6.2 Checklist for Evaluating the Integrity of Your Business

It is important to have monitored the transactions and all monitoring and control programs that have a purpose of identifying and detecting any suspicious activity, both inside the company, and in its relationships with other entities. These can consist in, for instance, fi nancial checks of the gifts received or monitoring systems of sanctions of antifraud checks. Besides these, we must carefully analyze the compliance, culture, and professional development programs within the company or that its employees participate in, as well as the internal audit reports and those of examination of the regulations that touch subjects concerning compliance and integrity. The results of these analyses can provide us with valuable information regarding the factors that affect a company’s integrity. The results obtained after carefully evaluating the dishonesty risk are then analyzed in order to see their potential impact on the company’s image and revenues. This analysis can lead, and it oftentimes does, to adopting measures in order to minimize those risks. This also has a direct impact on the company’s revenues and costs. If signifi cant issues are discovered during the evaluation, the company must ask itself the question whether these are important enough to present a risk for the company’s reputation, brand, and organizational culture. If the answer to this question is yes, then it is time to take into consideration certain methods of reducing the risk. In extreme cases, it can get to the point of changing one of the company’s objectives or pulling out from a transaction. These situations are rare, appearing only in case of chronical issues, spread at all company levels, or if the risk cannot be reduced or tamed. Once the risks have been identifi ed, it is time to defi ne a strategy to manage them, within which there must be mentioned the actions that have to be taken in order to tame, reduce, and eliminate them. A SWOT analysis is of great help at this stage. Usually, the dishonesty risk happens when a transaction takes place between two sides with a shared interest. In order to reduce it, various measures have been elaborated. Over time, some of these proved their effectiveness more than others.

Strategy Outline

• A list that identifi es the risks. Information on this list is updated in order to identify the threats the company has and to evaluate the dishonesty risk. • A risk analysis—a systematic process with the help of which the potential dishonesty risks are identifi ed, and the probability and consequences in case these risks become reality are estimated. • A detailing of the existent standards and regulations in the area and the methods used in order to respect them. • A matrix of assigning responsibility (RACI), where the people in charge of fulfi lling the tasks in order to effi ciently implement the plan, as well as the people that must be updated during its run, are designated. • A list of the techniques, frequency, monitoring the conditions, inspections, and monitoring the process of diminishing the risk necessary in order to successfully fulfi ll the plan. • An analysis of the failures or successes of the efforts previously made in this respect, if there were any.

5.4 Implications of Risk Management

Besides the benefi ts of a good reputation, risk management and, implicitly, a good dishonesty risk evaluation bring with it a series of benefi ts and challenges in the long run. There is sometimes the tendency to evaluate superfi cially, to only research the evident threats the company’s integrity has. These kinds of evaluations do more harm than good, because they’re unable to detect the subtle risks, which allow them to transform much more easily into reality.

A correct evaluation of the dishonesty risks: 1. Ensures an early warning process in order to detect the threats to ethics and compliance 2. Allows companies to correct issues before they’re discovered by the regulation authorities, investor, clients and possible clients, mass media, or potential complainers 3. Allows ethics and compliance risk prioritizing at the same time with strengthening the existing checks and with developing new checks for these risks 4. Allows a company to revisit its policies for ethics and compliance, training, and audit and the initiatives that require attention 5. Improves the decision-making process by providing critical information regarding compliance risks and the strategies to reduce them; 6. Demonstrates a proactive approach to compliance, thus allowing the fulfi llment of an important element of due diligence of the ethics and compliance programs.

