When the Bribery Act became law last summer, it represented the first major change to UK anti-corruption legislation in over a century. Since it came on to the statute books it has been the focus of considerable management attention as businesses endeavour to ensure that adequate procedures are in place to prevent corruption.
GoodCorporation invited a cross-section of UK businesses to discuss the measures they have been able to adopt and the challenges they have faced in order to comply with the law. Introduced by Michael Littlechild, the debate concentrated on the issues that could be the most problematic for businesses, based on GoodCorporation’s experience over the past year, in particular Gifts and Hospitality, Due Diligence and Facilitation Payments.
Gifts and Hospitality
Prior to July 2011, much of the opposition and hostility to the Act was the worry that its introduction would herald the end of the UK’s hospitality industry. This has not proved to be the case, nor has its implementation been as challenging as people feared.
Although businesses have taken a serious approach to managing their gifts and hospitality policies by issuing practical and specific guidance, there has been no significant change in entertainment policies in the UK. However, some caution has been exercised to avoid conspicuously lavish hospitality and it was reported that Olympic tickets are likely to be declined because the high financial value was not perceived to be acceptable.
Overseas, some companies have dealt with gifts and hospitality better than others, with the management of gifts proving to be the most problematic, particularly when it is a culturally engrained expectation of business practice. In these circumstances, companies are working towards culture change through communication, education and training to give clear working rules and examples.
In managing gifts and hospitality, most companies have set limits and some ask guests to confirm that accepting an invitation adheres to their company’s policy. One company warned that their policy had been so draconian and bureaucratic that it could potentially draw attention away from higher risk areas. This policy is now being reviewed.
Due Diligence
Almost all businesses are finding due diligence a real challenge. Some companies are performing due diligence on tens of thousands of suppliers. Others remain unsure how best to tackle this and have no system in place as yet.
Risk assessment is the key to managing due diligence, enabling businesses to conduct the appropriate levels of checks on the right suppliers. In the vast majority of cases, suppliers of services have far more opportunity to bribe on behalf of a business than those that supply it with goods.
GoodCorporation urges companies to look closely at the activity of the supplier, what are they doing and what are the opportunities for corruption. It is not enough to monitor the Transparency International Corruption Perceptions Index to see the position of the country in which the supplier operates. Suppliers should be categorised according to risk and checked using questionnaires, audits, training, signing agreements and research, as appropriate.
Businesses admitted that due diligence is often being conducted after the contract had been awarded (usually on price), and needs to be carried out much earlier on in the process. It is far harder to change the working practices of an organisation already on a long-term contract, a problem identified by businesses when checking existing suppliers. This was acknowledged as the hardest aspect of due diligence and GoodCorporation would advise businesses to manage this by prioritising the due diligence of existing suppliers according to risk.
Businesses pointed out that some existing contracts are of an extremely long duration, with a significant financial penalty for terminating a relationship. This needs to be taken into account and balanced against any reputational risk that might be identified through due diligence checks. Businesses need to have a clear red line and a clear procedure if it is crossed. Shorter contracts could be issued where there are doubts.
Some businesses reported that producing the policies and procedures was the easy bit; the real challenge lies in monitoring the on-going relationship, checking what is really going on on the ground. This is essential, particularly in high-risk situations.
Major Contract Bids
GoodCorporation observed that the issue of bidding for major contracts on which millions depends has received little, if any, attention as businesses develop Adequate Procedures. Yet it is precisely this activity that has led to the biggest fines in recent years. Far from getting specific treatment in anti-corruption programmes, this area seems to have been placed in a completely different box, some distance from the compliance officer. Clear guidance is needed to ensure that businesses are properly protected when in big bid situations. For example, businesses should have strict controls over the money required for bids. There should be Anti-Bribery and Corruption (ABC) scrutiny of agents involved and careful monitoring to ensure that success fees and rates are reasonable.
Facilitation Payments
Although facilitation payments have never been allowed under UK law, the biggest problem for businesses is working out whether or not someone is paying them on your behalf. Using an intermediary can lead to obfuscation. ‘Miscellaneous expenses’ from suppliers should obviously ring alarm bells. However, facilitation payments are usually hidden in a more subtle way; built into the fee structure making it hard for a company to unpick and identify. Ensuring that a company’s own employees deal directly with public officials can help, but the policy on ‘tips’ needs to be clearly communicated.
