Q & A: What’s the link between corporate ethics and risk management?

Cynthia Schoeman, MD of Ethics Monitoring & Management Services, speaks to Mitchell Mackay, Senior Analyst at Pasco Risk Management, a specialised risk consultancy headquartered in Johannesburg.

CS: Risk management is a broad term which carries a number of meanings in the business world. Is there a link between corporate ethics and risk management services?

MM: You’re quite correct. There are a number of “risk management” varieties which cover anything from legal compliance, financial reviews, profit and debt modelling, income projections and everything in between. Our approach to risk management is focused more on helping clients understand the risks around potential new business partners, entering emerging markets, investing in new projects and managing engagements with stakeholders. So yes, our risk management services are most certainly linked to the general tenets of corporate ethics.

CS: How so?

MM: Perhaps the most straightforward instances include those where we have assisted clients in developing and implementing due diligence and compliance regimes throughout the company. In doing so, we help implement systems that are designed to check and verify that their various vendors and/or partners are compliant with a range of governance measures. This might include ensuring that third parties do not transgress anti-bribery or anti-corruption legislation, that they are not guilty of any crimes, that they maintain financial stability or that their reputation is free from any significant controversy. In doing so, we assist our clients in being proactive about how they engage with third parties. The checks I've just mentioned are all ultimately linked to corporate ethics, as our clients are committing themselves to governance principles which do not permit engagement with any third party who does not uphold similar corporate values. The key is to be proactive in setting ethics and governance standards for your company, rather than waiting for a governance failure to occur and only then taking corrective measures.

CS: Do you believe companies begrudgingly institute measures like the ones you have mentioned or is there a genuine commitment to a culture of sound business ethics and good governance?

MM: There are most certainly instances where a company has adopted a due diligence and compliance regime simply for the sake of being compliant. However, more often than not, these types of regimes begin to permeate throughout the entire business, lending to a culture of best-practice and ensuring that all the right boxes are ticked when it comes to engaging with third parties or new business partners. The systems we recommend typically call for all employees to form part of the process, often requiring them to “endorse” a particular third party or vendor. This creates a strong sense of accountability throughout the company. Typically, an effective and sustainable due diligence or compliance program begins to work best once the commitments of both management and staff begin to converge.

CS: Do you find that some companies struggle to reconcile their drive to increase profits with their commitment to business ethics?

MM: We often have to tell our clients things that they don't necessarily want to hear. This is particularly the case when it comes to pre-investment due diligence or a proposed joint venture review. If we determine any concerns around reputation, corruption or unethical business practice linked to the deal or the proposed business partner, we will always advise our clients to either proceed with caution or step back. When profits are at stake, this type of advice is often hard to swallow and is certainly a test for a company's commitment to sound governance and an ethics-based approach to business. Those companies that stick to their defined business principles are typically able to achieve profitability and sustainability in the long-term, as opposed to those who chase short-term profits at the potential expense of their own credibility and reputation.