Big Businesses face Big Risks: how should global companies tackle the problem?
The debate began with the suggestion that one way to minimise the risks is for organisations to work together to take industry-wide action (collective action) that sets the standards for good conduct in a particular sector.
Antti Heinonen, chairman of the Banknote Ethics Initiative (BnEI) and a former director of the European Central Bank opened the discussion with reference to BnEI. This initiative was born out of a need to raise standards across the banknote industry as a whole in response to the reputational damage caused by the scandals of the past. Few companies compete in this sector, yet it has a global reach requiring industry players to operate in those parts of the world where corruption has become endemic.
The initiative works as a membership scheme whereby members are required to adhere to the prescribed standards of ethical behaviour, focussing on adequate procedures to prevent bribery, corruption and anti-competitive behaviour. Accredited membership goes to those organisations that have received independent assurance that standards of behaviour meet the BnEI Code of Ethical Business Practice.
Despite some reservations when launched that such an initiative could take off, membership and accreditation are now proactively sought which will benefit the industry as a whole. Adding further credibility, it has also been endorsed by 29 customer Central Banks.
Businesses are under increasing pressure to protect themselves from risk and provide reassurances to their customers of good conduct and high ethical standards.
This can be achieved through schemes such as BnEI, yet few exist. To work there needs to be a critical mass of key industry players, momentum that shows this is more than just a marketing ploy and clear guidance to ensure that the scheme itself does not breach antitrust laws by making membership a requirement.
In the banknote sector this is working, so why do we see so little elsewhere? Is being transparent in order to mitigate risk too big a risk? Can industries work together to raise standards or are such initiatives doomed to failure?
o In sectors where the behaviour of the largest player is under suspicion, it is hard to see how others, however willing, could change ethical conduct from lower down, particularly when the poor conduct is mirrored in many organisations that make up the industry.
o Competition is integral to business and in aggressive sectors where there is always the risk of being undercut, co-operation between industry peers would be hard to promote. In these sectors, companies prefer to take responsibility for managing their own risks and would be unlikely to welcome a collaborative approach.
o In diverse sectors with a wide geographical spread a common understanding of ethical principles could be hard to establish.
o Companies can be defensive and protective of their own IP/approach to doing business – fear it could lead to a loss of competitive edge.
o Fear of moving first and of opening a Pandora’s Box – ‘We’ve always made money this way, we can’t afford to change now’.
o Governments should set the standards so there is already a collective code of behaviour – this should be the responsibility of governments to enforce not businesses.
Reasons in favour:
o To meet the growing demands from customers to be clean and transparent through an independent assurance process.
o Businesses can’t afford not to – this applies in particular to those sectors working with high-value products.
o Industries should strive to set high ethical standards and should be prepared to work together to do so.
o It would help set principles for ethical conduct and could work better than rules-based regulation: despite the 1000s of rules in banking misconduct still occurs to costly effect.
o It can provide a competitive advantage which would boost business.
o Customers would welcome an organisation’s commitment to high ethical standards – this should drive business not impede it.
o It promotes mutual respect between an organisation and its stakeholders.
Other areas of discussion:
o Does an industry need a high profile “FIFA moment”/scandal, before it feels compelled to act collectively to raise standards? Many felt this would be the case, others felt that raising standards through risk mitigation was desirable in its own right and should be sufficient motivation.
o Could such initiatives run the risk of breaching antitrust regulation? From a legal perspective working together to find ways to improve business conduct would be regarded as an action that would be of overall benefit to society so would not be in breach.
o Could accreditation against a recognised standard provide regulatory sign off? While the comfort achieved through such an accreditation is very valuable, it should not be regarded as formally as a clear bill from a monitor or regulator. The accreditation assessments should be a deep and robust analysis of systems and processes giving a clear idea of what is and isn’t working in order to identify any gaps and ensure that reputation is protected. It is not a forensic examination of a breach after the event.
The GoodCorporation view:
Businesses remain under pressure to restore trust. The majority of the corporate scandals that hit the headlines are the result of unethical decision-making; colluding over bank lending rates, fitting emissions-defeating software, accepting or paying a bribe. In certain industries and markets, companies come under sustained pressure to make illegal payments, but, if all refused demands are likely to stop.
Despite some initial industry scepticism from those not involved at the start, we have seen momentum build in the Banknote Ethics Initiative. Industry players are coming forward for accreditation and we are seeing concerted effort to raise standards industry wide which has been welcomed by many of the major central banks. We feel that such an initiative could be replicated in other sectors, driving a race to the top that would contribute to restoring reputation, but equally importantly, it would benefit the businesses themselves, providing customer and shareholder assurances that business is conducted ethically and, as a result, some of the greater risks are mitigated.
GoodCorporation Business Ethics Debate – Geneva October 2015