Key steps to emerge from the discussion
Establish who owns the intermediary and watch out for conflicts of interest such as family relationships and links with government and regulators
Check the ethical statements of service providers and look for references to facilitation payments in their ABC policy.
Avoid payment structures that are based on a percentage of the consignment value. In some parts of the world however, this is mandatory, so seek assurances about facilitation payments in writing.
Make sure you have a clear understanding with customs clearance agents about facilitation payments. Previously there was a tendency ‘not to bother’ clients with these details. Today businesses need transparency.
Training
All agreed that to be really effective, policies need to be properly embedded. To create a culture that makes it clear how a company conducts its business, staff need to live and breathe it. For many organisations it is there on paper but not yet in practice.
So getting training right is a vital part of a company’s ABC process. Some companies train the entire staff often using e-training, others don’t have a company-wide intranet which slows down whole company training and can lead to a focus on senior management. GoodCorporation would favour training more staff rather than less. More employees are likely to witness or be aware of corruption than actually engage in it, so the more that are knowledgeable enough to speak up, the better. It is however important to identify who is most at risk and ensure they are prioritised for training.
One of the problems is perception – it is hard for some staff to see why it is acceptable for the CEO to take a client to the Olympics but not for an employee to offer a gift to a visa official processing documents. Training is critical to ensuring that all concerned believe that the steps taken are the right ones to protect and ensure the continued success of the organisation.
Speak Up
A good speak up process is a useful safety valve and is recommended in the Ministry of Justice Guidance but it is important to get it right as these can be intimidating, unused and therefore redundant. It is vital that a trusted person is involved so that employees feel comfortable using it. Staff also need to feel that if they speak up they are protected.
Dealing with problems with suppliers
Businesses need a system for dealing with a problem that might be unearthed and a number of questions were raised. Are third parties cut off without payment, given a chance to reform or suspended? It was agreed that this should depend on how widespread the problem is, whether it’s the failing of one individual or a widespread practice. An analysis of the risk of liability versus losing an otherwise reliable supplier is key here.
Some businesses choose to blacklist suppliers if serious problems are discovered. In some circumstances, businesses ask the supplier how they will deal with the problem and for a ‘proof of change’ if the relationship is to continue. If charges are ever brought, being able to demonstrate that effective changes in behaviour were made should provide an adequate defence.
If a supplier is unable to demonstrate how it can eradicate malpractice, companies would be advised to deal with that supplier as if they had breached the company’s own code of conduct.
Summary
The majority of companies felt that the appropriate plans were in place but there was still some way to go to ensure that they were properly implemented.
Companies should be aware that risk assessment advice that is not acted upon would provide prosecutors with the perfect paper trail. Businesses should therefore seek advice that is fit-for-purpose and ensure that they are able to act upon it.
Thursday, May 24, 2012
Tuesday, April 17, 2012
GoodCorporation Business Ethics Debate Series: Due Diligence March 29 2012
Due diligence is proving to be one of the more challenging areas of Anti-Corruption management. Both the UK Bribery Act and the US Foreign Corrupt Practices Act (FCPA) have required businesses to focus their attention in this area. In 2011, every FCPA/SEC (US Securities and Exchange Commission) investigation involved the payment of bribes via third parties.
At GoodCorporation’s Business Ethics Debate on anti-corruption due diligence, our speaker highlighted the need for businesses to accept full accountability for the activities of third parties, by expanding due diligence, but also reminding businesses of the importance of ‘end-to-end responsibility’ - making sure that due diligence does not become the only process, but remains an essential part of wider risk evaluation and checking processes.
What executives are now asking is, how extensive should due diligence be and how can I get the necessary budget from the Board?
Business Concerns: Doing the right thing?
Some businesses feel they do not have a clear idea of what constitutes good due diligence and asked if shared due diligence across industries or sectors might be beneficial, reducing the inevitable repetitive checking of the same third parties.
The role of anti-corruption certification was raised, however, businesses should be wary, as a kite mark is only as good as those that award it. A kite mark that relies on too much box ticking and not enough thorough checking of implementation will not afford sufficient protection for businesses.
To be sure of robust due diligence, a business effectively needs to be able to get a proper insider’s view of its suppliers and intermediaries. But how can businesses get the worthwhile and trustworthy intelligence they feel they need? Could trade bodies help businesses by vetting suppliers? Would business find this sufficiently reliable?
The GoodCorporation View
Any worthwhile due diligence process will require the third party to provide information which is then checked by the prospective client. Independent databases and public searches are inadequate on their own.