5.4.1 The Benefi ts of Evaluating the Integrity Risks

The benefi ts of an effi cient program of dishonesty risk management: 1. Preventing and reducing the main threats to the integrity and good reputation of the company 2. Reducing the probability of having corruption and fraud within the company 3. Reducing the negative effects on the stained reputation and dishonest practices both of the company and those that appeared by associating with companies that adopted dishonest practices or which have a bad reputation 4. Avoiding fi nancial losses due to fi nes and other penalties 5. Avoiding fi nancial losses caused by managing reputational crises 6. Maintaining and consolidating the company’s good reputation 7. Consolidating the employees’, the collaborators’, and public’s trust in the company’s management 8. Having new business opportunities arise

Demonstrating a pro-active approach

Improving the decisional process Early detection of threats

THE BENEFITS OF EVALUATING THE DISHONESTY RISKS

Offering a better opportunity for revising ethics policies Allowing issue correction before they become public

Allowing prioritizing ethics and compliance risks

In what concerns the dishonesty risks and the measures taken in order to combat them , we recommend companies to approach them with prudence, since these do not generate only benefi ts. There are certain negative effects that can serve to discourage companies from adopting these measures, in spite of the benefi ts they have in the long run: • Negative effects on the company’s profi t due to cutting short the relationships with intermediaries and clients of high risk, at least short-term • Losses resulted from pulling out from certain businesses considered to present high risk • Adopting a more cautious development strategy from the management, which can lead to a slower development of the company • Costs of remedying compliance, singular or periodic • The potential of paying fi nes or other penalties as a consequence of not engaging in corruption deeds in order to avoid them

• Situations that require detailed investigations or that have to be communicated to the authorities • Low quality of the data necessary for risk management • Compliance and risk systems that require improvement or better integration, thus causing additional costs • Additional costs resulting from ethics and compliance courses for employees and the management of transforming the company’s organizational culture

5.5 Recommendations for Excellence

5.5.1 Practical Recommendations for Reducing the Dishonesty Risk

Structuring transactions around the value of the potential debts

•A company's transactions can be structured so that they avoid the significant potential financial legal or remedial obligations. For instance, the company can avoid the inclusion of certain individuals or companies considered to present a high risk. Defining the requirements for closing the transactions

•In case the issues that were identified can be solved by the other participants to the transaction, closing it can be conditioned by their solution. Warranties

•If a transaction does not leave enough time for a vigorous investigation of the issues, the risk can be reduced by introducing warranties, with the condition that they are ensured by an entity that has enough financial possiblities to cover the potential compensations. Cost-adjusting mechanisms

•The existence of pricing adjusting mechanisms after closing the transaction, in the event in which accounts or financial situations need to be adjusted. Contingencies

•Imposing conditions as part of the buying price must be contingent on reaching the agreed upon performance level. Strengthening checks

•Increasing the strictness and frequency of checks, in order to ensure compliance and prevent and detect irregularities.

5.5.2 Recommendations Regarding Risk Management for the Main Actors Involved in the Business Environment

For companies 1. Organizing periodical evaluations of the dishonesty risks, followed by formulating new strategies to reduce them or adapting the old strategy according to the new results 2. Encouraging employees to warn superiors or the ethics committee about the situations that have the potential of generating or increasing dishonesty risks 3. Associating the company only with partners and collaborators that demonstrate ethical and responsible behavior and that have good reputation 4. Involving employees in elaborating management strategies for the dishonesty risks and keeping them informed regarding their application and results

For the public authorities

1. Sanctioning effectively the companies that are involved in these corrupt practices For other companies 1. Identifying the companies whose practices are dishonest and whose bad reputation affects or has the potential of negatively affecting other companies by association 2. Requesting those companies to stop 3. If the companies’ reaction to the requests is not an open and constructive one, the company may try exerting pressure on them through various means (involving the media, going to the authorities, ending collaboration with them, etc.) For shareholders 1. Requesting explicitly to the company’s management to grant priority to the dishonesty risk management 2. Monitoring the way in which dishonesty risk management is carried out within the company

For the organizations of the civil society

1. Monitoring the way in which companies lead their businesses and signaling publicly any dishonest practices 2. Publishing company rankings in terms of ethics and their responsibility in the way they act For consumers 1. Trying to buy products and services mainly from companies with a good reputation of integrity, of acting ethically and responsibly and boycotting those that show dishonest practices

Once a company has taken all the steps up to this point, making sure it possesses effi cient ethics and compliance mechanisms, that it is transparent and treats its stakeholders responsibly, staying away from the traps of infl uence peddling, and managing its risks properly, it can truly be called “ethical.” In addition, a company’s decision of doing more than the necessary minimum, of distancing themselves from competitors through integrity and irreproachable reputation, opens up the possibility of their becoming a moral leader in their area of expertise, joining the select club of those who, when it comes to honor, are not satisfi ed with half.

