A recent study by EY has found that senior managers are not setting the right tone on business ethics.

Despite all the benefits that the digital age has delivered for businesses, the rise of the internet, social media and instant news also means that, more so than ever, organisations are in the public spotlight.

As a result, unethical practices are increasingly hard to cover up, as evidenced by the plethora of articles emerging about some of the world’s most famous brands caught up in various scandals.

It is therefore interesting to hear that, according to a recent report by EY, unethical behaviour still exists in businesses on a fairly large scale.

Unethical business

The headline findings of the report show that 51% of all respondents across Europe, the Middle East, India and Africa still perceive that corrupt practices happen widely in business in their country. While 27% of all respondents stated that it is common practice in their business sector to use bribery to win contracts, including 14% of respondents in western Europe where a lot of work has been done to tackle bribery and corruption.

Perhaps most shocking is what senior managers had to say on the topic. Most notably, 77% of board directors or senior managers say they would be willing to justify some form of unethical behaviour to help a business survive, with one in three willing to offer cash payments to win or retain business.

Steps to prevent reputational damage

According to the study, there are a number of different channels that can be used to mitigate the risk of unethical behaviour becoming endemic inside an organisation. Whistleblowing hotlines, for example, can be an effective tool, yet only 21% of respondents were aware of such a channel in their company.

Even when this option is available some choose not to use it. Fifty two percent of respondents for instance said that they had concerns about misconduct within their organisation. Yet 48% of these felt pressure to withhold information, leading to 56% of this group choosing not to report.

The monitoring of employee data is another effective mechanism to prevent misconduct. However, this method also poses some ethical concerns. This was evident in EYs data around this topic. Seventy-five percent of respondents say their company should monitor sources such as emails, calls or messaging services. Yet at the same time, 89% feel that monitoring data, such as instant messenger accounts, would constitute an invasion of privacy.

Wider impact

Ultimately, the numbers around the perceived levels of unethical behaviour in businesses are a concern, especially for those acting ethically, or whose roles may be made harder by the reputational damage caused if the company was found out.

For the treasurer, the direct impact of a scandal means there is a need for tools to assess levels of financial impact, and, ultimately, to work out where the money will come from to cover legal fees, damages incurred, the potential use of other external experts, severance packages and so on.

When these sums become very substantial they can wreak havoc on cash flow and forecasts. Indeed, there have been some notable examples of this. Volkswagen, for instance, reportedly set aside €6.5bn to cover the costs of its emissions scandal. What’s more, companies embroiled in scandal must brace themselves for a hit to sales and prices – the company lost roughly US$20bn in market capitalisation.

If unethical behaviour cannot be weaned out, then the best thing treasury can do is to be prepared for when the truth is revealed. Scenarios should be stress tested and a robust response plan put in place. It should also ensure that no unethical behaviour exists within its own department.