Managing due diligence in challenging parts of the world
In some parts of the world, conducting due diligence checks has proved particularly problematic. There were reports of falsified information being provided and individuals placed at risk either for asking the questions or providing the answers. There are signs, though, of change in some of the more challenging, emerging markets and particularly in companies that are already liable under the Bribery Act or the FCPA and also in those that are hoping to become global.
Forums are now operating in these marketplaces trying to share views and move the debate forward.
In addition, there needs to be greater collaboration between companies, Governments and Embassies, with the UK Government being urged to encourage and empower its embassies to support businesses more actively in their anti-corruption complaints to local governments, particularly in challenging markets where corrupt practices have been more prevalent.
The GoodCorporation View
Given the global drive to stamp out corruption, the FCO should ensure much more consistency in the response and service that its embassies provide to companies who often find themselves under considerable pressure in certain parts of the world when trying to operate by the rule book.
Ownership
Historically the purchasing department has managed supplier contracts, with the focus on financial stability, product and price rather than ethical conduct. Under the Bribery Act, businesses are being held accountable for the corrupt activities of third parties acting on their behalf. Consequently, due diligence must now include code of conduct and behaviour checks. Identifying who owns this process within the organisation must be one of the key first steps to ensuring successful due diligence, and unless this is driven from the top down, with full board approval, it is unlikely to be as successful as it should be.
Culture
Equally important is ensuring that anti-bribery and corruption systems are fully embedded. If a zero- tolerance approach to corruption is an integral part of company culture and employees are empowered to report improper behaviour, then an in-built monitoring system can effectively be in place. The best policemen can be those on the ground who are working with third parties on a daily basis. Organisations should encourage employees to share the responsibility for stamping out unethical conduct. Again, driving this from the top is more likely to make it work.
Best Practice
Third parties, both new and existing, need to be selected using a careful and rigorous process. This can be extremely costly: figures of about to £1m to design and launch a due diligence service were quoted during the debate, but some large organisations estimated that the costs could be several million pounds to do the due diligence work well.
To control costs a carefully designed risk management approach to due diligence is crucial. Different levels of due diligence can then be applied according to the risk identified for any particular type of supplier. The use of external third party checkers was suggested as the most thorough means of obtaining the right level of due diligence. Not enough of this is currently being done.
In addition, businesses need to extend due diligence beyond the awarding of the contract and undertake regular checks and monitoring, particularly of third parties in the high-risk category. Businesses must not assume that passing the selection test is an assurance of on-going good behaviour.
And due diligence should also be applied to existing suppliers as well as new ones – working with a company for some time is not a sufficient guarantee that they are acting properly on your behalf at all times.
Key steps to good due diligence:
* Drive due diligence from the top: CEO and the Board
* Ensure a culture of ethical best practice is instilled throughout the organisation and involve all staff in upholding the Code of Conduct
* Design a sensible system to categorise suppliers according to their likely risk
* Use a due diligence questionnaire to obtain intimate details about the third party
* Use databases and public sources sparingly to support these checks
* Conduct regular on-going checks and monitoring of high-risk suppliers.
GoodCorporation clients are increasingly concerned not just with their own practices, but also with those of their business partners. Low standards of ethical behaviour across the supply chain damage an organisation’s reputation. GoodCorporation has designed a comprehensive three-stage Due Diligence Service to assist clients with their checks. Due Diligence Service
At GoodCorporation’s Business Ethics Debate on anti-corruption due diligence, our speaker highlighted the need for businesses to accept full accountability for the activities of third parties, by expanding due diligence, but also reminding businesses of the importance of ‘end-to-end responsibility’ - making sure that due diligence does not become the only process, but remains an essential part of wider risk evaluation and checking processes.
What executives are now asking is, how extensive should due diligence be and how can I get the necessary budget from the Board?
Business Concerns: Doing the right thing?
Some businesses feel they do not have a clear idea of what constitutes good due diligence and asked if shared due diligence across industries or sectors might be beneficial, reducing the inevitable repetitive checking of the same third parties.
The role of anti-corruption certification was raised, however, businesses should be wary, as a kite mark is only as good as those that award it. A kite mark that relies on too much box ticking and not enough thorough checking of implementation will not afford sufficient protection for businesses.
To be sure of robust due diligence, a business effectively needs to be able to get a proper insider’s view of its suppliers and intermediaries. But how can businesses get the worthwhile and trustworthy intelligence they feel they need? Could trade bodies help businesses by vetting suppliers? Would business find this sufficiently reliable?
