Sample Ethics Paper on Compliance to Corporate Code of Ethics at Multi-Make

Compliance to corporate Code of Ethics at Multi Make

There is an increasing demand for companies to implement proper corporate governance mechanisms to reduce the risks associated with poor administration. Corruption and anti-bribery are the key areas of concern under corporate governance due to the reputational damage, fines, and penalties that arise from unethical behavior. Multi Make is committed to honest business practices and publishes comprehensive reports that demonstrate its commitment. However, Trade Land, a subsidiary of Multi Make, is corrupt, and the revelation of its dishonest business practices now threaten the corporate image and exposes the company to litigation risks as corruption is illegal in its home country. Despite strong policies on compliance to corporate ethics, Multi Make suffered a breach of its central policies due to the inability to measure the corporate culture, poor integration of compliance functions to the business units as well as poor funding. This report will first present the barriers to the implementation of strong corporate ethics at Multi Make, and then suggest solutions to improve its culture.

2.0 Challenges of Enforcing the Corporate Code of Ethics

2.1 Inability to Monitor Corporate Culture

The implementation of the corporate code of ethics involves a significant change in the organizational culture, especially where the firm has a high tolerance for unethical actions. It is, therefore, vital to measure the corporate culture to determine the extent to which all stakeholders, particularly employees, are adhering to the code of ethics. However, measuring the corporate culture is a challenge facing companies like Multi Make resulting in ethical breaches in its subsidiary. A study conducted by Deloitte-UK established that 62% of the companies investigated are unable to compute their corporate culture as well as to link corporate ethics objectively with high organizational performance (2015, p. 3). Moreover, the conventional means for measuring corporate culture include the analysis of compliance breaches, whistle-blower and assurance results. These measures are retrospective rather than proactive that further worsens the ability to monitor corporate culture. Multi Make lacked a means for measuring its internal culture despite its strong policies on honest business practices. It was unable to uncover the corruption in its subsidiary, exposing it to compliance risks that tarnished its corporate image and created contingent legal liability because corruption is illegal in its home country.

2.2 Poor Representation of Stakeholders

The compliance to the code of ethics requires the participation of not only the compliance and audit executives but also the internal and external stakeholders. Otherwise, a strong code of ethics is ineffective because they lack the support of all members. Deloitte-UK established that the compliance function has a high representation of executives and low participation of other stakeholders down the organizational hierarchy (2015, p. 5). Consequently, the compliance function focuses on oversight and employees view it as an enforcer rather than an enabler.

The board of directors of Tradeland have a high degree of autonomy and do not actively participate in the compliance function of the parent company. This results in poor communication of the ethical issues that creates a loophole for engaging in malpractices due to poor oversight and support from all stakeholders (Adams, Hermalin and Weisbach, 2010, p. 60). The insufficient representation of the business units eliminates ownership of the corporate vision of honest commercial practices resulting in unethical behavior, as was the case at Tradeland (Painter-Morland, 2010, p. 270). There is a need to increase representation to shift the perception of the compliance function from an enforcer to an enabler, which enhances the commitment to ethics throughout all aspects of the organization.

2.3 Insufficient Funding of the Compliance Function

Although companies have strong policies on ethics, they do not provide sufficient funding to the compliance department, which inhibits the enforcement of the code of ethics. The management pressure the compliance function to evolve and expand in tandem with changing business environment at limited budgets (Deloitte-UK, 2015, p. 6). Moreover, Deloitte-UK states that 50% of the compliance officers lack an accurate measure of the required investment to make the organization compliant (2015, p. 6). The cause for the insufficient funding is the inability of the compliance officers to convince the board of directors of the need for high budget allocation.

The compliance function is not integrated into the business strategies resulting in minimal budget allocation amidst pressure to lower overheads to achieve cost efficiency. The compliance department of Multi Make would have uncovered the payment to the corrupt government officials at Tradeland were it not for the small financial support. An investment in the compliance and audit department would have increased the supervision of the payments by Tradeland, which would deter the officials from bribing the ministry staff.

2.4 Political Influence

A business cannot operate in isolation to the political environment since the government officials, and politicians have significant power in the license to operate. However, the politicians and government officials in some countries are corrupt and demand bribes to award a business permit (Chen et al., 2011, p. 269). This leaves the company officials confused, as they are unable to report the solicitation of the bribe to anti-corruption officials whose integrity is questionable, which worsens the situation. Despite the commitment to honest business practices, the management of the local branch of a multinational company in a corrupt nation resolve to pay the bribe in good faith, ignoring the illegality of corrupt practices in the country of origin (Cooper, Gulen and Ovtchinnikov, 2010, p. 688).

Political interference at Tradeland inhibited the adoption of honest business practices at Tradeland. The senior government officials threatened to withdraw business permits through the falsification of complaints unless the management made regular payments to a shell company. This inhibited the compliance to the corporate code of ethics resulting in the compliance breaches. Thus, the political environment hinders the implementation of a robust code of ethics since the national stand to corruption varies from one nation to another.

