Integrity begins at the top

(Published in the ECCP Business Review 2011)

WHEN IT COMES TO effectively battling corruption, Integrity has to begin at the top, and the higher, the better.

At its core, a company’s leadership bears the ultimate responsibility for upholding Integrity and banishing corruption from its corporate culture. And as experience in low-corruption countries such as Singapore and Hong Kong have shown, the top is the most effective place to begin.

Many of the 14 executive speakers at the country’s groundbreaking “Integrity Summit” held September 14, 2011, which included Pres. Benigno Aquino III, concurred that the “Tone from the Top” is the single key factor that influences the success of any organized effort to affirm integrity and root out corruption.

Pres. Aquino is leading the “Tone from the Top” at the highest level in government. He reminded his audience that Integrity was one of the battle cries of his presidential campaign last year.

For the past 15 months, his administration has “... taken that battle cry to heart -- working to foster a culture of integrity in government. In this regard, I am proud to announce that we have made some progress.”

This strong focus on integrity, the President said, has led to the appointment of people of integrity to top government positions and has shaped the government’s budgeting process.

He said his administration is building a culture of integrity throughout government. The President is convinced a culture of integrity is vital in both the government and the private sector.

“Companies who have a reputation for running their businesses in a clean and efficient manner enjoy the confidence of investors, debtors, and other stakeholders as opposed to those who run questionable operations.

“To put it simply: by doing your part as responsible corporations, everybody wins—and by everybody I mean not just you as corporate workers, but you as taxpayers, as family men and women, and as citizens of this country.”

Good governance in the private sector

Gerardo Ablaza, Jr., President & CEO of Manila Water Company, told the audience of 500 business and government leaders a strong commitment to good governance must start from the very top to ensure it is well-entrenched in the fabric of the entire organization.

“Board members change. But no matter the board’s composition, it must seriously and sincerely demonstrate a strong commitment and adherence to the highest standards of governance,” he explained.

Frank Schmidt, Vice-President & Compliance Officer, Asia & Pacific of the German multinational, Siemens AG, said the tone from the top “... has to be lived throughout all management levels.”

Schmidt’s company knows about corruption from the wrong end: it paid a record fine of $1.6 billion to American and European authorities in 2008 to settle charges that it routinely used bribes to secure huge public works contracts worldwide. Siemens became infamous as a company where bribery and corruption were key elements of its business strategy.

Siemens has since transformed itself into a paragon of transparency, however. It has some of the toughest policies anywhere for upholding integrity at all levels of its worldwide organization.

Hong Kong’s famed corruption fighter, Tony Kwok, emphasized that any anti-corruption campaign starts with ethical leadership.

“The Chief Executive should publicly pledge their commitment to adopt institutional integrity by issuing a public statement on business ethics, value and zero tolerance,” Kwok pointed out.

Kwok, an Anti-Corruption Consultant and former Head of Operations, Hong Kong Independent Commission Against Corruption (ICAC), spoke about his first-hand experience in battling corruption at the highest levels.

The conclusion that “The Tone from the Top” is decisive in any pro-honesty and anti-corruption fight verifies the raison d’etre of the Philippines’ expanding“Integrity Initiative” that began earlier this year and has caught fire in the supportive anti-corruption milieu in government fashioned by Pres. Aquino.

Kwok urged the Philippines’ business sector to begin its fight against corruption by taking the “Integrity Pledge” developed by the Makati Business Club (MBC) and the European Chamber of Commerce of the Philippines (ECCP) as part of the overarching Integrity Initiative.

Beginning with the preamble, “We will prohibit bribery in any form in all activities under our control . . . ,” the Integrity Pledge consists of a list of promises aimed at fostering ethical, clean, and transparent business transactions throughout the Philippines.

It commits signatories to support the Integrity Initiative that intends to create fair market conditions, transparency in business transactions and ensure good corporate governance.

The Integrity Initiative is a multi-sectoral campaign that seeks to institutionalize integrity standards among various sectors of society: business, government, judiciary, academe, youth, civil society, church and media. 

Led by the private sector, the initiative aims to help in diminishing the vicious cycle of corruption in the Philippines.