The GoodCorporation View
Any worthwhile due diligence process will require the third party to provide information which is then checked by the prospective client. Independent databases and public searches are inadequate on their own.
Managing due diligence in challenging parts of the world
In some parts of the world, conducting due diligence checks has proved particularly problematic. There were reports of falsified information being provided and individuals placed at risk either for asking the questions or providing the answers. There are signs, though, of change in some of the more challenging, emerging markets and particularly in companies that are already liable under the Bribery Act or the FCPA and also in those that are hoping to become global.
Forums are now operating in these marketplaces trying to share views and move the debate forward.
In addition, there needs to be greater collaboration between companies, Governments and Embassies, with the UK Government being urged to encourage and empower its embassies to support businesses more actively in their anti-corruption complaints to local governments, particularly in challenging markets where corrupt practices have been more prevalent.
The GoodCorporation View
Given the global drive to stamp out corruption, the FCO should ensure much more consistency in the response and service that its embassies provide to companies who often find themselves under considerable pressure in certain parts of the world when trying to operate by the rule book.
Ownership
Historically the purchasing department has managed supplier contracts, with the focus on financial stability, product and price rather than ethical conduct. Under the Bribery Act, businesses are being held accountable for the corrupt activities of third parties acting on their behalf. Consequently, due diligence must now include code of conduct and behaviour checks. Identifying who owns this process within the organisation must be one of the key first steps to ensuring successful due diligence, and unless this is driven from the top down, with full board approval, it is unlikely to be as successful as it should be.
Culture
Equally important is ensuring that anti-bribery and corruption systems are fully embedded. If a zero- tolerance approach to corruption is an integral part of company culture and employees are empowered to report improper behaviour, then an in-built monitoring system can effectively be in place. The best policemen can be those on the ground who are working with third parties on a daily basis. Organisations should encourage employees to share the responsibility for stamping out unethical conduct. Again, driving this from the top is more likely to make it work.
Best Practice
Third parties, both new and existing, need to be selected using a careful and rigorous process. This can be extremely costly: figures of about to £1m to design and launch a due diligence service were quoted during the debate, but some large organisations estimated that the costs could be several million pounds to do the due diligence work well.
To control costs a carefully designed risk management approach to due diligence is crucial. Different levels of due diligence can then be applied according to the risk identified for any particular type of supplier. The use of external third party checkers was suggested as the most thorough means of obtaining the right level of due diligence. Not enough of this is currently being done.
In addition, businesses need to extend due diligence beyond the awarding of the contract and undertake regular checks and monitoring, particularly of third parties in the high-risk category. Businesses must not assume that passing the selection test is an assurance of on-going good behaviour.
And due diligence should also be applied to existing suppliers as well as new ones – working with a company for some time is not a sufficient guarantee that they are acting properly on your behalf at all times.
Key steps to good due diligence:
* Drive due diligence from the top: CEO and the Board
* Ensure a culture of ethical best practice is instilled throughout the organisation and involve all staff in upholding the Code of Conduct
* Design a sensible system to categorise suppliers according to their likely risk
* Use a due diligence questionnaire to obtain intimate details about the third party
* Use databases and public sources sparingly to support these checks
* Conduct regular on-going checks and monitoring of high-risk suppliers.
GoodCorporation clients are increasingly concerned not just with their own practices, but also with those of their business partners. Low standards of ethical behaviour across the supply chain damage an organisation’s reputation. GoodCorporation has designed a comprehensive three-stage Due Diligence Service to assist clients with their checks. Due Diligence Service
Wednesday, March 7, 2012
The Route to a Clear Corporate Conscience
In a recent Financial Times article How ‘good’ does shampoo need to be? Gillian Tett questions the recent shift in emphasis in certain leading businesses away from what she describes as the ‘grubby financial realities of business’ and towards CSR.
Tett asks if social and environmental problems, important though they may be, really are the concern of businesses rather than governments?
“I think that companies should recognise their wider impact on society, but I also think that it is primarily up to governments – not companies – to set the rules and pursue wider social aims. In other words, I don’t want Unilever to trash the environment with high-margin shampoo, but I expect the government, not Unilever, to set environmental standards, penalise miscreants – and tax Unilever to help the poor.”
According to Tett, who attended a debate at Davos entitled “The Future of Business”, a number of global companies claimed that CSR activities were no longer separate from their core business but were, in fact, driving much of what they do.
