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Corporate Governance and Business Integrity a Stocktaking of Corporate Practices

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Corporate Governance and Business Integrity a Stocktaking of Corporate Practices Corporate Governance and Business Integrity A Stocktaking of Corporate Practices CORPORATE GOVERNANCE AND BUSINESS INTEGRITY A Stocktaking of Corporate Practices [email protected] [email protected] [email protected] FOREWORD Foreword This report represents the results of a stocktaking exercise conducted under the OECD Trust and Business Project (TNB Project). The report: i) highlights the extent to which companies (and especially their boards and executive management) are organising themselves in order to integrate considerations of business integrity into their corporate governance frameworks, strategy, and operations; and ii) assesses what factors may influence business decisions to implement business integrity measures, including decisions requiring board-level consideration and approval. The report concludes with a summary of these findings. While specific integrity risks are addressed in this report, the focus is on the role of the board and senior management and the extent to which business integrity considerations are integrated into their overall oversight of a corporation’s strategy and operations. This report was prepared by the Secretariat to the OECD Corporate Governance Committee on the basis of research undertaken from January to April 2015 and a literature review, and was developed in co-operation with the Secretariat of several other OECD bodies charged with overseeing implementation of a number of OECD recommendations and guidelines relevant to business integrity. These include the Working Party on State Ownership and Privatisation Practices, the Competition Committee, the Working Party on Responsible Business Conduct, the Working Group on Bribery in International Business Transactions, and the Committee on Financial Markets, all from the Directorate for Financial and Enterprise Affairs. The report was drafted by Mary Crane-Charef, Leah Ambler and Héctor Lehuedé, under the supervision of Mats Isaksson and Pierre Poret in the OECD Directorate for Financial and Enterprise Affairs. CORPORATE GOVERNANCE AND BUSINESS INTEGRITY: A STOCKTAKING OF CORPORATE PRACTICES © OECD 2015 3 TABLE OF CONTENTS Table of contents Acronyms and abbreviations ...................................................................................................................... 9 Preface ........................................................................................................................................................ 11 Executive summary ................................................................................................................................... 13 Chapter 1. Introduction ............................................................................................................................ 15 Chapter 2. The need to focus on business integrity ................................................................................ 19 2.1. The importance of business integrity to today’s economy ............................................................. 20 2.2. Incerasing cost of misbehaviour to firms ........................................................................................ 21 2.3. Losing trust ..................................................................................................................................... 25 2.4. The business case............................................................................................................................ 26 2.5. A new approach .............................................................................................................................. 28 Chapter 3. Business integrity in practice ................................................................................................. 29 3.1. Business integrity: the view from the top ....................................................................................... 31 3.2. Decision to create a business integrity function ............................................................................. 37 Organisation and scope of the integrity function ................................................................................. 37 Operationalising the integrity function................................................................................................. 41 3.3. Oversight by board committees ...................................................................................................... 45 3.4. Integrity training ............................................................................................................................. 47 3.5. Reporting on integrity ..................................................................................................................... 48 Who reports to whom ........................................................................................................................... 48 Frequency of reporting ......................................................................................................................... 50 What is reported ................................................................................................................................... 52 3.6. Reviewing business integrity policies ............................................................................................ 53 3.7. Communicating on business integrity ............................................................................................ 56 3.8. Special considerations for SOE boards........................................................................................... 57 3.9. Special considerations for SMEs .................................................................................................... 58 Chapter 4. Drivers of effective implementation of business integrity ................................................... 61 4.1. Internal measures ............................................................................................................................ 63 Internal reporting mechanisms and protection from reprisals .............................................................. 63 Linking integrity to incentives ............................................................................................................. 65 Sectorial initiatives ............................................................................................................................... 67 Collective action ................................................................................................................................... 68 Certification .......................................................................................................................................... 70 4.2. External factors ............................................................................................................................... 71 Investors and shareholders ................................................................................................................... 71 Personal director liability ..................................................................................................................... 73 Customer/client-supplier pressure ........................................................................................................ 74 Peer benchmarking ............................................................................................................................... 74 CORPORATE GOVERNANCE AND BUSINESS INTEGRITY: A STOCKTAKING OF CORPORATE PRACTICES © OECD 2015 5 TABLE OF CONTENTS Employee representation ...................................................................................................................... 75 Sustainability reporting initiatives........................................................................................................ 75 4.3. Government actions .......................................................................................................................... 77 Enforcement ......................................................................................................................................... 78 Compliance incentives ......................................................................................................................... 79 Self reporting and voluntary disclosure ................................................................................................ 84 Settlement arrangements ...................................................................................................................... 84 Specific instances mechanism under the OECD MNE Guidelines ...................................................... 85 Corporate governance codes ................................................................................................................ 85 High-level reporting mechanism (HLRM) and “business ombudsmen”.............................................. 86 Chapter 5. Assessment: Implications of the findings ............................................................................. 87 References .................................................................................................................................................. 91 Annex A. Methodology .............................................................................................................................. 101 Annex B. Select OECD Standards for Business Integrity .........................................................................
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