The Integrity Initiative aims to sign up as many reputable corporations as possible and collectively agree on a “Unified Code of Conduct” and on control measures to ensure integrity and transparency in business transactions.

The Integrity Pledge has been signed by some 800 business firms and government agencies. That number is expected to top 1,000 by the end of 2011 as the fervor that led to the rapid growth of the Integrity Initiative remains strong.

Most of the companies, government agencies and business associations that attended the Philippines’ 1st Integrity Summit have signed the Integrity Pledge. These integrity leaders came to the summit to share their experience in fighting corruption, and listenas experts gave wise counsel on how to battle corruption more effectively.

Ethical compliance programs

Joel Turkewitz, Program Coordinator of the World Bank office in Thailand, noted there is a worldwide movement seeking to reduce corruption. He also saw an increase in corporate ethical compliance programsduring his talk about “The Business Community and the Fight against Corruption.”

Maintaining the momentum that led to this worldwide fight, however, requires partnerships among civil society, the private sector and government.

He sees the ongoing “Arab Spring” as a manifestation of the global fight against corruption. This phenomenon and other similar world events have led to a redefinition of what is acceptable behavior in government and in business.

Corporate ethical compliance programs are key tools in the fight against corruption. A growing number of companies are pushing to have clear rules of acceptable business behavior, with mechanisms being developed to ensure corporate ethical behavior.

These programs help employees act ethically and there is evidence that proves this, said Turkewitz. A survey done five years ago showed almost 80 percent of employees in the surveyed companies were more willing to report an ethical violation if there were written standards;if there were help lines they could call and if they could remain anonymous while doing so.

“The Integrity Summit and the Integrity Initiatives are of great importance,” Turkewitz said. “The World Bank strongly supports the initiative and we hope that we can be a constructive partner in achieving its objectives.”

“The Integrity Summit gives the Philippines the resounding opportunity to make progress in the fight against corruption.”

Political will a necessity

Kwok focused his talk on the role of senior managersin fighting corruption.

“The most critical success factor for combating corruption is top political will,” he emphasized.

Companies must lead in the fight against corruption because there has been a change in the complexion of corruption in high places. He said Hong Kong’s ICAC before used to report that 70 percent of its corruption investigations focused on government and 30 percent on the business sector.

“Now, that’s 50 percent on the business sector and 50 percent on the government,” he noted.

He proposes Filipino companies develop an “Institutional Integrity Action Plan” based on four pillars: Ethical Leadership, Staff Integrity, Systems Integrity and Monitoring & Deterrence.

Of these four, ethical leadership beginning at the very top remains paramount. Kwok described Ethical Leadership as one having integrity; one with a respect for human rights; one that treats employees equally and one that adheres to the rule of law.

In Kwok’s definition, Integrity is honesty; selflessness (in the sense that a decision is based on public/institution interest and not on private interest); objectivity (a decision is based on merit); transparency (no under-the-table deals)and accountability (those who break the law must pay the price).

Apart from Filipino companies committing themselves to the Integrity Pledge, they should also establish business ethics development centers to ingrain integrity in their corporate cultures.

Integrity in business

Integrity from the top is also good for the Philippines, as well, saidAblaza.

“Strong ethical standards in the governance of business and public institutions can do much towards raising the growth trajectory of our country.”

Investments benefit from integrity. Ablaza explained that foreign investments, which are becoming much harder to come by, find their way to markets that provide the best returns commensurate to the risks.

“It naturally flows to countries where investors can better understand structural, legal, policy, and cultural issues. Investment capital gravitates to where the perception of governance risk is lower.”

He said these risks are largely influenced by the rule of law in a country, its regulatory and policy consistency (or inconsistency), governance quality—and the level of corruption. Reducing the level of perceived governance risk will go a long way in building investor confidence.

“Good governance is, therefore, a foundation for the progressive and sustainable future of any nation.”

The Ayala Group of Companies, Ablaza said, has a Manual of Corporate Governance that sets governance principles, defines the specific roles of key players particularly the board and executive management and details the prescribed governance processes.

Learning from massive corruption

Schmidt said that because of the massive corruption scandal that engulfed Siemens three years ago, the multinational has put in place “a high-performance compliance system,” and on this basis has started to fight corruption with “Collective Action.”

For Siemens, “Compliance is not just a program -- it’s a way of doing business,” said Schmidt.

The system is meant prevent, detect and respond to corruption. It starts with the “Tone from the Top” that pervades management worldwide at all levels.

The collective action on which Siemens relies to forestall corruption necessarily involved building alliances against corruption. This “... is not always easy in Asia-Pacific, but we have jointly made remarkable progress,” according to Schmidt.

These measures are means to ensure the sustainability of the company’s various businesses, and of the company itself that has been in existence for 163 years.

“Only clean business is Siemens’ business,” he said.

Making integrity work

Besides the Ayala Group of Companies and Siemens, other Filipino firms have installed mechanisms that fight corruption and instill integrity.

Mike Enriquez, Senior Vice-President, Radio Operation Group of broadcaster, GMA Network, Inc., said upholding integrity and transparency is one of GMA 7’s seven core values.

“GMA Network recognizes the importance of good governance primarily in protecting shareholders’ interests and in enhancing shareholder value,” said Enriquez. He also said transparency and accountability are part of the “kapuso” culture.

Like Ayala, GMA has adopted a manual on Corporate Governance that defines specific responsibilities of the Board, Board Committees and management within the overall governance framework. He noted that GMA is the first media organization to create its own News and Public Affairs Ethics Manual.

He said joining the Integrity Initiative is a means for GMA to become part of a collective effort to promote integrity and business ethics among companies in the Philippines.

The control framework of SGV & Co. starts with the Tone at the Top, said Leonardo Matignas, Jr., Partner, Chief Risk Officer and ASEAN Quality and Risk Management Leader. It is based on the Integrated Internal Control Framework of COSO or the Committee of Sponsoring Organizations of the Treadway Commission.

COSO is a voluntary private-sector organization that provides guidance to executive management and governance entities on critical aspects of business ethics, internal control and fraud, among others. COSO has a common internal control model against which companies and organizations may assess their control systems.

He said this control environmentis the foundation for all other components of the firm’s internal control.

SGV’s control policies “...  help ensure that management’s directives and control objectives are carried out,” said Matignas.

“Information is the ultimate weapon ... and cost effective controls are made possible by the right information.”

No cutting corners

Aldrin Dulig, Senior Director for Finance for Convergys Corporation, noted that his company started small eight years ago but now has 26,000 employees in the Philippines. Convergys is the Philippines’ largest business process outsourcing firm.

“We have grown into one of the largest employers without sacrificing ethical practices,”Dulig proudly said. Convergys’ saga shows the “... possibility for a small business to grow without cutting corners.”

“Implementing ethical practices will help you become a successful company.”

As with other speakers, he said setting the Tone at the Top was vital to Convergys’ success. Convergys also has an “Ethics Hot Line” employees can use to report corruption or anomalies.

“Integrity has been a big key to our success. Indeed, integrity pays,” said Dulig.

Based in the USA, Convergys Corporation provides solutions in customer management and information management. It has 70,000 employees worldwide.

For Sitel, integrity starts at the very top with its President, Bert Quintana, who said integrity “...  defines our commitment to how we operate our business.  We believe that conducting business with the highest ethical standards is critical to our success.”

Trevor Bryan Friesen, Sitel General Manager for the Philippines, Australia and New Zealand, said the company promotes integrity and ethical practices across the organization, especially among top management.

In its championing of integrity, Sitel has put in place an Integrity Pledge; key control measures and standard control activities. 

Sitel is a telemarketing and outsourcing business with headquarters in the USA. It is one of the world’s largest and most comprehensive providers of customer care outsourcing services.

Integrity and Transparency are two of the four values that animate the healthcare firm, GlaxoSmithKline, said Lito de Guzman, Vice-President for Human Resources.

“At the end of the day, it’s all about performing with integrity,” he said.

There are links with integrity in GlaxoSmithKline, which bills itself as a “Learning Organization.” Integrity is also learned at the firms “Learning Circles,” a group of up to 12 people who engage one another in learning topics of common interest.

He said his dream was to formulate the “Seven Habits of Filipinos with Integrity.”