Chapter 6 Instead of Conclusions

6.1 Monitoring and Evaluating Integrity Mechanisms’

Impact

In order for the measures to be implemented in the business sector in developing mechanisms that support the promotion of a culture of integrity to fulfi ll their purpose with maximum effi ciency, it is necessary to monitor and evaluate the impact these have (upon the employees, investors, clients/consumers, etc.). A business that wants an effi cient measurement of the implementation and impact of the integrity mechanisms will follow three important steps: planning the objectives, continuous monitoring of their fulfi llment, and evaluating and correlating the objectives set in the planning process with the ones achieved. The planning process helps us concentrate on the results we wish to obtain by developing and implementing the integrity mechanisms. Therefore, in the planning process, we will establish the objectives, their implementation strategy, the action plan for achieving them (the activity necessary for them, the deadlines, person in charge, budget, result), the indicators, the resources allocated in order to achieve them, and the target group. Monitoring is a continuous process unfolded over the course of the implementation of the mechanisms, in order to identify the progress made in reaching the results and to propose solutions for correcting the possible errors during their performance, so that the implementation of the mechanisms would not be affected. The evaluation involves analyzing the information in the monitoring reports, aiming to verify and explain the effects of the implementation. The evaluation will be done based on the following criteria: Relevance —the measure in which the objectives and the implementation plan established answer correctly to the needs of the target group ( the target group is the personnel within the company: entry, medium, and senior level personnel ). Effi ciency —how well utilized were the resources allocated in order to transform the activities into estimated results.

© The Author(s) 2016 S. Văduva et al., Moral Leadership in Business, SpringerBriefs in Business, DOI 10.1007/978-3-319-42881-9_6 93

Effectiveness —the degree to which the integrity mechanism has reached the targets it has been implemented for, the benefi ts brought to the target group. Impact —the overall effects of the benefi ts brought by the implementation of the integrity mechanism on the target group.

6.2 Checklist for Evaluating the Integrity of Your Business

• There is a statement of the missions, values, and principles • There is a conduct code, internal procedures for informing and implementing it among employees • There are actions that aim to promote company’s values and principles among employees • Does the company have a public transparency commitment? • Do employees know the company’s transparency policy? • What communication instruments does the company use in order to communicate with its employees? • Are there internal consultation procedures with the employees? • What kind of information do company’s stakeholders want to know and what are the subjects of interest for them? • Is information concerning the company and the products’ performance published? Through what methods? • Is the company’s fi nancial information published? What about audit reports? • Is the fi nancial data of subsidiaries in other countries published? • Does the company have a bilingual updated website? • Is information regarding the company’s shareholders and management published? • Is information regarding the management’s fi nancial retribution published? • Is information regarding the donations and sponsorships made and the themes it intends to act upon in order to infl uence the public opinion published? • Are there procedures for evaluating the integrity risks? • Does the company have an integrity policy, a plan for managing the lack of integrity risks, and an associated budget for implementing it? • Are there internal procedures for avoiding confl icts of interests? • Does the company offer employees the possibility through which they can report breakings of the internal conduct code, the integrity policy, or other internal or external regulations? • Is there a procedure for protecting whistleblowers? • Does the company have an ethics and compliance compartment? • Are there monitoring procedures and evaluations of the compliance with the integrity standards? • Are there internal audit procedures? • Does the company have an independent integrity auditing evaluation? • Are there internal procedures for identifying people with integrity behavior? • Is there a rewarding system in order to recompense integrity champions?