Anti-fraud, bribery and corruption frameworks, whistleblowing policies, and regular corruption risk assessments are crucial components of a strong corruption risk management programme. However, an overemphasis on the mere compliance of these policies and rules within an organisation might not necessarily bring about stronger corporate governance, if embedding a culture of ethics and integrity across its various functions is not at the core of the programme.
This is especially as environmental, social and governance (ESG) disclosure requirements are on the rise, and financial and regulatory stakeholders are increasingly paying closer attention to how firms actually implement their governance practices. Moreover, organisations need to be supported by a community of business partners with common interests and shared values to achieve success and for their business and economic objectives to be fulfilled.
When organisations view their ethics and compliance initiatives as a set of check-the-box activities, or neglect to communicate a set of clear and consistent values that sets the tone for how its employees, managers and executive leadership are expected to conduct themselves legally and ethically, its business performance can be impacted, or worse, it can suffer a hit to its reputation in cases of a rule violation or an employee displaying egregious conduct. In a study by global consulting firm EY, it was found that when attention to culture is not active and continuous, the message of corporate integrity can get lost in translation.
For example, while 60 per cent of board members surveyed by EY agree that their organisation has frequently communicated about the importance of behaving with integrity, only 30 per cent of employees say they remember the message. The finding suggests that cultivating integrity in a company goes beyond just having the “right” policies in place – it is about fostering a shared commitment to ethical behaviour that permeates every level of the organisation. While frequent communication is necessary, organisational culture is dynamic and could take time and effort to build.
Creating a culture of integrity
Increasingly, there are available frameworks that leaders can take reference from to guide how they characterise and ground a culture of integrity in their organisations. More often than not, it involves two elements: Firstly, to build ownership and consensus across the organisation on what most employees value as high-integrity practices. This goes beyond a top-down dissemination of employee handbooks, code of conduct and memos, but includes members in an organisation in the process of co-creating the practices and protocols.
Secondly, the mode and frequency of communication of these positive practices and values need to be well-considered. Messages have to be consistent, such that operational directives and business imperatives also align with the messages from the leadership in relation to ethics and compliance.
As a guide, the Corporate Integrity System Malaysia (CISM) was designed to support corporate integrity initiatives and highlights several dimensions that companies should factor into developing a corporate integrity system. Creating a culture of integrity within an organisation requires crucial elements such as ethical leadership, an emphasis on values, accountability and ownership, as well as a culture of transparency, among others.
Ethical Leadership: Ethical leadership is the cornerstone of corporate integrity within an organisation. It requires leaders and managers to make decisions based on the right thing to do for the common good, beyond what is best for themselves or for the bottom line. Leaders should agree upon shared corporate values and set the tone at the top by consistently demonstrating ethical behaviour and conveying the same expectations to their teams.
While exemplifying corporate integrity is the responsibility of every leader, appointing an integrity officer or dedicated committee can further impress upon stakeholders on the organisation’s priority in building a culture of integrity that allows for ethical values to be embedded within a company while ensuring compliance with anti-corruption laws.
Since June 2020, there has been a steady increase in the appointment of integrity officers in Malaysian companies, following MACC’s enforcement of Section 17A of the MACC Act 2009, which holds companies liable for bribery and corruption within the organisation. Starting from 2019, Integrity & Governance Unit (IGU) are established in all government-linked companies, state and ministry-owned companies in line with the national aspiration of a corruption-free nation.
Emphasis on Values: A company’s values are the guiding principles that underpin its culture. Hence, a clear definition of values that align with ethical principles should be expressed as part of the corporate core values in alignment with the company’s vision, mission and zero-tolerance towards fraud, bribery and corruption. Clear communication of these core values through various channels, including the company website, code of conduct, training modules and meetings, can remind employees about how they should approach decision-making in line with corporate core values.
Accountability and ownership: Building a foundation of corporate integrity also requires fostering a culture of ownership and accountability. This can be achieved through a multi-pronged approach, starting with clear ownership and escalation procedures which ensure different departments and individuals within an organisation understand their unique roles and responsibilities. For instance, the Institute of Internal Auditors’ (IIA) Three Lines Model describes a principle-based approach in establishing a governance structure and processes that enables accountability and collective contribution of the first, second and third line roles in the creation, protection of values, and the achievement of the corporate objectives.
Vertical communication and empowerment throughout the organisation can also foster an environment where employees feel safe voicing concerns and taking initiatives to safeguard corporate integrity, reinforcing a culture of ethical behavior. Regular risk reviews by the risk owners can also help keep a pulse on potential issues, while balanced risk-reward remuneration schemes could be implemented to incentivise ethical decision-making.
Culture of Transparency: Promoting a culture of transparency within an organisation is crucial for building trust and accountability. To do this, leaders must ensure that there are open communication channels at all levels and that employees feel safe using these channels to voice concerns, ask questions and share honest feedback. Robust whistleblower protection policies can support the creation of such an environment as they would encourage employees to report unethical behaviour without fear of retaliation.
Transparency should also extend to the clear communication of organisational goals, challenges and successes to employees, as well as the decision-making processes of company leadership and management. In the words of English-American author and motivational speaker Simon Sinek, transparency is not sharing every detail but providing the context for the decisions we make. True transparency is fostering understanding, trust, and growth, which are essential components of a strong corporate culture.
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Malaysia’s National Anti-Corruption Strategies (NACS) framework
On 7 May 2024, the prime minister, Dato’ Seri Anwar Ibrahim launched Malaysia’s National Anti-Corruption Strategies (NACS) which focuses on the effectiveness of anti-graft efforts and improving governance and integrity in the administration of public services. One of the key pillars of the NACS is to create a culture of transparency and accountability across all sectors of society, including the private sector and the business community.
Comprehensive reforms to strengthen checks and balance mechanisms, strong support and active participation from the people and sustained efforts are essential in achieving a lasting impact and fostering a culture of integrity and transparency, laying the foundation for a resilient and prosperous nation. The NACS is the guiding framework for building a corrupt-free and prosperous nation that can be adapted into various institutions.
This article was first published on Bursa Sustain, Bursa Malaysia’s one-stop knowledge hub that promotes and supports development in sustainability, corporate governance and responsible investment among public-listed companies.