Slashing corruption in procurement

TransProcure is a Filipino company engaged in a unique business that can cut corruption in the purchasing cycle. It calls itself a “Global Procurement and Supply Management Solutions and Services Company,” meaning it helps companies “... manage corporate spend, increase savings, reduce costs and maximize supplier relationships” by providing a total end-to-end procurement service.

Charlie Villaseñor, President and CEO, said his company is the first Asian-based multinational company built around procurement and technology professionals. He described his company as a pioneer in in BPO-procurement services.

Villaseñor said corruption and bribery are the eighth leading cause of fraud in the Asia-Pacific. Fraud is being worsened bythe increased use of technology, phishing and anonymous email allegations. Availing of his company’s services will cut the many types of fraud associated with the procurement cycle.

“By conducting business in an ethical manner, it saves money for the company in that suppliers know exactly what our decisions are based on, Villaseñor said.

An integrity audit criteria

Royal Cargo Combined Logistics, Inc., a local global logistics organization, recently added a “third party audit criteria for integrity” to its list of services that include freight forwarding, contract logistics, projects and heavy lift services.

Michael Kurt Raeuber, President and CEO, said his company has formed an internal committee to control compliance with various integrity commitments given to several multinational companies the company serves.

“Our internal anti-bribery and corrupt practices policy has been systems-wide circulated, review processes are in place and training is presently organized,” he explained.

Raeuber noted that working with government structures in a partially corrupt environment is challenging. Despite this, Royal Cargo follows international standards in all aspects and has signed the Integrity Pledge.

He said that taking countermeasures in “hot spots” for corruption such as the Bureau of Customs and the Bureau of Internal Revenue is a joint responsibility of private firms and government, and is an ideal challenge for Public Private Partnerships or PPPs.

The hot spots in the logistics industry include corruption, red tape, unreasonable fines and penalties, facilitation and abuse of authority.

Not a gift?

When is a gift a gift and not a bribe? It’s a grey area that’s bedeviled corporate executives and the judicial system for centuries.

AstraZeneca Philippines, a leading healthcare company, decided there was only one anwer: transform that grey area into stark black and white by almost completely banning the giving and receiving of gifts altogether.

Beginning 2011, the company has changed its policy on gifts by banning all promotional gifts to doctors and all cultural courtesy gifts such as Christmas gifts. It also revised its policy guidelines for giving items of medical utility such as medical equipment, said Redentor Romero, Regional Legal Counsel for AstraZeneca Philippines.

Also beginning this year, the company will no longer sponsor healthcare professionals wanting to attend scientific meetings here and abroad.There are risks, such as a loss of business because of these strict ethical guidelines, but these risks can be managed properly.

“It takes full understanding and commitment from the entire organization to make the change.” Romero said.

Protecting whistleblowers

Over 40 percent of all corruption cases reported to the Association of Certified Fraud Examinersin 2010 was uncovered because someone decided spill the beans. Police investigations led to the discovery of less than two percent of corruption cases.

The overwhelming usefulness of anonymous whistleblowers has convinced ING Bank of the usefulness of this course of action in its internal fight against corruption.

Alice Salita, Director, Legal Counsel and Head, Legal and Compliance Department, said ING has a whistleblower policy and a whistleblower procedure that makes it easy for employees to report suspicious activity, even anonymously.

Under the whistleblower policy, complaints may refer to any possible breach by an ING employee of an external or internal regulation as stated in the ING Business Principles, and alleged irregularities of a general, operational and financial nature.

“Any employee can make a complaint, including an anonymous complaint,” said Salita.

She concedes the company receives a lot of malicious complaints, but the policy provides an avenue for employees to report suspicious activity that would otherwise not have been reported.

ING will maintain the confidentiality of the complaint and the anonymity of the person making the complaint to the fullest extent reasonably practicable within the legitimate needs of law.

“The whistleblower policy helps ING maintain a strong and sustainable business,” according to Salita.

The accounting firm, Punongbayan&Araullo (P&A), has developed a business out of whistleblowing. The “ProActive Hotline Anonymous Reporting System” is a web-based anonymous reporting tool offered to clients and other Philippine companies as part of P&A's corporate social responsibility effort.

“It’s the first ever service of this kind in the Philippines,” said Juan Carlos Robles, Risk Management Partner and Advisory Services Division Head.