Tett is right to query this and for a number of reasons. Governments, not corporates, should set the framework for responsible business behaviour and encourage companies to act within it. It is their responsibility to set the standards and require companies to behave accordingly.
As for CSR activities driving business, while it is true to say that there has been a clear move away from Milton Friedman's belief that the only social responsibility of business is to make money; the over-riding concern should not be to worry about wider social challenges but to run businesses responsibly. It may make businesses feel good about themselves if they support a school or help a poor community, but it says little about how they actually run their business and achieves little in the way of building trust.
A philanthropic smokescreen no longer works. Increasingly public sector customers and large corporate customers are pushing their suppliers to demonstrate that they are performing ethically. This is being reinforced worldwide by increased regulatory action against unethical and unlawful behaviour. These pressures are starting to push more companies to realise that it is in their self-interest to be ethical. It is also forcing companies to question exactly how their CSR programmes contribute or stand apart from these ethical demands of their customers.
It is evident, therefore, that the route to a clear corporate conscience and restored trust is not CSR, it’s business ethics.
Tett asks if social and environmental problems, important though they may be, really are the concern of businesses rather than governments?
“I think that companies should recognise their wider impact on society, but I also think that it is primarily up to governments – not companies – to set the rules and pursue wider social aims. In other words, I don’t want Unilever to trash the environment with high-margin shampoo, but I expect the government, not Unilever, to set environmental standards, penalise miscreants – and tax Unilever to help the poor.”
According to Tett, who attended a debate at Davos entitled “The Future of Business”, a number of global companies claimed that CSR activities were no longer separate from their core business but were, in fact, driving much of what they do.
Tett is right to query this and for a number of reasons. Governments, not corporates, should set the framework for responsible business behaviour and encourage companies to act within it. It is their responsibility to set the standards and require companies to behave accordingly.
As for CSR activities driving business, while it is true to say that there has been a clear move away from Milton Friedman's belief that the only social responsibility of business is to make money; the over-riding concern should not be to worry about wider social challenges but to run businesses responsibly. It may make businesses feel good about themselves if they support a school or help a poor community, but it says little about how they actually run their business and achieves little in the way of building trust.
A philanthropic smokescreen no longer works. Increasingly public sector customers and large corporate customers are pushing their suppliers to demonstrate that they are performing ethically. This is being reinforced worldwide by increased regulatory action against unethical and unlawful behaviour. These pressures are starting to push more companies to realise that it is in their self-interest to be ethical. It is also forcing companies to question exactly how their CSR programmes contribute or stand apart from these ethical demands of their customers.
It is evident, therefore, that the route to a clear corporate conscience and restored trust is not CSR, it’s business ethics.
Thursday, March 1, 2012
The Business of Human Rights
The latest GoodCorporation debate at the House of Lords revealed that few organisations have a specific Human Rights Policy in place or a nominated individual responsible for monitoring their Human Rights impact.
In addition, only a handful of organisations admitted to conducting fact finding exercises to see what was happening on the ground or carrying out risk assessments to identify potential problems.
The debate was held in response to the publication last year, by the United Nations, of John Ruggie's Guiding Principles on Business and Human Rights, which stated that businesses have a duty to respect human rights and provide a remedy should violations occur.
As businesses have expanded their operations into increasingly challenging parts of the world, there has been some confusion as to the respective roles of the state and business in protecting and respecting human rights. This has resulted in an accountability gap and an historical perception in the corporate world that human rights are the concern of the state and not business. While for many NGOs and commentators it is precisely this historical lack of concern that has exacerbated human rights problems.
The aim of the United Nations Guiding Principles was to help businesses, whether international or national, large or small, to manage their human rights impact by providing guidelines that could be followed without damaging business interests. The Guiding Principles set out universally acceptable rules and standards of behaviour based on three pillars: the state’s duty to protect against human rights abuses; the duty of business to respect human rights and the duty of both state and business to bring about an effective remedy.
The debate analysed the difficulties businesses face in this area and the steps that can be taken to manage human rights issue within their organisation. Among the problems highlighted was that of on-going due diligence. How do businesses know when they have done enough?
At the debate, businesses agreed that a good human rights record enhances a company’s reputation as a good organisation, a fair employer and a producer of safely developed products. It also helps a business to reduce the risk of litigation and reputational damage.
