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What business activities might undermine good conduct in your firm?

By The Enforcd TeamThe Enforcd Team

In this 6th post in our series reflecting on Megan Butler’s speech to the FT Investment Managers Summit, we look at what factors might undermine good conduct in your firm.

Well placed intentions are laudable, but what happens if your day to day operations work against it?

It’s a common refrain from the world of business. Corporate social responsibility is a growing priority for corporations of all sizes. Increasingly, regulators are catching up with public expectations for good corporate conduct. Even so, we don’t have to look too hard until we find an example of a major company falling foul of its obligations.

Corporate failure

Indeed, just in the last week we’ve seen the spectre of Carillion – run by David Cameron’s advisor on corporate responsibility – giving us all another prime example of corporate conduct gone bad.

The problem, as Megan Butler out in her speech to the FT Investment Management Summit Europe, is how staff are incentivised. Are they rewarded for activity which conforms or contrasts with the company’s states objectives?

“Have you looked at whether there are any business activities you’re engaged in that undermine your work to improve conduct?”

For example, Virgin has made great efforts to be seen as an environmentally sustainable business. Even so, one of its key areas of business is in aviation – one of the biggest contributors to climate change in the world.

Other businesses have also found that the way in which they and their staff are reward conflicts with their stated objectives. Take the example of A4E – the self-styled social business employed by the government to help long-term unemployed people back into work. They found themselves at the centre of a corporate conduct scandal when they were accused of multiple accounts of fraud and malpractice. Those people most in need of help were routinely ignored in favour of people who would be easy to help back into work.

A4e was compromised by the incentives it was given. On the one hand it had originally been set up to help people back into work, but its employees were incentivised according to a success rate. As such they concentrated on those individuals who were easier to get back into work than others.

More recently the Libor-fixing scandal at RBS saw traders incentivised to actively go against the stated ethos of the bank.

These are just the tip of the iceberg. Corporate history is bursting with organisations in which corporate conduct standards were undermined by the business’ key operations and the way in which staff are rewarded.

Practice what you preach

First, think about your company rewards structure. How are you incentivising your employees? Are you rewarding those who exhibit good behaviour or simply those who generate the revenue. If it’s the latter there’s a good chance you are actively incentivising – even without knowing it – your employees to undermine your efforts to achieve good, sustainable corporate conduct standards.

You should also look at your business activities. When change occurs, corporations often find that their old activities are no longer compatible with their new mission. For example, picture a company developing a new vision for corporate conduct. However, that vision is incompatible with many of their existing business operations. Change in this case would require an enormous structural overhaul of the entire way in which the company works.

Have a look at key operations such as IT and accounts. If you’re setting yourself up to be a sustainable company, are all departments incentivised to back that up? Are you keeping up with the latest expectations of the regulators.

To help you in his, have a look at the roundup section of the Global Regulatory Intelligence Platform where you’ll find all the latest news and developments from the regulatory landscape.

This can raise your awareness about current regimes and expectations, and help you learn from other examples.

There is a host of information available which can help you maintain best practice in regulatory compliance. What you need is the tools and the general awareness to help you achieve them.