The anonymous reporting system website at http://proactive.punongbayan-araullo.com is an interactive page where a whistleblower clicks on a set of questions to report the category and description of the offense. The whistleblower is not required to identify himself.

“P&A came out with this tool to capture these tips about fraud,” said Robles.

He noted that P&A has its own internal whistleblowing program consisting of a whistleblower policy; a whistleblower hotline and management actions in handling these complaints. Robles said the hotline is anonymous, confidential, secure and accessible.

In his closing remarks, ECCP President Hubert d’Aboville described the summit as aa milestone in our battle against corruption that exists in both the private sector and in the government.

“The Integrity Initiative from its inception last year was aimed at steering the Philippines from the dark side of corruption to the dawning of a new day when a culture of integrity is ever present to provide Filipinos with better lives,” he said.

D’Aboville said the “Unified Code of Conduct for Business” launched during the summit makes him confident this improved culture has a chance to develop across all sections of society starting from the private sector, government agencies and the academe.

“To this end, the Unified Code of Conduct which we presented to President Aquino will go a long way as it sets the standards for ethical practices for those that have signed the Integrity Pledge.”

He reminded those present they all made a commitment to uphold integrity and fight corruption because they want a brighter and more ethical future for our children and the future generation.

“From what I have personally witnessed today, I am very much confident that we will soon see the light at the end of the tunnel.”

Cultivating integrity

The summit theme, “Cultivating a Culture of Integrity,” implied an existing culture of integrity, but one that has to be cultivated.

Ultimately, the Integrity Initiative hopes to build trust in government, a more equitable society and fair market conditions. This will result in improved competitiveness and increased business confidence, which will be evident with the increase in domestic and foreign investments, and more employment generated for Filipinos.

Subsequently, with more Filipinos employed in a vibrant and dynamic Philippine economy, the alleviation of poverty should become inevitable.  Through the initiative, the Philippines will become a benchmark in the transformation process of any country regarded as highly corrupt to one that fosters an ethical and progressive business environment.

MBC and ECCP are initially focusing on the development of integrity standards in the business community through the SHINE project. SHINE stands for “Strengthening High-Level commitments for Integrity initiatives and Nurturing collective action of Enterprises advocating for fair market conditions.”

SHINE is a four-year project funded by Siemens that aims to initiate collective action among ethical foreign and local business enterprises that wish to see the creation of fair market conditions for all market participants. Begun in December 2010, the project’s ultimate objective is a certification and accreditation system, like ISO, that will provide competitive advantages for compliant companies. MBC and ECCP are implementing SHINE.

Clean Business is Good Business

Ramon del Rosario, Jr., Chairman, Integrity Initiative and MBC Chairman,  described the 1st Integrity Summit is the private sector’s call to arms in the fight against corruption within the private sector and against political and bureaucratic corruption.

“Our message today is that the private sector no longer considers corruption ‘business as usual.’ We are declaring here and now that we can and fully intend to be both successful and honest in business! Let our mantra be ‘Clean Business is Good Business’.”

Del Rosario said the initial strategy was to get the commitment of CEOs and senior executives, and heads of government agencies, to support the campaign in order to set the tone from the top and pave the way for the desired culture change and inculcation of ethical behavior to permeate all levels of their organizations.

“Eventually, we will also seek the support of the next level of leaders -- the managers, supervisors, undersecretaries, assistant secretaries -- and invite them to sign the Integrity Pledge.”

Signatories of the Pledge adopted a Unified Code of Conduct, led by Edilberto de Jesus, President, Asian Institute of Management, to further embed integrity practices and implement control measures within their organizations. As more of us commit and abide by this Unified Code, the Initiative hopes to see the growth of an ethical community against corruption.

“That is what this Initiative is all about -- cleaning up the ranks of the private sector, accepting the responsibility for this challenge, pursuing it in a systematic and measurable manner that harnesses the best practices of good corporate governance and accountability at all levels, and inspiring the commitment and cooperation of our colleagues in the private sector and partners in government.”

Rep. Feliciano Belmonte, Jr., Speaker of the House of Representatives and Renato Corona, Chief Justice of the Supreme Court, each delivered a message of support for the Initiative.