The Fraud Examiner

The Reputational Risks of Corruption: Applying Ethical Intelligence in the Boardroom

Marc Y. Tassé, CPA
Professor
Telfer School of Management - University of Ottawa
                               

Corruption, perhaps more than anything, can irreparably damage a hard-earned reputation. While reputational risks due to corruption go along with other risks — especially environmental, social and governance risks — reputational damage typically arises when a company claims to have proper anti-corruption measures in place and then gets caught in a corruption scandal it is ill-equipped to deal with.

The emergence of anti-corruption compliance

Citizens in countries across the globe continue to see business executives and politicians as corrupt. Corruption shakes the foundations of civil societies, weakens trust in public institutions and destroys faith in democratic leadership. Though corruption has been decried throughout history and across cultures, like other crimes, it has grown increasingly sophisticated over the last several decades with devastating effects on the well-being and dignity of countless people.

Corruption and bribery, price-fixing, systemic financial manipulation, toxic spills and corporate misconduct have tragic and far-reaching consequences for individual victims and society at large.

Fines for corporate misconduct have reached astronomic levels, which were unthinkable a few years ago. Individual managers and directors are now also being held accountable.

Boards of international companies and those looking to expand their global footprints face constantly shifting politics, and economic, tax, regulatory and legal risks. They are being challenged to evaluate these risks in the context of ongoing operations and expansion. They are also faced with the additional challenge of dealing with the actions of foreign governments and their regulators, who may be influenced by unethical motives, politics, culture and value systems, which are embedded in foreign markets but are unknown to corporate headquarters. 

These risks require a proper set of policies, protocols and other mechanisms to identify and cope with these threats. Companies need to ask themselves: