Australia: Balancing act: fast growth, long-term ROI and the price tag of misconduct

Millions around the world are taken with House of Cards, its onscreen plots and antiheroes. However, this infatuation with political glamour is independent of the increasingly rigorous view of the business world, and of customers' growing expectations of ethical behaviour and sustainable business practices.

Proof of this enduring market trend is ubiquitous. From the 7 per cent drop in US market share experienced by Uber following recent investigations into the company's conduct, to stock prices' carousel ride during the 2016 American elections, business is facing a different type of scrutiny. Consumers and activist investors alike are concerned with the behaviour displayed by large organisations across all industries. As a result, the ethical bar is set higher than ever, and regulators' attention is focused on the conduct of companies and executives, as well as on their overall risk and compliance culture.

ASIC has incorporated consideration of a firm's culture into the risk-based surveillance reviews of the entities it regulates, as outlined in the regulator's four-year corporate plan. As a conduct and disclosure regulator, ASIC is not only taking a keen interest in companies' risk cultures; it is also fostering a broader change in board members' and executives' perception of the importance of organisational culture.

Social media is enhancing the effect of this trend. Consumer praise and complaints are now aired in real time, as are employees' occasionally unfiltered opinions of their organisations. Furthermore, certain regulators have taken to using social media in order to use brand reputational damage as a leverage tool and enhance the public pressure upon companies under investigation. For example, ASIC and the Fair Work Ombudsman both maintain active social media accounts with sizeable followings that issue warnings and share updates relating to ongoing legal proceedings and investigations.

How can companies identify and manage conduct risk in this evolving global landscape?

Detecting, quantifying and mitigating conduct risk

Conduct risk is multi-faceted, determined by factors ranging from strategic imperatives to remuneration schemes, and intrinsically connected to organisational culture. The consequences of misconduct are just as varied, and carry a potentially hefty price tag: from long-tail reputational damage and its financial impact to regulatory fines and penalties, as well as litigation and in some jurisdictions such as Australia and the US, a high likelihood of class action suits.

When detecting, quantifying and mitigating conduct risk, it is critical to apply a strategic and holistic mindset: conduct risk extends across geographies and business operations, and blurs the lines between areas of risk and areas of the law. A robust, sustainable and risk-based framework of controls is now a prerequisite for organisations, not only to maintain compliance with regulatory obligations, but to ensure that emerging risks are identified and assessed with appropriate mitigation actions being taken.

Our experience advising global organisations with regard to detecting and mitigating conduct risk has shaped our conviction that most successful organisations have a well-defined and embedded culture, underpinned by clearly defined accountabilities and control frameworks, as outlined below.

image

The culture of risk management and compliance has traditionally been viewed as a pre-emptive monitoring function. However, when confronted with complex, evolving risks such as conduct, a culture of compliance is a measurable advantage for organisations which embed it in the planning, implementation and monitoring of their business strategies. (Alice, we should highlight some of this in text boxes and promote on LI)

Regulation 2.0

Regulators are focusing more heavily on corporate culture, and on the implications of organisational change on the overall risk profiles of companies. Examples abound.

Uber is currently facing a US federal investigation, in addition to the independent reviews the technology firm has undertaken of its own accord. While the tech company, hailed for its disruptive model until recently, has been fielding criticism of its corporate culture, the current probe is related to the controversial Greyball tool, which has also been targeted by the European Commission for a potential investigation.

As exemplified above, while conduct risk can manifest as a single exposure (i.e. investigations), it is more often than not a systemic risk with multiple repercussions throughout company layers and across geographies.

Having a strong culture of compliance is critical for any organisation and it is important not only to ensure that the tone from the top of the organisation is positive, but that operational practices and compliance arrangements embed the right behaviours. Continued regulatory focus and the surge of issues caused by poor behaviour means that firms need to continue to place significant focus on this topic.

No longer out of sight, out of mind

The US Department of Justice, in collaboration with Swiss and Brazilian authorities, recently issued the largest fine in its history of extra-territorial investigations: US$3.5 billion, a bill that will be footed by oil giant Odebrecht following one of the largest bribery scandals in recent history.

Acknowledged as a great success in combating corruption worldwide, this matter also underlines the increasing cross-border cooperation between regulators. We expect this trend to intensify and have a direct impact on the importance of ensuring regulatory compliance across a business' operations and supply chains. To do this, companies must establish effective governance, and continuously monitor regulatory developments relevant to their industries and locations.

Effective governance means that front line businesses, compliance functions and audit

teams are working in alignment, with clearly defined accountabilities and an articulated risk tolerance.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Abigail McGregor
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions