"Doing the right thing" - Effectively managing integrity risk in frontier markets
March 07, 2014
As more and more companies look to expand their business into new markets, one of the issues they are very likely to face is bribery and corruption risk – present in most markets, but particularly acute in high-risk frontier markets.
Transparency International recently published its 2013 Corruption Perceptions Index. According to the survey:
- 69% of countries worldwide scored less than 50 on the Index, suggesting a high corruption risk;
- And 84% of Middle East and North African countries scored less than 50% on the Index – indicating endemic problems.
However, bribery and corruption are just one category of the risks your employees will face – money laundering, fraud and tax evasion are also part of broader ‘integrity risk’, which I define as the risk that your employees are not doing the right thing – even when no-one is looking. It is a behavioural risk and can be thought of in terms of intended, expressed and actual behaviours.
How your employees deal with these risks could have both reputational and financial implications for your organisation. So how can you effectively manage these risks? I believe it’s a question of encouraging and instilling the right kinds of behaviours in employees and ensuring they are empowered to do the right thing – all of the time.
I’ve outlined a few steps to provide you with a framework for thinking about how to meet the challenge:
- Culture and behaviours - Make sure you understand the cultural and business norms in the new markets you are looking to enter. Some are likely to conflict with your organisation’s own culture and expectations. So it is imperative that you identify these conflicts and ensure employees are aware of them so they can do the right thing, despite what local customs might dictate.
- Leadership and tone from the top - Employees will only demonstrate the right behaviours if the leadership actively and consistently demonstrate the values and principles they want others to work by. Setting the right tone from the topis critical to ensuring employees know which behaviours are acceptable and which are not.
- Communication and training - Both the risks and the behaviours which are expected of employees must be communicatedthroughout the organisation. This can include workshops, role-playing and on-line materials.
- Measuring and monitoring - Your organisation will need to measure and monitorwhether communications and training have been effective. This should be a pro-active process and should be put into place prior to market entry. A reactive approach can be costly, as recent hefty fines by the Department of Justice (DoJ) and the Securities Exchange Commission (SEC) in the US and the Financial Conduct Authority (FCA) in the UK have shown.
Entering a new market is a big strategic decision for any organisation. Exciting opportunities await but dangers also lurk. It is not sufficient simply to analyse the financial risks involved – long-term success also depends on the people within an organisation, their attitudes towards ethical decision making and “doing the right thing” at critical decision points.
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