The EY Global Integrity Report 2020 reveals a heightened risk of unethical conduct amid the pandemic — and the critical actions to mitigate it.

• 90% of businesses surveyed at the height of the pandemic believe COVID-19 poses a risk to ethical conduct.
• Companies should take action to: culturally embed corporate integrity to protect against unethical conduct; foster trusting, long-term relationships with third parties; and safeguard data.

Amid the turmoil from COVID-19 businesses, governments and individual citizens are faced with new and significant decisions that pose difficult ethical dilemmas.

From retailers deciding how best to protect their employees and customers while providing essential supplies to communities, to corporate boards assessing whether to continue paying dividends to income-dependent shareholders while claiming government relief, doing the right thing has never been harder. That’s reflected in the results of the EY Global Integrity Report 2020 (pdf), revealing insights from several thousand companies across the world — both from before the pandemic’s spread and as it accelerated.

90% of respondents believe that COVID-19 poses a risk to ethical business conduct at their organization.

The level of scrutiny on business from wider society has intensified. Decisions taken by businesses and governments in crisis mode at the height of the pandemic will be judged over the coming months and years. Acting with integrity is now more important than ever. But when the challenges are greater, the risks are as well. How can companies navigate such a landscape with so many potential financial and reputational pitfalls?

Moment of truth: corporate integrity in turbulent times

The vast majority of respondents surveyed at the height of the pandemic believe that COVID-19 poses a risk to ethical business conduct at their organization. Indeed, significant numbers of employees remain willing to act unethically for personal financial gain, and the global pandemic is only exacerbating this by increasing the incentives and opening new avenues for them to do so.

Even before the pandemic took hold, businesses faced significant pressures. Trade wars, sanctions and export controls, fraud and political upheaval all weighed heavily on companies. Now, aside from worsening market conditions, respondents believe the top COVID-19 risks to ethical conduct are:

• Disruption to traditional working patterns, such as the increase in remote working (33%)
• Disruption to supply chains (28%)
• Reduction in employee benefits and compensation (24%)
• Reduction in staff levels (22%)

Our research also shows a concerning disparity as to the perceptions of ethical behavior at different levels of seniority within organizations. The majority (53%) of junior employees have doubts that management abides by the relevant laws, codes of conduct and industry regulations — yet, in contrast, 58% of board members are very confident that they play by the rules. Meanwhile, 13% of all respondents would be prepared to ignore unethical conduct by third parties in order to boost their career or pay, and that figure rises to 20% among board members.

Greater pressures — and greater scrutiny

The economic fallout of COVID-19 is likely to create a perfect storm for fraud, exposing a decade’s worth of corporate fraud schemes, while giving rise to new ones, The Economist says.¹

In addition, society’s views have changed dramatically since the 2007–08 global financial crisis, putting companies under more pressure than ever to do good for people and the planet, through environmental, social and governance (ESG) initiatives. This societal change extends to greater scrutiny of both companies and the conduct of their people. Meanwhile, the rise of social media has given a platform to discuss integrity issues in a much more open way – and consumers are taking notice.

In a post-COVID-19 world, companies will need to work hard to rebuild their businesses and deal with existing threats, as well as new ones. For example, as companies rebuild their supply chains, they must pay careful attention to the business and compliance implications of changing suppliers, logistics routes and sourcing. Sanction infractions in the heat of the pandemic could come back to create regulatory, financial, operational and reputational consequences.

The solution: integrity

But amid these major challenges, companies can protect themselves by putting an “integrity agenda” at the heart of their response to the crisis and the subsequent rebuild. “Corporate integrity is not ‘greenwashing’ or being seen to be doing the right thing for the press,” says Tony Jordan, EY Americas Forensic & Integrity Services Leader. “Integrity is behaving in a way that generates long-term value to support the communities that organizations serve.”

Developing an integrity agenda doesn’t just protect companies by avoiding fines and penalties. It can also help them thrive financially and deliver long-term value to their stakeholders. For example, Ethisphere research found that the world’s most ethical companies outperformed the US large-cap sector by 13.5% over a five-year period.²

We are already seeing early signs of this as more than 70% of ESG funds across all asset classes performed better than their counterparts during the first four months of 2020. And companies that foster strong partnerships with suppliers, employees, investors, regulators and governments based on trust have more robust and agile operations that can adapt quickly as events unfold, The Wall Street Journal reported in May 2020.³

Achieving integrity

Based on our research, we believe that there are three actions that are critical for companies to address in order to have the best chance of navigating the crisis with integrity. Click the links in each bullet to learn more.

1. Embed corporate integrity to protect against unethical conduct. Acting with integrity is more than a mission statement and written policies. It’s a personal quality that everyone in an organization should develop, from the CEO and the board to junior employees, business partners and third parties. Each of these is an ambassador for your organization and their behavior reflects the true values of a business.
2. Foster trusting partnerships with third parties based on integrity. As companies expand, they are increasingly reliant on third parties to act on their behalf across a variety of markets. Companies that have trusting partnerships with third parties have higher resilience in supply chains and more loyal customers than those that operate purely transactional relationships.
3. Safeguard data while ethically leveraging its value. Advances in new technologies have optimized operations and helped companies access new insights from the ever-increasing amounts of data they hold. However, adoption of these tools requires adequate assessment of the risks and proper implementation (including training).

To close the gap between intent and reality, organizations should focus their efforts on improving the effectiveness of their compliance programs by assessing the corporate culture, controls and governance from an integrity perspective, leveraging new technologies to provide better data insights.

Ultimately, business integrity enables successful organizations to stay true to their missions, keep their promises, respect laws and ethical norms, foster public trust and increase resilience in times of crisis. This in turn allows them to build capital — both financial and reputational.

References

1. “Who’s lost their trunks: The economic crisis will expose a decade’s worth of corporate fraud,” The Economist, 18 April 2020.
2. “By the numbers,” Ethisphere Magazine (“The World’s Most Ethical Organizations” edition), Spring 2020.
3. “ESG Investing Shines in Market Turmoil, With Help From Big Tech,” The Wall Street Journal, 13 May 2020.

This article was first published here.

Photo by Polina Rytova on Unsplash.