Business behaviour, particularly that of large global organisations, remains under close scrutiny. Businesses are held accountable for their actions, be they corrupt payments, environmental damage or human rights abuses. At the debate, many businesses concurred that human rights policies, such as those suggested by Ruggie, are likely to become a key component of any Code of Conduct or Ethical Framework. This should involve allocating responsibility for human rights to a senior member of the management team, conducting due diligence to identify areas of risk, developing and implementing a human rights policy with ongoing monitoring to measure and manage the company’s impact on human rights.
To help with this, GoodCorporation has developed a Human Rights Framework that will enable businesses to assess their human rights impact and develop a policy to measure and manage this impact on an on-going basis.
In addition, only a handful of organisations admitted to conducting fact finding exercises to see what was happening on the ground or carrying out risk assessments to identify potential problems.
The debate was held in response to the publication last year, by the United Nations, of John Ruggie's Guiding Principles on Business and Human Rights, which stated that businesses have a duty to respect human rights and provide a remedy should violations occur.
As businesses have expanded their operations into increasingly challenging parts of the world, there has been some confusion as to the respective roles of the state and business in protecting and respecting human rights. This has resulted in an accountability gap and an historical perception in the corporate world that human rights are the concern of the state and not business. While for many NGOs and commentators it is precisely this historical lack of concern that has exacerbated human rights problems.
The aim of the United Nations Guiding Principles was to help businesses, whether international or national, large or small, to manage their human rights impact by providing guidelines that could be followed without damaging business interests. The Guiding Principles set out universally acceptable rules and standards of behaviour based on three pillars: the state’s duty to protect against human rights abuses; the duty of business to respect human rights and the duty of both state and business to bring about an effective remedy.
The debate analysed the difficulties businesses face in this area and the steps that can be taken to manage human rights issue within their organisation. Among the problems highlighted was that of on-going due diligence. How do businesses know when they have done enough?
At the debate, businesses agreed that a good human rights record enhances a company’s reputation as a good organisation, a fair employer and a producer of safely developed products. It also helps a business to reduce the risk of litigation and reputational damage.
Business behaviour, particularly that of large global organisations, remains under close scrutiny. Businesses are held accountable for their actions, be they corrupt payments, environmental damage or human rights abuses. At the debate, many businesses concurred that human rights policies, such as those suggested by Ruggie, are likely to become a key component of any Code of Conduct or Ethical Framework. This should involve allocating responsibility for human rights to a senior member of the management team, conducting due diligence to identify areas of risk, developing and implementing a human rights policy with ongoing monitoring to measure and manage the company’s impact on human rights.
To help with this, GoodCorporation has developed a Human Rights Framework that will enable businesses to assess their human rights impact and develop a policy to measure and manage this impact on an on-going basis.
Wednesday, February 29, 2012
Welfare to Work
The key problem with the Government’s welfare-to-work scheme is that it places businesses in the spotlight, facing potential allegations of exploitation. Many large companies have invested considerable amounts of time and money cleaning up their own organisations and putting systems and processes in place to ensure that they employ people fairly and properly.
They have also taken considerable steps to avoid sourcing from companies that use unpleasant and illegal work practices. Consequently many companies feel uncomfortable using a scheme that effectively offers free labour and requires them to employ people in a way they are simply not used to.
A company’s reputation is its most valuable asset, so to be asked by Government to adopt a scheme that looks like damaging that asset is something they are understandably unhappy about.
The Government needs to amend this scheme to ensure that the firms involved can top up the benefits of those taking part so that their income equates to the minimum wage. This would ensure that the scheme not only provides valuable work experience for those taking part, but also protects the reputation of the companies involved by guaranteeing that the pay to participants conforms to the spirit of minimum wage legislation. This ensures parity of income for employees, whether hired or part of the scheme, and also protects the reputation of participating companies.
They have also taken considerable steps to avoid sourcing from companies that use unpleasant and illegal work practices. Consequently many companies feel uncomfortable using a scheme that effectively offers free labour and requires them to employ people in a way they are simply not used to.
A company’s reputation is its most valuable asset, so to be asked by Government to adopt a scheme that looks like damaging that asset is something they are understandably unhappy about.
The Government needs to amend this scheme to ensure that the firms involved can top up the benefits of those taking part so that their income equates to the minimum wage. This would ensure that the scheme not only provides valuable work experience for those taking part, but also protects the reputation of the companies involved by guaranteeing that the pay to participants conforms to the spirit of minimum wage legislation. This ensures parity of income for employees, whether hired or part of the scheme, and also protects the reputation of participating companies.
