Performance pressure in difficult times makes way for unethical practices in India
Mumbai, 7 May 2013 – Findings fromEY’s 2013 Europe, Middle East, India and Africa (EMEIA) Fraud Survey, Navigating today’s complex business risks, show that greater pressure to deliver growth and downward pressure on reward can be a risky combination. This, in some cases, can drive actions that could damage the business, such as fraud, bribery and corruption. 74% Indian respondents agree that managers at their companies will be under increased pressure to deliver good financial performance over the next 12 months.
In rapid-growth markets, where the battle for talent remains fierce, individuals are seeing more reductions in their remuneration than in developed markets. In particular, reductions in remuneration or removal of bonuses appear to be hitting businesses in rapid-growth markets more than mature markets. In India, 43% of respondents were witnessing this.
Arpinder Singh, India Leader of EY’s Fraud Investigation & Dispute Services practice says, “India has robust policies but the issue is compliance. In the current challenging market condition, the incentives for unethical conduct can be strong when personal remuneration is at stake and pressure to deliver growth is being felt directly. At the same time, a focus on growth and cutting costs can weaken the systems and teams put in place to prevent and detect these actions.”
The results also serve as a warning for multinational companies with subsidiaries in India where 54% think financial performance is often exaggerated. Almost half the respondents in rapid-growth markets agree that companies in their countries often misrepresent financial performance, compared with 29% of those with headquarters in Western Europe.
David Stulb, Global Leader of EY’s Fraud Investigation & Dispute Services practice says, “In this environment, some inevitably succumb to unethical behavior. Shareholders expect management to take responsibility for protecting the business by implementing anti-bribery and anti-fraud programs at all levels of their organization. Boards must challenge management to ensure they are focused on high risk areas.”
Bribery and corruption prevalent across business sectors
The survey shows the risks of misreporting are compounded by an unethical business environment. In India 69% believe that bribery and corruption are widespread in the country (57% of all respondents across countries), which rises to 67% in rapid-growth markets.
Arpinder Singh says, “Although companies are aware that unethical practices are rampant in the country, many respondents appear to be in denial about how close bribery and corruption are to home. They see it happening widely in the country, but when asked about its occurrence in their sector, they hold a different view. Only 44 % respondents believe that bribery is a common practice to win contracts in their sector. The results seem to say: ‘Everyone else is doing it, but not me or my business.’”
Justifying unethical conduct - to win or retain business
The survey results show that, despite the existence of compliance programs and awareness of them, a significant and influential group still regards unethical business practices as acceptable. They are willing, for example, to make cash payments or offer personal gifts or entertainment to win or retain business. In India, over a third of respondents feel offering cash payments to win or retain business can be justified — triple that of Western Europe
Compliance perception gap between management and employees
While majority of respondents are aware that their company has an anti-bribery/anti-corruption (ABAC) policy, the survey shows many organizations have a significant perception gap between senior management and employees when it comes to the relevance and effectiveness of this policy. 60% of directors and senior managers believe that their company would support people who reported cases of suspected fraud, bribery or corruption, whereas only 34% of other employees agree.
Critical business functions continue to question the importance of such programs. For example, just under half of respondents in the sales function either do not consider their organization’s ABAC program relevant to their role, or are not even aware of its existence.
Arpinder Singh concludes, “India is a dynamic market and while companies are focused on cost, compliance has to become imperitive. Businesses will always manage these risks differently. One size does not fit all, even in a single business, let alone across sectors and geographies. The message this survey puts out is, businesses face significant threats and must be aware and take action to navigate these risks.”
Notes to editors
About the survey
Between November and December 2012, our researchers – the global market research agency Ipsos – conducted 3,459 interviews by telephone, online or in person with employees of large companies across 36 countries in Europe, the Middle East, India and Africa to gauge their views on fraud, bribery and corruption.
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