cfo state of ethics

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C IngIy CIC

Au rr ruAb®

he State of thics

and omliance in AsiaA Cross-Country Analysis

July 2011



Fwk F b CnvsIns

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The Audit Director Roundtable has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and

the Audit Director Roundtable cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, the Audit Director Roundtable is not engaged in rendering legal,

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3

From the ADIT DIRECTR RNDTABE®

of the CRPRATE INTERIT PRACTICE

www.adr.executiveboard.com

© 2011 The Corporate Executive Board Company.

All Rights Reserved. ADR0906011SYN

KEY FINDINGS

■ Many employees in Asia are unsure if they have observed misconduct. The proportion of “don’t know”responses is up to four times higher in Asian countries than in the nited States, which raises concerns

that employees might not be well equipped to spot misconduct.

■ Fewer employees in Asia who do observe misconduct report it. Among sta who say they have observed

misconduct, reporting rates on average across Asia are 12 percentage points lower than the global average

(46% versus 58%).

■ Fear of retaliation tops the list of reasons for not reporting. Consistent with the global trend, “fear of retaliation”

is the most important reason for not reporting misconduct in Asia too. The belief that the observer lacks enough

information about the misconduct is another key reason for nonreporting.

■ Managers are seen as poor role models. Managers in most Asian countries are seen to be far more likely

to pressure their sta to act unethically as compared to their global peers.








4

RISKCARIY SREY SED ASSESS E DRIERS

F INEGRIY A CMANIES

RiskClarity

Employee Survey and Scale

Multiple IndustriesParticipating companies represent the following industries:Automotive and Transport, Business Services, Chemicals,

Computer Software, Electronics, Energy and tilities,

Entertainment/eisure, Financial Services/Banking,Health Care, Insurance, Manufacturing, Technology,

Telecommunication Services, and Retail.

All Business FunctionsRespondents represent all business functions, includingCorporate Administration, Customer Service, Human

Resources, Finance/Accounting, Information Technology,

egal, Manufacturing, Market Research, perations, QualityControl, Retail, Sales, Corporate Strategy, and Supply Chain.

All Employee evelsEmployees at all levels, from the CE and senior

management to middle management andfrontline employees

an-Asian CoverageDeep set of responses from across India, China, Malaysia,

Singapore, and Indonesia

Key Demographics of Survey articipants to Date

Survey Statements

Strongly

Agree Agree

Slightly

Agree Neither

Slightly

Disagree Disagree

Strongly

Disagree

I can report unethical behavior or

practices without fear of retaliation.

My company responds quickly and

consistently to veried or proven

unethical behavior.

I am often exposed to situations that

could lead to inappropriate conduct.

CEB’s Compliance and

Ethics eadership Council

(CEC) has developed

the RiskClarity survey

that allows companies

to rigorously assess

their ethical culture andbenchmark it against

peers.

■ pproximatel 30,000

emploee rom 15 coutrie

i ia ae complete te

iClarit sure.

■ i report ocue o

repoe rom Cia, Iia,

alaia, Ioeia, a

siapore.

rprA gry prA

Note: All questions were coded or recorded in such a way to directionally be on the same scale.

1

3

2

4



5






RAD MA FR E RESENAIN

eporti

o icouct

bservation

of Misconduct

erormace o

select drier o

Corporate Iterit

roram eource








6

IG RRIN F EMYEES IN ASIA NSRE

F AING BSERED MISCNDC

ercentage of Employees

igh levels of “Don’t

Know” responses suggest

that employees across

Asian countries are

not good at spotting

misconduct.

■ e iailit to pot

micouct coul e

ecaue:

– mploee’ perceptio

reari te clarit o

uielie i ot accurate;

– mploee lac te ill

to pot micouct; a

– tical uielie are

iaequate i elpiemploee pot iferet

orm o micouct.

■ mploee i Cia are te

ort i term o potti

micouct, it “o’t

o” repoe oer our

time te Uite state rate.

