. Stealing and fraud (6% compared to 2%);
  4. Misuse of company resources (17% compared to 8%);
  5. Health & safety violations (5% compared to 2%);
  6. Data privacy violations (4% compared to 1%).

 Such incidents can of course have a significant impact on an organisation's reputation through adverse publicity, both in South Africa and internationally, which in turn can reduce the enthusiasm of investors considering South Africa as an investment proposition.

Worryingly for employers, a significant number of employees surveyed in South Africa were unsure whether or not they had observed misconduct in the workplace, indicating uncertainty over what acts constitute misconduct. By way of example, over 20% of South African employees responded ‘don't know' when asked if they had observed improper payments including bribes or kickbacks. This level of uncertainty requires companies to take actions in two areas to ensure that:

  1. their policies are clear and have been communicated to all employees and 
  2. that these polices are fully understood by all employees so that any areas of potential uncertainty or ethical dilemmas between the corporate policy and local custom or practice are resolved.  Examples of this could include provision of hospitality, gifts or similar to win bids for new business, payment of fees to expedite granting of a license or selecting a company without a competitive process or one which is owned by a related party.

 The research confirms that the employees of companies with low integrity scores and weak ethical cultures , ie, the bottom quartile of companies, are more likely to observe misconduct but less  likely to report this misconduct. These employees are likely to hold the least favourable perceptions of their companies and almost 62% of employees at these companies have observed misconduct, however, only 45% would report such events. The principle reasons for not reporting these incidents are that these employees believe no action will be taken by the company after the incident is reported and that there may be negative consequences for the person making the report.

In contrast to this, 7% of employees with the ‘Most Favorable' perceptions of their company, reported observing misconduct and of those, 70% would report any observed misconduct. Based on this research, those companies required to comply with legislation such as the King III Report, which defines the governance standards that companies are now expected to comply with, should as a first and immediate action research and understand their own cultural integrity and then identify, plan and execute actions to improve their corporate integrity as necessary. The actions required are likely to include:

  1. revising the company policies on issues such as ethics, hospitality, openness of communication, SpeakUp (or whistleblowing) channels,investigations of reports,  and protection of employees reporting incidents in good faith;
  2. designing and delivering training to employees that explains and reinforces the policies and allows open discussion about ethical dilemmas and uses case studies to prompt debate. Experience shows that training needs to be delivered to small groups and in a manner that encourages debate and discussion to deliver shared understanding;
  3. ensuring that management demonstrate leadership in all areas of cultural integrity - by their words and actions and that managers decisively deal with unethical behaviour;
  4. auditing regularly to verify understanding and compliance together with sharing learnings from any incidents.

 In doing so, organisations will almost certainly improve their levels of cultural integrity, which will in turn contribute to above industry performance levels and in South Africa, enhance the case for investment.


*Sarah Schwab is Managing Director of the Corporate Executive Board's Finance and Strategy Practice where she manages the European CFO Thought Leaders network.   Prior to joining the Corporate Executive Board Sarah was Director of Supply Chain Management at Clarisay Inc and has also held roles within the forecasting and supply chain functions at Motorola Inc.

Last Updated on Tuesday, 01 February 2011 21:16

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