Corporate integrity is on the rise, but work still needed

Standards of corporate integrity within organisations across the globe appear to be on the rise, with better guidance from management being a major driver. However, consistent internal and external pressures remain a strong detriment to employee behaviour.

The EY 2024 Global Integrity Report: How Can Trust Survive Without Integrity details the processes that organisations have implemented to create and retain corporate integrity. In times of rapid change and strenuous market conditions, challenges can arise that really test the fortitude of integrity that organisations must uphold. Despite these obstacles, corporate entities are still forging forward to retain their integrity standards.

The report revealed that nearly half (49 per cent) of respondents believe that integrity standards within their organisations have improved over the past two years and that the majority (90 per cent) are confident their colleagues do abide by relevant laws, codes of conduct and industry regulations.

Increased direction from management was pinpointed as a main driver of this improvement (61 per cent), while stricter regulation and pressure from regulators and law enforcement was also cited as a key contributor (48 per cent). Demand from customers (37 per cent), the general public (33 per cent), shareholders (26 per cent), and pressure from employees (22 per cent) were also referenced as key factors for this turnaround.

At face value, these improvements are positive and highlight a management-driven strategy to increase corporate integrity. However, pressures from all sides have produced a struggle for this strategy, often interjecting and proving to be a burden on the plans of various corporate entities worldwide.

Andrew Gordon, EY global forensic and integrity services leader, said: “There are clear signs from the survey that integrity standards are on the up, as better management, regulatory factors and customer demand all make their mark. It’s also clear that employees are largely confident that their colleagues do stick to the rules.”

“But there’s no hiding the fact that both internal and external pressures on these standards persist – from economic upheaval and cyber threats to regulatory change – and companies [that] ignore these pressures, do so at their peril.”

A key internal challenge that is proving to be a detriment to corporate integrity is that of a simple communication breakdown. The report stated that management and the upper echelon of these corporate organisations are well aware of the importance of acting with integrity. More than half of board members (56 per cent) and senior management (53 per cent) surveyed said they frequently hear leadership stressing the importance of ethical conduct; however, this drops to just a third (33 per cent) for employees at more junior levels.

“The ‘do as I say, not as I do’ approach has been a persistent trend over recent years, and there also seems to be a tendency, borne out in this survey, for senior management to place more emphasis on communicating the importance of ethical standards with management than with other employees. All of this can have damaging consequences, not least for how more junior employees choose to act,” Gordon said.

Along with these communication gaps, other external challenges have proven themselves to be a degrading factor towards corporate integrity. Half of respondents (50 per cent) admit that it is challenging for their organisations to maintain integrity standards in difficult market conditions.

Almost a third (30 per cent) said the current macroeconomic environment presents the greatest external pressure on employees to violate integrity standards, and more than a quarter (28 per cent) said the biggest internal threat comes from employees not understanding the rules and governing conduct.

Other external pressures in the report included:

• Cyber threats (26 per cent)
• Health-related crises (22 per cent)
• Financial performance expectations (22 per cent)
• Supply chain disruptions (21 per cent)
• Geopolitical threats (15 per cent)

A power-imbalance was also referenced in the report, as respondents stated that individuals in higher management positions were not held to the same standards as those in lower employee positions, if an integrity breach was committed. Almost a third of respondents (31 per cent) said that unethical behaviour is tolerated when those involved are senior or high performers.

Although the main driver for corporate integrity has been upper management, they are not without fault. The results from the report clearly indicate that more needs to be done to create a safe environment where employees can “speak up” in terms of identifying wrongdoing and notifying management.

Yet, while the number of organisations without a whistleblowing hotline has halved since 2022, more than half of respondents (54 per cent) who have used one said they faced pressure not to do so.

Having a whistleblowing hotline can be a strong accountability measure that can hold up integrity within an organisation, but it should, above all else, give employees the opportunity to make a complaint without the fear of being ostracised. If employees are being pressured to not use this outlet, then it defeats the purpose.

It’s easy for management and employers to pat themselves on the back about the progress they’ve made in upholding corporate integrity; however, if employees aren’t in agreement with that sentiment, then it creates the notion of a facade being pushed.

That is what the report is representing, as 40 per cent of board member respondents said it has become easier for employees to report their concerns, only 26 per cent of employee respondents agreed. Similarly, 33 per cent of board member respondents believe that whistleblowers within their organisation now have more protection, compared to just 14 per cent of employees.

“The introduction of whistleblower protection laws; advancements in communications technology; and increased awareness of the importance of reporting misconduct mean that organisations now have better tools to support employees who need to voice concerns,” Gordon said.

“However, corporations must strive to create a speak-up culture that works in practice – not just in theory. Individuals must be made to feel safe, and they should also know that their concerns will be acted on, without any consequence.”