Covid-19 crisis will accelerate ethical challenges for Indian corporates: EY Survey

The economic crisis accelerated by the Covid-19 pandemic will pose a significant risk of unethical conduct among corporate India, according to EY’s Global Integrity Survey 2020.

As corporate India navigates these murky waters, EY’s survey ‘Is this the moment of truth for corporate integrity?’ states that the disruptions caused by the pandemic will have a significant impact on ethics.

“Covid-19 and the ensuing economic crisis will uncover their unethical behaviour and actions, leaving organisations exposed to the threat of reputational damage and financial losses,” the report said.

Based on the insights gained from business leaders for the survey, 98 per cent of respondents believed that the disruption caused by the pandemic will impact ethical conduct among businesses.

Arpinder Singh, Partner and Head – India and Emerging Markets, Forensic & Integrity Services, EY said, “The Covid-19 pandemic struck the business ecosystem to its core, propelling management to deal with operational distress and business continuity with urgency. As tough decisions are being taken amid the crisis, the risk of unethical behaviour and compliance infractions has increased and can weigh heavily on organisations. Turbulent times like these can have corporate integrity becoming a true differentiator as organisations concentrate on encouraging ethical conduct, building trust in third-party partnerships, protecting data and circumnavigating the risks present now, next and beyond.”

Challenges

Overall, the disruptions caused by the pandemic pose the risk of declining financial performance (37 per cent), disruption to traditional working patterns (36 per cent), reduced focus on ethical behaviour from senior management (34 per cent) and weakening compliance processes and controls (20 per cent), which will further contribute to this conduct.

According to the report, employees may engage in unethical behaviour for personal gain, especially during the crisis. According to the survey, 69 per cent of the respondents believed that their organisation had managers who would sacrifice their integrity for short-term financial gain.

57 per cent of such employees would be prepared to act unethically for their own career progression or remuneration package. Unethical behaviour included falsifying customer records ( 32 per cent), ignoring unethical conduct by third parties (31 per cent), and providing false information to management (29 per cent).

One of the contributing factors towards unethical conduct is tolerance. According to 64 per cent of respondents, “unethical behaviour is often tolerated when involving seniors or high performers.”

“Senior employees are more likely to justify unethical behaviour such as ignoring misconduct in their team, misleading external parties or offering/accepting a bribe to boost their own career progression or remuneration,” the report said.

Integrity standards

As for the organisation, 76 per cent of respondents found that maintaining integrity standards for organisations in such a period of rapid change and difficult market conditions challenging.

Many believed that the integrity standards of their organisations had improved prior to the crisis, but were wary of public scrutiny. While 77 per cent of the respondents stated improved integrity standards, 92 per cent were concerned about management decisions undergoing public scrutiny.

These standards are questioned, especially during mergers and acquisitions, as per the report.

“Organisations can face significant risk during mergers and acquisitions (M&A), joint ventures when partnering with or investing in other businesses,” the report said.

“Globally, 95 per cent of respondents believe integrity-related risks are among the most significant when undergoing a transaction,” it said.

Key risks to mergers and acquisitions among Indian businesses include future commercial viability (27 per cent), management’s integrity at the acquired organisation (24 per cent) and fraudulent business activities (21 per cent).

Lack of checks prior to M&As contribute further to these risks. According to the survey, a mere 37 per cent of organisations partake in thorough background checks for promoters or key management personnel, while only 31 per cent perform compliance or integrity related reviews. The number is even lower for bribery and corruption reviews, which stands at 26 per cent.

According to the report, “Cyber-attacks and ransomware (36 per cent) are perceived as the greatest risks to the long-term success of organisations, followed by bribery and corruption (24 per cent) and fraud (21 per cent).

The impact of the pandemic will not only lead to financial losses, but will also pose significant privacy risks and data privacy issues as the world begins to embrace technology.

“Covid-19 has increased data security risks as the shift to employees working remotely provides significant opportunities for cybercriminals to target unwitting employees who are not prepared to handle sensitive data securely,” the report said.

These risks are further accelerated by the lack of a response plan and lower number of data security audits.

While 68 per cent of respondents consider the current data protection and privacy legislation a barrier to success, 90 per cent of the respondents believe that the level of enforcement of data protection and privacy legislation will increase in future.

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