Importance of integrity as a differentiator
Some will argue that now is the time for less specific attention to integrity, as business survival and economic recovery will require more concentration on the “animal spirits” of enterprise. In fact, the stresses of the crisis, and what may be an uneven, jagged recovery, will underline the importance of integrity in underpinning a company’s business relationships and managing risks.
Those who lead in integrity will differentiate themselves as seldom before, and those who do not are likely to be held accountable after this crisis has passed for any abuse of trust by unforgiving stakeholders.
Business leaders therefore need to think carefully about building and sustaining an integrity agenda at their organizations under four headings: governance; culture; controls and procedures; and data-based insights. They should then ask a series of important questions:
- Is the guidance on appropriate conduct clear, consistent and adequately communicated?
- What more can be done to reinforce the right tone from the top?
- Where there have been job losses, is the segregation of duties still effective, and does management understand the need for increased supervision and review in the interim?
- What processes exist to identify when a management bias in accounting estimates crosses the line and becomes inappropriate accounting?
- What are the processes to manage a possible breach of debt covenants?
- If earnings targets are likely to be missed, what is the process to ensure that: revenues are not recorded prematurely; expenses are properly accrued; and inflated provisions or accruals are not established to achieve targets in later periods?
- How can we best encourage our people to “do the right thing” when faced with new financial or ethical dilemmas in the context of this crisis?
Audit committees particularly need to be alert to the heightened risk of fraud at this time. They should discuss with both internal and external auditors and consider whether expanded audit procedures are required to help mitigate the risk of increased fraud, bribery and corruption, money laundering and wider economic crimes.
Getting ready for a return to growth
There is going to be an end to this crisis. The vast majority of organizations have responded appropriately and fairly to the challenges faced and have treated their customers, suppliers and employees with respect. However, organizations must continue to have an eye towards what is on the other side and ensure they continue to exhibit high levels of integrity today and beyond.
As emergency support measures gradually unwind, and competition reasserts itself, the attention of society on responsible business is going to be greater than ever. Without addressing the questions above effectively, it will be difficult to maintain a culture of integrity in this extraordinary time. The danger is that fraud (and ethical) issues will come to light in the next three, six or 12 months.
Now is the time to dig deep and maintain high standards, to recognize the potential new ethical threats this situation is generating, and to prepare the foundations for renewed business growth anchored in an appropriate culture of integrity.