2.5 Lack of Incentives to Employees

Making a cultural shift to honest business practices and corporate ethical values require the participation of the employees who may resist the change. The lack of sufficient incentive to change inhibits the implementation of corporate ethics, as the employees do not see the gains from embracing morally upright commercial activities (Helin and Sandstrom, 2010, p. 589). The low motivation originates from the non-participation of the employees in developing the code of ethics that it just a tone from the top management resulting in slow or non-implementation of the corrupt practices (Helin and Sandstrom, 2010, p. 590). Additionally, the implementation of corporate ethics is doomed when the management does not inform the staff on the gains of ethical business practices and the costs of unethical behavior. Training is necessary where the organizational lacks strong stand against corruption. The management of Tradeland has no incentive to adopt honest practices. Additionally, the management does not understand the risks associated with corrupt corporate practices. Thus, the poor motivation to fight unethical practices created the laxity at Tradeland and consequently the payment to the corrupt government officials.

3.0 Recommendations

3.1 Measure the Corporate Culture

The inability to estimate the corporate culture denies the management the ability to put into place measures for eliminating unethical practices. Without a clear view of the corporate culture, the leadership cannot design measures for continuous improvement that offers the agility required in ethics because as time changes so does acceptable behavior that in turn transforms the ethical standards (PricewaterhouseCoopers, 2013, p. 4). The management should adopt proactive measures such as employee interviews and surveys as well as culture based assessment (Deloitte-UK, 2015, p. 3). The management of Multi Make should use the measures mentioned above to determine whether all staff understand and accept ethical commercial practices. The proactive steps can help Multi Make to minimize the compliance risks that are prevalent when retrospective indicators such as whistle-blower and compliance breaches are used to measure corporate culture. The culture-based assessment should also be conducted in all subsidiaries including Tradeland, whose public reputation is poor due to corruption.

3.2 Training

Staff training on ethical standards is essential to transforming the organizational culture to a more transparent and sustainable organization. There is a need for the management of Multi Trade to train its employees including the leadership on the acceptable business practices and the benefits of using ethics as a guide to strategic and routine decisions. The training should also elaborate on the compliance risks that arise from unethical practices such as poor corporate image, penalties, and the denial of operating license by the society (Collins, 2012, p. 340). Leaders should understand the need to demonstrate ethical behavior at work to successfully influence the junior employees to embrace the corporate code of ethics. Additionally, the management can reinforce the importance of ethical standards by developing clear responsibilities that increase accountability of all staff.

3.3 Representation of Stakeholders and Business Units

All interested parties and business units must be represented in the compliance function as well as involved in the development and implementation of the ethical standards. Multi Make lacks adequate representation of all stakeholders especially the management of Tradeland resulting in non-ownership of the initiatives for promoting honest business practices. Multi Make should revise its composition of the compliance committee to increase the representation of the leadership of Tradeland. Additionally, the communication of the ethical policies should be adequate to ensure that all employees comprehend the need for acceptable practices and the costs of non-compliance. A survey conducted by Deloitte-UK showed that majority correspondents feel that compliance to ethics involves not only the top leadership team but also other employees and stakeholders (2015, p. 5). The inclusion of the management of Tradeland will decrease the corruption level and gradually transform the organizational culture. The compliance committee must also communicate the emerging compliance issues to all business units and employees to increase the support for ethical practices.

3.4 Increase Funding to the Compliance Function

The corrupt payments to the government officials would not have prevailed if the compliance and audit functions had sufficient resources. Insufficient funding is general as a study by Deloitte-UK revealed that only 34% of the correspondents think that the compliance department is sufficiently funded (2015, p. 6). The leadership of Multi Make should increase funding for the compliance function and ensure that all subsidiaries have internal audit committees to avoid unethical practices such as the corruption at Tradeland. Integrating the compliance department in Tradeland will increase the consistency of the organizational views on ethics and offer efficiencies of scale due to the greater involvement of all employees (Deloitte-UK, 2015, p. 6). However, the compliance function at Multi Make must build a strong case for the need to comply to convince the management of extra budgetary allocation.

4.0 Conclusion

Multi Make has poor compliance to ethical policies in its subsidiary due to the inability to monitor the corporate culture, insufficient funding of the audit department as well as the non-representation of all business units. The political climate at Tradeland is corrupt as the government officials blackmailed the leadership into making regular unscrupulous payments. It is essential for the leadership to use proactive tools for measuring the adherence to ethics such as employee survey and culture-based assessments to develop forward-looking policies. Tradeland should be included in the compliance committee to increase the ownership and adherence to ethics throughout the entire holding company. The leadership should increase funding to increase the ability to detect non-compliance and take corrective action before unethical acts become the cultural norm. The audit department must, however, improve communication to all business units to generate organization-wide support for honest commercial practices.

 

 

References List

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Chen, S., Sun, Z., Tang, S. and Wu, D. (2011). Government intervention and investment efficiency: Evidence from China. Journal of Corporate Finance, 17(2), pp.259-271.

Collins, D. (2012). Business ethics. Hoboken, N.J.: John Wiley & Sons.

Cooper, M., Gulen, H. and Ovtchinnikov, A. (2010). Corporate Political Contributions and Stock Returns. The Journal of Finance, 65(2), pp.687-724.

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