India Development News & Foreign Investment Opportunities

Tackle business corruption

0

Ombudsman platform – a mechanism India must implement to mitigate business corruption. 

PKC-2

By Pradeep Chatterjee

The recent heated debates in Indian parliament on high level corruptions have once again left foreign investors jittery.

One way to restore this shaken investors’ confidence in the governance process is to take bold steps immediately and set up an independent and neutral Ombudsman Platform – that has “no agenda of its own” – and assure investors of transparency and fairness in all dealings both in the public and private sectors.

India is an attractive market with excellent potential to be a global manufacturing hub especially when compared with other markets.

Advantage India is dissipated when parliamentary debates bring out unfavourable and irregular practices.

Enterprise is about trade-off between risk and reward in today’s
extremely challenging business environment. It is the same for India.

In several matured markets growth is slow and companies are moving to new and higher risk markets to sustain growth.

India tops the list in these emerging markets. The country’s huge domestic market is a compelling reason for board-room decision makers to invest in India.

The relatively low cost of doing business in India makes it really attractive for establishing export-oriented manufacturing bases.

With several legal reforms to eradicate corruption and inappropriate practices and the increase in number of prosecution and enforcement of corporate lapses, the risk dynamics are evolving.

The unrelenting pressure to exceed “analyst’s estimate” and “stake holders expectation” have increased internal performance risks such as inadequate disclosures, misreporting of financial statements, frauds and bribery to procure contracts.

Concurrently, in an effort to reduce costs, enhance efficiency and focus on core competencies for growth, companies today are outsourcing non-core processes to several third-party service providers.

Once again, India has the advantage. It’s third and fourth tier cities are emerging as the new backrooms for outsourcing services, especially for those enterprises seeking superior quality of customer services.

However, there are risks associated with these relationships, that can have negative implications on operations, finances and reputation if “due care” is not persistently exercised.

The scenario becomes further complex, where there is growing cooperation among national regulatory authorities and enforcement agencies to track down corporate wrong doings.

Coupled with this transformation in legal and regulatory environment, the exponential growth in social media, adverse news hit headlines across the globe almost instantly to taint the integrity and the reputation built over decades.

Our governance process must realize that the cost of non-compliance is very high.

To comply with the growing legislation, against bribery, money laundering and corrupt practices and to protect corporate reputation apart from financial assets, Indian companies have increased their resources in legal, audit and compliance professionals and other formal channels such human resource, ethics officer and ‘hotlines’.

Some have even resorted to external domain knowledge experts for guidance.

However, formal channels have clear missions that does not always provide a “safe” environment for employees to surface their concerns without fear of retribution and retaliation.

It is acknowledged fact that employees at the operational level and at the frontline are the first line of defence against business risk as they are the eyes and ears for spotting wrong doings.

Several global studies reveal that employees often fail to report incidents of inappropriate activity that they observe or hear at work.
The reasons are:
1) cultural – cannot question, challenge or report against supervisors/leaders;
2) lack of open communication culture;
3) do not want to “bell the cat” and be seen as a “trouble maker”;
4) fear of retaliation from co-workers or supervisor/leader;
5) fear that incident report will not be kept confidential;
6) not knowing whom to contact and escalate the concern;
7) concern that no corrective action will be taken;
8) not my concern; someone else will report;
9) do not want to lose “my rice bowl”.

To overcome employee fears and to complement formal channels the Ombudsman platform is an unique mechanism. As an “informal” and alternate resource it should be integral of the prevention, detection and response framework in the risk mitigation strategy of good governance.

It is a platform that is made available to all categories of employees, contractors, vendors and third-party service providers to bring forward concerns without any fear of retaliation or retribution.

The resource provides a mechanism to communicate by offering independence, neutrality, informality and confidentiality to reveal incidents of suspicious behaviour or fraud at the work place.

For the platform to be effective, it is critical that:

The Ombudsman is confidential and by its Charter or board resolution for establishment clearly states that conversations are “off record” and no identifiable data is recorded or maintained;

The Ombudsman is independent – reports directly to the CEO and to the Audit Committee in the Board. Regional and Geographic Business Heads cannot influence the Ombudsman;

The Ombudsman is neutral – neither sides with management nor employees and has no “agenda” of its’ own; cannot be fired as s/he has a contractual employment;

The Ombudsman is outside the scope of the formal process and does not accept any “notice to the company”; it is informal.

The resulting value on implementing an Ombudsman platform are:

VALUE AREA                                       SPECIFIC BENEFITS
Elevate Corporate Oversight:  – Enabler of early detection and prevention.
– Reduce fraud and other unexpected loss by identifying “hot spots”.
– Reduce litigation and settlement costs.
– Protect profit and brand value by pro-actively managing risk.
– Safe guard reputation and trust.

Reduction of Corporate Risk:  – Reduce time spent in recording and responding to hotline calls.
– Reduce audit time and costs.
– Increase awareness and act as deterrent to small/medium fraud incidents.
– Reduce fines/penalties from regulators.
– Supports internal resolution of
– Whistleblower concerns.

Though a daunting task, the Ombudsman Platform is an absolute necessity for India.

PK Chatterjee is a Risk-Management consultant who runs the Singapore-based Chatt Corporate Solutions Pte Ltd serving customers in emerging markets in Asia and the Middle East. fii-news.com

Leave A Reply

Your email address will not be published.