In recent years, Malaysia-listed companies have shown notable improvements in their corporate integrity disclosures, with the establishment of enhanced internal reporting mechanisms and anti-corruption code of conduct/ policies that are clearly communicated to their employees. Companies are also increasingly cognisant of the importance of providing relevant training to their employees and directors on how they can play their part in raising the alarm on misconducts, though gaps still exist. This article looks at some of the best practices in the strengthening of corporate integrity, across large and small companies.
Raising the alarm about misconduct or corruption can be considered risky for individuals. Businesses that would like to swiftly detect such behaviour will need to ensure that they have the right governance structure that promises ease of access and confidentiality, while instilling confidence in employees that reporting their concerns on suspected integrity breaches is safe, and in the best interests of the company. For some of the larger companies with complex structures and multiple reporting lines, human resources (HR) and assurance functions (e.g. risk management functions, compliance functions, internal audits, integrity units) play crucial roles in building and strengthening the internal control systems related to corporate integrity.
Recent trends in Southeast Asia reflect that corporate integrity disclosures among the largest listed companies in Southeast Asia have continued to improve. According to a 2022 study conducted by the National University of Singapore’s Centre for Governance and Sustainability with two other organisations, Malaysia-listed companies have performed well on integrity disclosures, and have the second-highest average score among companies from four other Southeast Asian countries, namely Singapore, Thailand, Indonesia and the Philippines, at 81 per cent.
The study, which looked at public corporate integrity disclosures from the 50 largest companies by market capitalisation across stock exchanges of the Southeast Asian countries, found that Malaysia-listed companies showed marked improvement, by 11 percentage points, on disclosures which is indicative of an “internal commitment to anti-corruption”. These could include the application of anti-corruption codes of conduct and the provision of relevant training to both employees and directors, said the study.
Inculcating a culture of business integrity, however, also requires initiative and support from the company leadership, and other pertinent departments such as the Integrity & Governance Unit (IGU) and Internal Audit function, so that existing anti-corruption or corporate integrity policies are continuously strengthened, and gaps addressed.
Effective whistleblowing
A key component in strengthening organisational integrity is through establishing an effective whistleblowing programme. This programme is a key pillar of a company’s corporate governance framework. Independent (board-level) oversight over the programme is also crucial for its success.
To be specific, setting up a whistleblowing mechanism will include having in place confidential channels that allow employees of a company to report suspected wrongdoings. If issues of corruption, fraud and bribery are left undetected, it can lead to devastating reputational and financial losses to the companies.
A key barrier that hinders whistleblowing, however, is the fear of reprisal or detrimental actions taken against the whistleblower. In Malaysia, the Whistleblower Protection Act 2010 was enforced in December 2010 to encourage and facilitate the disclosure of improper conduct, both in the public and private sector, though there have also been calls for reform to strengthen the protections. High profile cases widely reported in the media where whistle-blowers suffered repercussions e.g. lost their jobs when they lodged a report might add to the environment of fear and apprehension.
In an effective whistleblowing programme, among the key elements that are essential are trust and confidentiality. Where they have a role in receiving or dealing with disclosures, complaints, and reports, human resource professionals or the organisation’s designated whistleblowing administrative function will need to ensure that procedures and protocols are followed, take all reasonable steps to maintain confidentiality where it is requested, treat all disclosures consistently and fairly and be able to convince the whistleblower or complainant that the company will take the necessary actions to investigate the report professionally. Regular internal audits and reviews of integrity programmes in a company will also help to instil confidence among employees.
Case study: Establishing a third party-managed whistleblowing mechanism
Companies usually can consider whether to outsource their ethics and whistleblowing channel or to manage it in-house. Setting up a third party-managed mechanism has its own set of benefits, as it may provide a greater degree of transparency, avoid possible conflict of interest, as well as make it easier for cases to be escalated to the board management level, if required. External experts are also expected to be well-trained to handle whistleblowing reports in compliance with domestic regulations and advise on the effective follow-up actions to be taken with reference to other case studies. On a broader level, employees might have more confidence and trust in a third party-managed channel.
Bernas, Malaysia’s state trading enterprise (STE) in the international rice market, which is responsible for ensuring the stability of the domestic rice market and the country’s food security, has seen visible results from implementing an independent whistleblowing channel that is managed by a third party, that allows employees as well as external parties to raise concerns in good faith about any perceived irregularity or misconduct, without fear of reprisal or detrimental actions taken against them. All concerns on bribery are addressed through a default communication channel called “Talian Etika”.
The company, which recently won the Platinum Award, the highest accolade at the inaugural edition of the Integrity, Governance and Anti-Corruption (AIGA) Awards 2022, said there was an increase in the number of reports received on wrongdoings, since the mechanism was implemented from zero reports in 2020 to seven in 2022.
Institutionalising a culture that encourages reporting and disclosures
The effectiveness of corporate integrity disclosures can only be strengthened when the whistleblowing or disclosure mechanisms operate within an open-door culture. In such organisations, problems are likely to be aired earlier and can be addressed long before they develop into a crisis.
The corporate integrity function and HR teams can step up to set this tone, to ensure that the correct mindset in handling misdeeds is embedded in the company. A clear understanding of good corporate behaviour makes wrongdoing easier to spot. When concerns are discussed openly, this also reduces the negative connotations of whistleblowing. Blowing the whistle then becomes only the last port of call, operating as a back-up if other measures have been tried and failed.
These recommended practices complement and reinforce each other to create a multi-tiered approach that may strengthen a culture of integrity at the workplace: