Why Business Integrity Can Be a Strategic Response to Ethical Challenges

Governance — the “G” of ESG — has long been overshadowed by discussions of its counterparts, environment and sustainability, despite being a source of strategic advantage. While many companies view investment in governance simply as a means of staying out of trouble, proper corporate governance can — and should — drive company performance.1

To turn this idea into reality, a growing number of companies are moving toward a more holistic approach to ethical and responsible business. This involves aligning and coordinating across critical integrity functions, reducing box-ticking, and thinking holistically about ethical behavior, risk management, and value creation.2 In order to gain a deeper understanding of key challenges and success factors driving this approach, we conducted interviews with leaders from over two dozen large companies and multilateral institutions on the different steps they have taken to invest in business integrity as a strategic response to both risks and opportunities.

This research has also been informed by our ongoing work with and cross-sectoral best practices from the World Economic Forum’s Global Future Council on Transparency and Anti-Corruption and several Business 20 (B20) task forces on integrity and compliance. We’ve found that independent and autonomous leadership plays an important role in progress, as demonstrated by the emerging role of chief integrity officer as a driver of change. But our research also shows that simply appointing a C-level role is not enough. In order to address today’s complex ethical challenges, companies need to break down internal silos to create strategic alignment and collaboration and build a culture of integrity. In this article, we explore how leading companies are demonstrating this holistic approach.

A More Strategic Approach to Integrity

The common thread in our interviews with executives was that leading companies have been adopting a more strategic approach to ethical business, which makes it easier for them to identify blind spots and avoid hypocrisy. For example, there are increasing demands from institutional investors to align sustainability commitments and political spending. And zero-tolerance anti-corruption programs will not be effective unless they look at the design of incentives, particularly sales and growth targets in emerging markets.

Some organizations have chosen to appoint a single leader in the C-suite, such as the chief integrity officer, to oversee a broader set of functions that go beyond compliance. Often, compliance leaders are given broader integrity responsibilities, such as oversight of government relations or ESG. In parallel, we see increased collaboration across business, integrity, and sustainability functions. At Vestas, a Danish manufacturer of wind turbines, compliance and sustainability are an integrated team informing the company’s global infrastructure projects. Meanwhile, at PepsiCo, integrity, sustainability, and human rights targets are integrated more holistically into the core business strategy.

Across many sectors, we found examples of how leaders are adopting holistic thinking when managing governance. Take the pharmaceutical industry, where ethical dilemmas pose an existential risk. For Klaus Moosmayer, the chief ethics, risk, and compliance officer at Novartis, ethical considerations must be integrated with risk management: “We want to become a holistic assurance model that brings together ethical considerations to enterprise risk management as well as our compliance systems.” The pressure to take these risks seriously comes not just from investors — internal stakeholders play an important role as well. At Novartis, said Moosmayer, they are “competing for the best scientists and chemists in the industry, and increasingly they want to work in environments that champion ESG.” An example of this inclusive approach at Novartis is the company’s new code of ethics, which was crowdsourced with input from thousands of employees. Novartis also conducted an ethical culture survey of its more than 108,000 employees that was developed with its internal team of behavioral scientists, and it has incorporated the consideration of ethical dilemmas in its recruitment efforts.

Moosmayer sees these shifts as having a positive impact on the way in which his role is perceived. While ethics and compliance units often are respected, if feared, within organizations, they are also siloed. He explained that the opportunity for governance leaders using this holistic approach is to improve not only risk management but company culture.

But pursuing this opportunity should not come at the price of long-term profitability, and leaders in these roles must be good at balancing integrity goals with profitability pressures. Silvia Garrigo, chief ESG officer at Royal Caribbean, finds that new pressures from stakeholders can go beyond compliance and reputation management and demonstrate commitment to environmental and social responsibility. “You have to do what is good for the business, of course. But you can’t sustain that if you are violating human rights or using resources like water and raw materials in an irresponsible manner. Saying ‘Look at all the wonderful things we are doing’ is no longer a credible approach. We need to think holistically about how these practices affect ethical culture and stakeholder trust.”

Improving Collaboration and Coordination

In order to respond to new stakeholder demands, companies need much closer coordination between the functions that deal with legal obligations and those that deal with voluntary environmental and social commitments. Failing to address silos leaves companies vulnerable to missteps and ethical lapses. Further, many issues related to business integrity — such as human rights — are shifting from soft law to hard law, which emphasizes the need for closer collaboration between ethics and compliance and social responsibility. Focusing on one issue at a time will produce piecemeal, disjointed results. Rather, companies must adopt a multidisciplinary, cross-functional approach.