Tuesday, January 17, 2012
The Case for Health and Safety
Choosing to repeal legislation that has led to an 80 per cent reduction in work place fatalities would seem to be an odd political choice. That this decision should be lauded by the media might seem even more perverse, yet this is precisely what happened when David Cameron announced his decision to "kill off Britain's health and safety culture for good".
What is even more strange, is that the UK is rather good at Health and Safety. Our fatal injury rate is one of the lowest in Europe and has been for the last six years. The number of deaths has fallen from 651 per annum in 1974, when legislation was introduced, to 171 last year (Health and Safety Executive information). That's still 171 lost lives, which hardly suggests we should be doing away with measures to keep people safe at work.
Contrary to the statement that Health and Safety is an "albatross hanging round the neck of British Business" that hampers growth, figures from the Health and Safety Executive (HSE) show that Health and Safety representatives save almost £600m per year based on the reduction in lost time from occupational injury and illness. This is based on the reduction of between 286,000 and 616,000 lost days per year.
While no one in business would support unnecessary bureaucracy, much of the hoohah surrounding Health and Safety is more fiction than fact. Banning the fireman's pole and school ties; requiring small businesses to have a health and safety consultant; making children wear goggles to play conkers - these are all fiction.
While we welcome any measures to simplify procedures and avoid unnecessary hurdles that could impede a return to growth, abandoning Health and Safety regulation is not the way forward. A health and safety culture is the very thing that responsible business managers have been striving to instill for the past two decades. Far from being an albatross or a monster, Health and Safety promotes productivity, it also saves lives.
What is even more strange, is that the UK is rather good at Health and Safety. Our fatal injury rate is one of the lowest in Europe and has been for the last six years. The number of deaths has fallen from 651 per annum in 1974, when legislation was introduced, to 171 last year (Health and Safety Executive information). That's still 171 lost lives, which hardly suggests we should be doing away with measures to keep people safe at work.
Contrary to the statement that Health and Safety is an "albatross hanging round the neck of British Business" that hampers growth, figures from the Health and Safety Executive (HSE) show that Health and Safety representatives save almost £600m per year based on the reduction in lost time from occupational injury and illness. This is based on the reduction of between 286,000 and 616,000 lost days per year.
While no one in business would support unnecessary bureaucracy, much of the hoohah surrounding Health and Safety is more fiction than fact. Banning the fireman's pole and school ties; requiring small businesses to have a health and safety consultant; making children wear goggles to play conkers - these are all fiction.
While we welcome any measures to simplify procedures and avoid unnecessary hurdles that could impede a return to growth, abandoning Health and Safety regulation is not the way forward. A health and safety culture is the very thing that responsible business managers have been striving to instill for the past two decades. Far from being an albatross or a monster, Health and Safety promotes productivity, it also saves lives.
Tuesday, December 20, 2011
Shareholders wrong to turn a blind eye to ethical standards
Last week’s report by the Chartered Institute of Internal Auditors revealed that only 8 per cent of FTSE 100 firms measure ethical performance in their annual report. This comes as no surprise.
When conducting audits of responsible business behaviour, GoodCorporation interviews shareholders as part of the process and the lack of concern for ethics is very noticeable. Shareholders admit that they only take an interest in ethical codes of conduct and environmental issues once a problem has occurred.
The principle reason for this is that ethics issues are long-term and a growing majority of shareholders are short-term, interested only in immediate returns.
The shareholders’ lack of interest in ethics, however, should not be a reason for failing to measure ethical performance. Boards need to take ethics seriously because failures in this area can be extremely costly in terms of management time, reputational damage and often in financial and profitability terms as well.
The implementation of the Bribery Act has focussed attention on anti-corruption practices and this is clearly vital. But it has also meant that there has been a shift in focus away from other areas of ethical conduct such as conflict of interest, illegal work practices and environmental mismanagement. All of which have led to high profile scandals in the last 12 months alone. Whether shareholders are demanding it or not, companies need to get a firmer grip on ethical conduct. Providing a clear and easy to understand measurement of ethical performance in the annual report would be a good start.
