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Company ethics across Asia: How to navigate the gray areas?

Asia Pacific /

Navigating compliance and ethics has become increasingly complex following the global financial crisis of 2008, which has led to a proliferation of new standards and compliance requirements. The exponential growth of new technology has also made it challenging for regulations, laws and ethics to keep up.

So how can you navigate the compliance minefield and ensure that your employees do the right thing, especially when your organization operates across multiple jurisdictions in Asia Pacific where diverse cultures and governance at varying stages of development bring another layer of complexity?

The compliance journey covers four key dimensions—regulatory, operational, contractual and ethics, according to JLL’s report The Complexity of Compliance. Ethics, the most deeply human-oriented aspect of the process, sits at the core of the compliance framework. It is virtually the underlying code that governs the adherence to any regulations and contractual agreements.

Business theorist and management consultant Marvin Bower said, “There is no such thing as business ethics. There is only one kind [of ethics]—you have to adhere to the highest standards.”

Named among one of the world’s most ethical companies for the ninth year running, JLL offers some practical considerations if you are looking to implement a global compliance strategy across Asia Pacific.

Develop a keen understanding of the environment

On many occasions, employees in overseas subsidiaries are simply not aware that certain acts are unethical and illegal in the business’ home country.

The Asia Pacific market place is generally less homogenous compared to the United States and Western Europe. Different jurisdictions have distinctive cultures that can render an act perfectly ethical in one market and questionable in another. This is because ethical “norms” often stem from deeply embedded cultural roots.

“On many occasions, employees in overseas subsidiaries are simply not aware that certain acts are unethical and illegal in the business’ home country,” says Jack Ngoh, JLL’s Ethics Coordinator in Asia Pacific.

Sanjoy Banerjee, JLL’s Regional Risk Director, advises that businesses need to be clear on “cultural norms” that are acceptable without violating any applicable laws or regulations.

We recommend that ethics programs should seek to increase awareness of the types of ethical violations (such as conflicts of interest, fraud or corruption), set a baseline for ethical expectations of your employees, provide a clear process for managing ethical violations and delineate the consequences.

Ensure transparency for related-party transactions

A report on family businesses by Credit Suisse found that 65 percent of the world’s 920 largest family-owned companies come from “Emerging Asia.” While utilizing family connections may not necessarily render a company to be unethical, a culture of transparency is necessary.

“In Asian countries, businesses are often owned and run by families; dealings between close acquaintances and family members are commonplace,” observed Banerjee. In countries like Vietnam, for instance, recommending a relative or family member as a supplier to the business is common practice. Such relationships are typically not formally declared as required by Western governance practices.

To consciously avoid nepotism, whether direct or indirect, Banerjee advises that stringent background checks, transparent selection processes and a policy of mandatory relationship disclosures should be an essential element of any compliance program.

The prevalence of state-owned companies in Asia can also make compliance a challenge as lines are blurred between management, who are advancing the interest of the government, and those who are pursuing profitability goals.

While global and local institutions may provide guidance and rules on related-party transactions, it’s important to have your own internal processes that promote transparency and accountability designed to minimize and mitigate enterprise risk.

Maintain consistency in standards

In Asia, rules and standards ranging from labor laws to business practices such as gifting and hospitality can be vastly different.

An organization operating in multiple markets may find labor practices acceptable in some countries falling short of the minimum requirements in others. Similarly, some markets may have mandates with a non-negotiable adherence, while others may have room for acceptable flexibility. For instance, in some countries, businesses’ codes of conduct prohibit the acceptance of gifts; others require the reporting of the gift to supervisors.

Successful compliance and ethics programs enforce consistency and standardization across the business regardless of the jurisdiction.

“Establishing global consistency with ethical standards—so expectations for ethical conduct are the same in Chicago as in Dusseldorf, Mumbai or anywhere else—is the key to success of an ethics program.” says Rachel Barner, JLL’s Chief Litigation Counsel.

“While communication of these expectations should account for regional differences and cultural acceptances, the message of adherence to ethical standards should be the same across the global platform,” she advises.

Establish quality assurance standards for suppliers

Using third parties and vendors is a regular aspect of doing business in Asia. In some industries, rules and regulations governing transparency, compliance and minimum standards are still undeveloped.

Ngoh explains, “Standards of quality assurance may vary in different countries. For example, in one country, a background check may be considered ‘passed’ if a copy of a certificate is simply produced; in another, a third-party authenticator may be engaged to check the qualification with the accreditation body. Setting clear expectations for authentication partners would reduce the chances of unethical practices.”

Aside from your internal compliance programs, the same level of scrutiny and risk management must be extended to your subcontractors and third-party vendors, especially if your organization operates widely across Asia.

In addition to educating your employees, teams should also be aware of the difference in quality assurance standards and be clear with external suppliers on the level of authentication required. A clear Code of Conduct is a must.

Choose a trusted partner

Ignorance and a lack of understanding for the complexities of local laws, culture and unique operating environments can lead to costly mistakes and expose your organization to unnecessary legal and reputational risks.

The situation becomes more challenging in times of an economic downturn when there is pressure on businesses to cut cost and boost profitability. Ensuring that your employees are well-equipped to make the “right” decisions at all times—even when that decision may detract from the firm’s competitive position—requires a trusted partner.

The appropriate partner will be able to provide expertise and solutions across the key compliance dimensions and contribute toward meeting the organization’s ethical and regulatory objective. In the facilities management industry, a partner is someone who is familiar with compliance legislation in all of the business’ operational markets and who takes a proactive approach to governing and correcting behavior where appropriate.

Conclusion

Navigating the compliance journey is a rigorous and complicated undertaking, requiring thorough research, a robust strategy and careful actions. The process begins with awareness of the various requirements that apply across each dimension, understanding the challenges that your organization faces in each discipline and being mindful of the inherent risks in each category of compliance. Consulting a professional organization can be a productive first step on the compliance journey.

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For a guide on how to best manage compliance, click here.