■ e percetae o

emploee ot aioere micouct arie

etee 48% a 65% i

ia a compare to 75%

i te Uite state o

merica.

n = 131,089 nited States; 9,745 nited Kingdom; 12,753 India; 7,551 China; 2,087 Singapore; 1,874 Malaysia; 399 Indonesia.

Don’t Know

Have bserved Misconduct

Have Not bserved Misconduct

nitedStates

nitedKingdom

China Malaysia IndiaIndonesia Singapore

Source: CEC RiskClarity Survey Data, 2009–2010.

75%

15%

10%

80%

12%

8%

48%

8%

44%

52%

17%

31%

55%

17%

28%

62%

12%

26%

65%

12%

23%








7

CNFIC F INERES E MS CMMN YE

F MISCNDC BSERED IN ASIA

bserved Misconduct by ype

Percentage o Respondents Who Report Having Observed a Specifc Type o Misconduct

R–related misconducts

like preferential

treatment and

inappropriate behavior

are most common

globally, but conict of

interest is more commonin Asia.


Note: The list of top ve observed misconducts by country is included in the appendix.

Asia Average

lobal Average

M i s u s e o f r g a n i z a t i o n s

T i m e o r R e s o u r c e s

H a r a s s m e n t

I n a p p r o p r i a t e B e h a v i o r

D i s c r i m i n a t i o n

S t e a l i n g o f C o m p a n y

P r o p e r t y

P r e f e r e n t i a l T r e a t m e n t

A l c o h o l a n d / o r D r u g A b u s e

I m p r o p e r S a l e s

I n a p p r o p r i a t e i v i n g o r

R e c e i v i n g

A c c o u n t i n g I r r e g u l a r i t i e s

I m p r o p e r P a y m e n t s

I n s i d e r T r a d i n g

V i o l a t i o n o f H e a l t h o r

S a f e t y P o l i c y

D a t a P r i v a c y o r I n f o r m a t i o n

S e c u r i t y V i o l a t i o n

V i o l a t i o n o f E n v i r o n m e n t a l

R e g u l a t i o n

B u s i n e s s I n f o r m a t i o n

V i o l a t i o n

F r a u d

C o n i c t o f I n t e r e s t

0%

2%

4%

6%

8%

10%

12%



8







Reporting

of Misconduct

eratio

o icouct

erormace o

select drier o

Corporate Iterit

roram eource








9

32%

41%

49%

51%

56%

MS MISCNDC GES NRERED IN ASIA

Reporting Rate of bserved Business Misconduct

Percentage o Respondents Who Reported Observed Misconduct

Reporting rate of

business misconduct in

Asia is much lower than

the global average.

■ mploee i Cia a

alaia are te ort

i term o reporti

micouct.

n = 4,538 India; 3,962 China; 905 Malaysia; 809 Singapore; 182 Indonesia.

China Malaysia Singapore India Indonesia

Asia Average

= 46%

Global Average

= 58%









10

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

FEAR F REAIAIN REASN FR N

RERING MISCNDC IN ASIA

op-hree Reasons for Not Reporting Misconduct

Percentage o Employees

Fear of retaliation in Asia

is much lower than the

global average, but is

nevertheless the main

reason for not reporting.

■ i umer o emploee

i ia o ot report

micouct ue to lac

o iormatio; te ia

aerae o ti imeio

i eit percetae poit

ier ta te loal

aerae.

Singapore

China

Malaysia

India

Indonesia

lobal Average

Asia Average

rganizational Imperative

Provide more anonymous channels for reporting, assuring employees of condentiality and appropriate action against

reported misconduct.

Fear of Retaliation I Did Not Think the CompanyWould Do Anything About ItI Did Not Think I Had EnoughInformation About the Misconduct

37%

24%

49%

16%15%

20%

n = 12,753 India; 7,551 China; 2,087 Singapore; 1,874 Malaysia; 399 Indonesia.


Note: The list of top-ve reasons for not reporting misconduct by country is included in the appendix.








11

0%

10%

20%

30%

40%

50%

60%

70%

80%

India

Indonesia

Singapore

Malaysia

China

lobal Average

Asia Average


Educate managers on how to address, report, and escalate issues related to misconduct.

My Supervisor/Manager A Superior therThan the ManagerHuman Resources

70%

23%

20%

21%

25%

72%

n = 4,538 India; 3,962 China; 905 Malaysia; 819 Singapore; 192 Indonesia.

DIREC MANAGERS REFERRED CANNE RER

MISCNDC

op-hree referred Channels to Report Misconduct in Asia

Percentage o Employees

Misconduct is more than

three times more likely to

be reported to managers

than through the next

most preferred channel

(R).

■ mploee i alaia

are more liel to report

micouct to h ta

teir couterpart i oter

coutrie.


Note: The list of top-ve preferred channels for reporting misconduct by country is included in the appendix.



12







eporti

o icouct

eratio

o icouct

erformance on

Select Drivers of

Corporate Integrity

roram eource








13

89%

83% 82%

78%

69%

CARIY F EICA GIDEINES SIMIAR GBA

AERAGE

Clarity of Guidelines

Percentage o Respondents1 Who Believe Ethical Guidelines Have Been Clearly Communicated to Them

Employees in most Asian

countries report clarity of

ethical guidelines close

to global average.

■ Iia, siapore, a Cia

core ell o clarit o

uielie, ee tou te

report relatiel i “do’t

ko” core o oeratio

o micouct.

India China IndonesiaSingapore Malaysia

Global Average

= 84%

Asia Average

= 83%



1 Respondents who selected “Agree” and “Strongly Agree” to the question on clarity of guidelines.








14

ASIAN MANAGERS RESSRE EIR SAFF AC

NEICAY

ercentage of Respondents1 Who Believe hey Are ressured by heir Managers to erform nethical

Job-Related asks

Percentage o Responses rom Non-Management Sta

Managerial pressure to

act unethically is higher

in Asia than global

average.

IndiaChina Singapore Malaysia Indonesia


4%

9%

15%

20%

25%

Asia Average

= 8%

Global Average

= 3%

1 Respondents who selected “Agree” and “Strongly Agree” to the question on manager pressure.









15

77%

67%64%

61%

51%

75%

66% 61%57%

50%

Asia Average

= 68%

ERCEIN F SENIR EADERS IN ASIA SIMIAR

GBA AERAGE B ARIES BY CNRY

ercentage of Respondents1 Who Believe the Senior eaders at heir rganization Are onest

and ossess Integrity

he perception of senior

leaders varies widely

across Asia, with India

and Singapore faring the

best.

■ l arou oe-al o te

repoet i alaia a

Cia eliee teir eior

leaer are oet a

poe iterit.

■ imilar percetae

o repoet eliee

tat eior leaer i

alaia a Cia ail to

tae ecear actio o

oeri micouct.


Set the right tone at the top, ensuring senior leaders hold the highest ethical standards and ascertain that these

standards permeate the organization while remaining comprehensible across all levels.

India

India

Indonesia

Indonesia

China

China

Singapore

Singapore

Malaysia

Malaysia

ercentage of Respondents2 Who Believe the Senior eaders ake Appropriate Action on bserving

nethical ractices

Asia Average

= 66%



1 Respondents who selected “Agree” and “Strongly Agree” to the question on senior leaders’ honesty and integrity.

2 Respondents who selected “Agree” and “Strongly Agree” to the question on senior leaders’ response to observing unethical practices.


Global Average

= 63%

Global Average

= 62%



16







eporti

o icouct

eratio

o icouct

erormace o

select drier o

Corporate Iterit

rogram Resources



17






NEX SES

Suggested Actions to Build an Eective Anti-Fraud rogram

Fraud Risk Assessment

■ Conduct a Fraud Risk Assessment

Implement a comprehensive fraud risk assessment to identify, measure, and evaluate key fraud risks and related internal controls.

■ Identify Frauds During an Audit Engagement

Incorporate fraud prevention and detection techniques into every audit to broaden coverage of this risk.

bservation

of Misconduct

Awareness and raining

■ Assess Fraud Awareness

se surveys and interviews to test awareness in the organization and ensure that employees understand what constitutes fraud

and the various reporting mechanisms available to them.

■ Conduct Fraud raining

Aid in the creation of a comprehensive fraud training program that delineates all major fraud scenarios as well as all consequences

for fraudulent activity and behavior.

erformance on

Select Drivers of

Corporate Integrity

otlines and Investigations

■ Develop a Whistleblower otline

Expedite fraud-related whistleblower tips to ensure that important fraud leads are appropriately prioritized and acted on.

■ Escalate Incidences to Investigations

Implement a more proactive, tiered fraud-reporting structure that collects appropriate amounts of information and provides

for timely escalation and resolution of fraud issues.

Reporting

of Misconduct



18






RECMMENDED RESRCES

Select Resources from ADR to elp Build an Eective Anti-Fraud rogram

■ Reynolds American’s Evaluation of typical fraud risks during every audit

■ Fraud Risk Database to help develop potential fraud scenarios during the audit engagement

■ Fraud Prevention and Detection Survey Tool that helps identify high-risk areas requiring in-depth fraud examinations

■ BNSF’s process to outline fraud risk assessment objectives and methodologybservation

of Misconduct

■ Fraud Awareness Training Presentation that helps educate the business to create fraud awareness

■ Fraud Detection Skills as developed by Dow

■ Fraud Prevention and Detection Survey Tool that helps perform an assessment of gaps in fraud control practices■ Fonterra’s Fraud Awareness Checklist to enable management to assess and manage fraud risk on an ongoing basiserformance on

Select Drivers of

Corporate Integrity

■ BP’s Process to expedite the fraud communication process

■ eorgia-Pacic’s Tools for whistleblower employees to collect useful, actionable fraud information

■ Nextel’s Development of a whistleblower hotline

■ Whistleblower Policy enerator to help produce a whistleblower policy for your organizationReporting

of Misconduct

https://audit.executiveboard.com/Members/Popup/Download.aspx?cid=100108369&s=tc_Fraud&stc=1

https://audit.executiveboard.com/Members/ResearchAndTools/Abstract.aspx?




https://arc.executiveboard.com/Members/Popup/Download.aspx?cid=100134736&s=tc_Fraud&stc=3





















19






Aendix

erceie Leel o ulic sector Corruptio • 20

"op-Fie" Lit Coutr

■ ere icouct • 21

■ eao or not eporti ere icouct • 22

■ Cael to eport ere icouct • 23








20

ERCEIED EES F BIC SECR CRRIN

Corruption erceptions Index, 2010

igher levels of

corruption in most

Asian countries

necessitates greater

focus from companies

on compliance risk.

■ siapore ta out rom

oter ia coutrie a

i perceie a oe o te

leat corrupt coutrie

i te orl.

The 2010 Corruption Perceptions Index measures the perceived level of public sector corruption in 178 countries

around the world.

Source: “Corruption Perception Index,” Transparency International , http://transparency.org/policy_research/surveys_indices/cpi/2010/results, 2010.

0

10

MoreCorrupt

essCorrupt

Indonesia China nitedStates

India Malaysia nitedKingdom

Singapore

2.8

3.33.5

4.4

7.1

7.6

9.3








21

-FIE BSERED MISCNDCS BY CNRY

ercentage of Respondents Who Report aving bserved a Specic ype of Misconduct

referential reatment,

Misuse of rganization’s

ime or Resources, and

Conict of Interest are

the most common types

of misconduct observed

in Asia.

China India Malaysia Singapore Indonesia Asia Average Global Average

1 Conict of

Interest (12%)

Preferential

Treatment

(10%)

Discrimination

(17%)

Preferential

Treatment

(10%)

Preferential

Treatment

(16%)

Conict of

Interest (9%)

Preferential

Treatment (11%)

2 Misuse of

rganization’s

Time or

Resources

(10%)

Conict of

Interest (8%)

Misuse of

rganization’s

Time or

Resources

(15%)

Misuse of

rganization’s

Time or

Resources (8%)

Conict of

Interest (16%)

Preferential

Treatment (8%)

Inappropriate

Behavior (9%)

3 Harassment

(8%)

Harassment

(7%)

Preferential

Treatment

(14%)

Conict of

Interest (8%)

Misuse of

rganization’s

Time or

Resources

(12%)

Misuse of

rganization’s

Time or

Resources (8%)

Misuse of

rganization’s

Time or

Resources (8%)

4 Inappropriate

Behavior (8%)

Inappropriate

Behavior (7%)

Harassment

(14%)

Inappropriate

Behavior (8%)

Harassment

(11%)

Harassment

(8%)

Harassment

(8%)

5 Stealing of

Company

Property (6%)

Misuse of

rganization’s

Time or

Resources (7%)

Conict of

Interest (13%)

Harassment

(8%)

Discrimination

(9%)

Inappropriate

Behavior (7%)

Conict of

Interest (6%)









22

-FIE REASNS FR N RERING BSERED

MISCNDC

ercentage of Respondents Who Selected a Specic Reason for Not Reporting

Fear of retaliation is

the top reason for not

reporting observed

misconduct both globally

as well as in Asia.


1 Fear of

retaliation

(42%)

Fear of

retaliation (31%)

Fear of

retaliation

(38%)

Fear of

retaliation

(46%)

I did not think

I had enough

information

(33%).

Fear of

retaliation

(37%)

Fear of

retaliation

(49%)

2 I did not think

I had enough

information

(34%).

ther (22%) I did not think

I had enough

information

(23%).

I did not think

I had enough

information

(27%).

Fear of

retaliation

(25%)

I did not think

I had enough

information

(24%).

I did not think

the company

would do

anything about

it (20%).

3 I did not want

to get involved

(18%).

I did not think

I had enough

information

(15%).

I’ve heard

stories about

people raising

concerns before

and nothing

ever happened

(17%).

I did not think

the company

would do

anything about

it (21%).

I did not think

the company

would do

anything about

it (22%).

ther (20%) The person

who committed

the violation

was very senior

(17%).

4 ther (16%) The person

who committed

the violation

was very senior

(14%).

I did not think

the company

would do

anything about

it (17%).

ther (19%) I assumed

the company

already knew

about the

misconduct

(20%).

I did not think

the company

would do

anything about

it (15%).

I did not think

I had enough

information

(16%).

5 I did not think

the company

would do

anything about

it (13%).

I did not think

the company

would do

anything about

it (12%).

I did not want

to get involved

(15%).

I did not want

to get involved

(15%).

I did not want

anyone to

get red or

penalized (12%).

I did not want

to get involved

(13%).

ther (15%)









23

-FIE CANNES FR RERING BSERED

MISCNDC

ercentage of Respondents Who Selected Specic Channels for Reporting (A Respondent Can Select

up to wo Channels)

op-ve channels for

reporting observed

misconduct in Asia are

very similar to those

used globally.



1 Supervisor/

Manager (55%)

Supervisor/

Manager (76%)

Supervisor/

Manager (67%)

Supervisor/

Manager (66%)

Supervisor/

Manager (72%)

Supervisor/

Manager (70%)

Supervisor/

Manager (72%)

2 HR Department

(25%)

A superior

other than the

direct manager

(23%)

HR Department

(39%)

HR Department

(25%)

HR Department

(30%)

HR Department

(23%)

HR Department

(25%)

3 A superior

other than the

direct manager

(14%)

HR Department

(20%)

A superior

other than the

direct manager

(21%)

A superior

other than the

direct manager

(19%)

A superior

other than the

direct manager

(19%)

A superior

other than the

direct manager

(20%)

A superior

other than the

direct manager

(21%)

4 Hotline (11%) Compliance

and Ethics

Department(7%)

Compliance

and Ethics

Department(6%)

Compliance

and Ethics

Department(10%)

Compliance

and Ethics

Department(13%)

Compliance

and Ethics

Department(8%)

Compliance

and Ethics

Department(5%)

5 Security

Department

(9%)

mbudsperson

(3%)

Hotline (5%) mbudsperson

(9%)

mbudsperson

(13%)

Hotline (5%) Hotline (4%)



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