Global Economics

An Integrity Injection for Business


Author Muel Kaptein says companies must tackle the roots of scandals, frauds, and scams rather than just treating the symptoms

In recent years, policy-makers and governments have pursued many efforts to achieve better corporate governance in the areas of regulation, law, supervision, procedures, systems, controls, and reports. The problems that existed in the past now seem to be under control. But appearances are deceptive.

Although the symptoms—fraud and accounting scams—have mainly disappeared, the causes have not. Indeed, the measures put in place to deter corporate scandals can be counterproductive in the long term: An "overdose" of rules can damage an organization's "immune system."

Companies are busy at present implementing regulations and processes to suppress the symptoms. But only a few are tackling the root causes by educating and training their managers and employees on ethics and integrity.

What's more, these programs are often based only on laws and rules—not on values and principles. And instead of intimate, face-to-face workshops, too many organizations instruct their employees by means of impersonal Internet, intranet, or CD-ROM coursework.

Institutionalize the Solution

It is understandable that organizations concentrate on giving instructions. They're obliged to communicate new laws and rules clearly so that management and employees understand them.

But this is not sufficient. Integrity is about effectively grasping and accepting the roles and responsibilities one has within and outside an organization. It is also a question of intentions, ambitions, skills, capabilities, and commitment.

Recent research by KPMG shows that 88% of employees who work for organizations with sound, principles-based integrity programs are prepared to discuss dilemmas with their managers. In organizations where such programs don't exist, the figure drops to just 48%.

Organizations that invest in increasing integrity from the inside boost their immunity to seductions and pressures. Rather than constraining managers and employees, the Vitamin "I" of integrity actually compels, captivates, and inspires.

It focuses not only on the letter and spirit of laws and regulations but also reaches to the sources and inspiration from which sound corporate governance emanates. (And from which it acquires moral stature.) A system based on "vitamins" is far better prepared for rapid changes in the outside world than one relying on "medication."

Vitamin "I" is not available in the supermarket as a traditional cure. Whoever wishes to administer it must ensure the dosage is correct. Among other ingredients, there should be a valid and authentic set of core values and a description of behavioral norms.

Also needed: Customized (and inspiring) awareness-building programs for managers and employees; an organizational culture in which openness, honesty, and security are evident; and a job selection and promotion process in which integrity plays a prominent role.

All of the above may be more difficult to pull off, but the result is much richer than mere implementation of new laws and rules.

Kaptein is a Professor of Business Administration with RSM Erasmus University in Rotterdam and director at KPMG Integrity Investigation Services. He is also the author of the best seller The Six Principles of Managing with Integrity (Spiro Press, 2005).

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