For example, Unilever has created a global business integrity team that manages all aspects of the company’s integrity guidelines on internal conduct and external engagement. That team includes Gonzalo Guzman, Unilever’s global general counsel for anti-corruption. Guzman has found that prevention processes are insufficient to tackle corruption. Rather, he said, Unilever must “engage with business partners, look at human rights, deforestation and environmental impact, beneficial ownership, and e-governance” to be effective.

Organizations must also recognize that some systemic challenges cannot be solved without collaboration. Multi-stakeholder initiatives and other combined efforts are necessary to achieve scale. Matt Galvin, former global vice president of ethics and compliance at AB InBev, strongly supports collective action: “We have to join forces, influence markets, and change behavior on intractable problems like corruption.” The way to do that is to attack a problem from different angles, through collective action involving a large number of businesses, governments, NGOs, and civil society.

Engage Employees on Initiatives

To successfully integrate business integrity as a core competency in the organization, the strategy must be implemented at all levels. It is crucial that all employees — from the top leadership to front-line workers — are on board. This is no easy feat.

A number of companies have sought to involve employees from the core business in integrity efforts. Hentie Dirker is the chief ESG and integrity officer at SNC-Lavalin, a Canadian engineering, procurement, and construction company. SNC-Lavalin has appointed 150 integrity ambassadors across the business to increase awareness, offer support and guidance, and generally promote integrity. According to Dirker, the focus has shifted away from one-way training to discussions, in order to create a safe space for employees to question issues they experience in their daily routine rather than simply focus on compliance.

In virtually all of our executive interviews, we heard that the chief goal must be to improve company culture. For example, Nicole Diaz, global head of integrity and compliance legal at Snap Inc., is focused on building cultures of integrity using employee feedback. She told us: “Employee voices should be viewed as an asset to help organizations make better decisions. Companies should provide ethical principles to help guide those decisions and have discussions openly.” Because Snap’s ESG lead is on the same team as Diaz, they have a “360-degree view of ethics.” This kind of structure enables the team to explore questions they might have otherwise missed, like how the organization can infuse its desire for positive social impact into the way that it partners with third parties.

Next Steps for Organizations

What are the key requirements for success? Simply appointing someone to the position of chief integrity officer will not do the trick, of course. Our research has led us to the following recommendations across five key areas: strategy, integration, culture, independence, and multidisciplinarity.

First, it should be acknowledged that the commitment to integrity is fundamentally strategic. There must be deliberate alignment and coordination with the business strategy, and this should also be reflected in corporate reporting structures and roles. Alternatively, another approach includes board structures or task forces that address integrity and ESG issues.

Second, companies must break down silos and make integrity a commitment across the entire organization. Giving compliance teams oversight of ESG disclosures is common, but this will not work if ESG is treated as a box-ticking exercise. Rather, compliance teams can work more closely with their sustainability colleagues to understand how stakeholders view performance on environmental and social issues, identify key sources of risk, and better anticipate evolving regulation.

The next important area is culture. As the examples of Novartis and Snap illustrate, a strategic and holistic approach will have a positive effect on both culture and risk management, and a culture of integrity can be built with a data-driven approach to employee feedback. Companies that want to improve in this area must have a clear baseline understanding of their ethical culture and invest in tools to measure progress over time.

At a more formal level, the chief integrity officer should have independence and autonomy. The stand-alone positions that we explored in our research are proper C-suite positions that come with the required level of seniority. The chief integrity officer needs a seat at the decision-making table to be effective.

Finally, the chief integrity officer needs support from a diverse and multidisciplinary team, with specific skills related to data analysis, policy, stakeholder engagement, and behavioral science. The team should be ready to respond to a very wide range of issues, including political spending and positioning on social and political issues. The recent withdrawal of Western companies from Russia has also raised pressing questions about exposure to human rights and corruption risk in authoritarian states. A strategic integrity function can help companies tackle questions such as whether to operate in jurisdictions with serious human rights problems, how to tackle employee demands to speak up on controversial social issues, or how to ensure that a company’s principles, social responsibility commitments, and political spending are consistent with its mission and values.

It is clear that today’s CEOs are overwhelmed by the increasingly dynamic environment for environmental, social, regulatory, and political risk. An empowered strategic integrity function is a critical step in developing a more proactive and systemic approach to these issues.