A. Company values: establishing rules based hierarchy
Last month, we published an update on the Singapore Corporate Governance Code and the Singapore Corporate Governance Council’s January 2018 recommendations. Click here to view the full article.
As part of our 2018 series on “Developing an Anti-bribery and Corruption Framework with Risk & Compliance Considerations”, this article contains our recommendations on how companies can establish rules-based approaches to embed corporate values at all levels of stakeholder engagement.
B. Why Prioritise Corporate Values
Corporate values are important to both enhance shareholder value and position the company as a socially responsible entity.
In recent years, companies that operated without strong values have found themselves facing investigation and regulatory scrutiny; resulting in (i) financial penalties that have eroded shareholder value, and, (ii) diminished public perception.
Customers, the government and other stakeholders also tend to look favourably upon companies that operate in a socially responsible manner. Thereby conferring a certain halo effect on a company’s value as well as its relative bargaining power in growth focused relationship building.
How to Establish Corporate Values
Corporate counsels can take the lead to establish or revise their company’s corporate values in a Code of Ethics or Code of Conduct (“Code”).
This Code can be given legal effect by linking its compliance to employment contracts or director engagements.
The Code, as a private legal document, is also a flexible construct since it can be tailored to different employee categories, for instance: a Code for Management, a Code for Sales Staff, and so on.
C. What Information Should Be Set Out in the Code
Codes will always need to be tailored to company-specific risks, as relevant to its industry and geographical scope of operations. It would also be beneficial to work with business divisions to engender ownership of the code though co-creation, which would in turn encourage its compliance amongst staff.
The main aim of a Code should be to empower all employees to engage in ethical decision-making. In contrast, the Code should not be excessively prescriptive, in order to avoid becoming a “phone book” that will hinder its real-world application.
Typically, Codes should address anti-bribery and corruption (“ABC”) compliance, and other issues related to a company’s established values.
In respect of ABC, Codes should cover the following topics:
- Third party intermediaries and other business partners
- Gifts, hospitality and entertainment
- Facilitation payments
- Political and charitable donations and lobbying activities
- Conflicts of interest
- Bank accounts, cash and petty cash
D. Specific ABC Issues
D.1. Gift Giving
The Prevention of Corruption Act (Cap 241, of Singapore) (“PCA”) and the Penal Code (Cap 224, of Singapore) (“PC”) do not expressly permit any specific types of gifts or gratuity. Therefore, the key is whether the giving of gifts or gratuities has been accompanied by corrupt intent. The PCA and PC may catch such behaviours if the elements of an offence are met, including the intention of the parties.
Codes should also be aligned with the public sector’s own guidelines. The Government Instruction Manual (“Manual”) is binding on all public officials in Singapore. Breach of the Manual may result in disciplinary action being taking against a public official.
Generally, public officials in Singapore are not allowed to accept any gifts on account of their official position or in the context of official work engagements. The Manual also provides that where the public official cannot refuse a gift if it would be inappropriate or impracticable to do so, the official must immediately report its receipt to his or her permanent secretary. Gifts valued at more than S$50 (US$40) may be kept by the official in limited circumstances.
As a starting point, monetary sponsorships should only be given to organisations and not individuals, to limit corruption risk.
Sponsorships should also have measurable benefits for the company (e.g. in terms of brand enhancement), and should not be related to business deals.
To further minimise corruption risk, procedures related to establishing the objective and amount of sponsorship contributions should be set out in the Code.
D.3. Conflicts of Interest
Conflicts of interest and the issue of agency costs have been well documented and can happen to any company.
Simply put, there is a motivational split between the individual self-interest of managers and the company as a whole. It costs company funds to monitor this motivational split in order to to avoid risk of the worst excesses of such conflicts of interest.
At its extreme, individual employees may engage in dishonest behaviour and corrupt activities to push forward their own objectives at the expense of the company.
The Code should therefore set out rules to minimise such agency costs, for instance the Code may require employees to declare both actual and perceived conflicts. The Code may also contain due diligence principles that will guide the company when investigating conflicts of interest between employees and company business partners.
E. Completing and Executing the Code
The board of directors should approve the Code, in order to burnish it with a high level of authority and recognition. Board approval will also ensure that the Code has been reviewed to reflect the company’s core values.
Codes should be reviewed and updated regularly to reflect the most recent laws and regulations, such as ABC legislation, or, applicable exchange or industry-specific regulation. It should also be updated to reflect shifting public perception of acceptable corporate behaviour, since breach of social constructs may also negatively affect brand perception.
In terms of implementation, Codes should be supported by policies at the relevant division and departmental level. Policies are detailed documents designed to provide specific guidance to management and staff in order that the aspirations of the Code may be directly carried out by the operational business functions of a company.