GoodCorporation House of Lords debate
Ethics vs Compliance
The most recent GoodCorporation debate at the House of Lords contemplated the roles of ethics and compliance in today’s corporations. Our guest speaker began by suggesting that there is a tendency to separate the two into distinct business areas; with ethics leaning towards corporate responsibility, while compliance focuses on legal obligations. Albert Camus once said; "Integrity has no need for rules", but can you run an ethical company without rules? Camus' principles are clearly based on trust, but how far can and should a business trust its employees? Can we base corporate behaviour on trust and do away with the rules?
While compliance, by necessity, focuses on the rules, to ensure that it isn't just a box-ticking exercise, it needs an ethical direction that gives a more long-term view for the business. Compliance, it was said, deals with the rules as they exist today - what a business needs to do in the here and now, whereas ethics looks both forwards and backwards. What is needed, it was suggested is a helicopter view that brings the two together as both are necessary to make a company run smoothly. Being good is good business.
Compliance and ethics, our speaker urged, need to form part of the DNA of a company and be driven from the top. Looking forward, we need to ask, not just how we can ensure ethical behaviour in business, but how can we raise the bar across corporates and across industries? How can we train the leaders of tomorrow to ensure that they will deliver?
Those present were asked if they felt their organisations were moving away from compliance and towards ethics or vice versa, with the majority voting for a move towards ethics.
It was suggested that some organisations were afraid of the 'E-word', and as a result, focused on compliance, which could be left in the safe hands of the legal department. Compliance also deals with the compulsory; businesses have to have it. It creates a reference point and is easily measured, whereas for some, ethics is too amorphous. In many businesses and industries therefore, compliance comes before ethics.
However, in a number of industries, there has been a move away from rules based to principles based regulation and with that there has been a shift towards ethics and integrity.
As organisations become more global, inculcating a set of values and a strong code of conduct will be increasingly vital. These values will need to permeate the whole organisation on a global scale or businesses face the prospect of reputational damage. Consequently, it will become ever more important for businesses to base their decision making on what is right, fair and proper. If ethical behaviour is instilled throughout organisations, businesses will become more compliant as ethical corporate conduct it was felt, leads to greater compliance.
To achieve this, it was suggested that ethics should focus on the tone at the top, the murmuring in the middle and the babble at the bottom of every organisation. The CEO must be on the ethics committee and people should be encouraged to ask the right questions. In doing so more businesses will put the E (ethics) before the C (compliance). Some felt this was already happening.
Businesses clearly need both ethics and compliance. They are not two separate silos, but should be part of the same goal. Nor should one be considered superior to the other. Ethical values should inform all decision making, be part of everything a company does, while compliance ensures all legal and regulatory requirements are met. We have seen from industries such as financial services that compliance alone doesn’t work.
The key ethical question for businesses is "how do you behave when no one is watching?" The debate concluded that businesses must comply with legislation while basing their decision making on ethical values. By embedding the right way of working across all departments businesses can ensure the right behaviour at all times.
Tuesday, November 22, 2011
The High Pay Debate
Comment on executive pay tends to put the cat amongst the pigeons. Those at the top refer to criticism as sour grapes: the resentment of the unrealistic who simply don’t understand how business works. Those lower down the food chain see high paid executives as greedy and out of touch. All this polarisation does is preserve the status quo.
A look at some of the figures, however, would indicate that the current situation is, at the very least, unsustainable. The recent report from Incomes Data Services revealed that the total earnings of FTSE-100 directors rose by an average of 49 per cent over the last financial year, at a time when overall wages were falling in real terms.
The High Pay Commission shows that over the past 30 years, some FTSE-100 companies saw top pay rise from 14 times the average salary to 75 times. The fact that company performance has shown no sign of a commensurate increase in performance over the same period should concern us all.
A new approach is needed which takes a more responsible view of executive remuneration. First and foremost we need greater transparency and clarity. The complexity of executive pay is such that it is often passed by shareholders who do not fully understand the deal and give boards the benefit of the doubt.
Payment for failure also needs to be addressed. While few would argue that directors who generate profit and deliver growth deserve healthy remuneration, what business would agree to a deal that pays more for delivering less?
It is also time for representatives of major shareholders such as the Association of British Insurers to hold remuneration committees to account. If the share price goes down, those at the top should take a little less, not a little more. Base pay should be the default if share prices are not rising. Bonuses should be clearly linked to performance that benefits shareholders.
Trust in business is at an all time low. A recent editorial in the Financial Times urged shareholders to exert greater pressure on pay, as with other costs, to help British businesses rebuild that trust. It is time to have the debate and create a more balanced structure for the benefit of the country as a whole.
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