Business integrity: What does it mean, and why does it matter?
There's growing recognition that business integrity is vital. In part, this is in response to an increased focus on integrity and ethics by regulators and legislators. Additionally, it reflects consumer preferences; the wider public is ascribing increasing importance to environmental, social and governance (ESG) factors when making buying or investment decisions. And finally, another contributor to business integrity prioritization is organizations' growing recognition that good behavior is good for business.
What is business integrity? It's the practice of incorporating ethical behaviors throughout your organization. Aside from the fact that integrity is always the right choice, there are valid business reasons for making it a priority.
Integrity in business enhances your reputation — which can help attract and retain customers, engender employee loyalty and become a more attractive investment proposition. Business integrity is strongly correlated with financial performance. It can help you steer clear of regulatory noncompliance with its accompanying penalties. All of which are compelling reasons for any organization to prioritize an improvement in business integrity.
Here we discuss what business integrity is, why it's important, the benefits of business integrity and how ESG technology can put processes and metrics in place to help ensure your organization is maintaining its integrity.
What Is Integrity in Business?
If you want to improve business integrity, you need to develop a corporate understanding of the term. Agreeing on a definition of integrity in business is a required first step on the road to a more integrous organization.
To achieve this, it's helpful first to identify what integrity isn't. Integrity isn't about the superficial ' doing the right thing because it makes you look good or because you are under public scrutiny.
What is integrity, then? Having integrity is contingent upon doing the right thing even when nobody is watching, behaving honestly and consistently adhering to high ethical standards because it's the right thing to do ' not for any perceived benefit you will achieve.
The definition of integrity in business is the same; it's acting with honor regardless of whether your actions are public; committing to doing what you say you will do. It's about having an ethical culture that permeates your entire organizational ecosystem. And it's about being transparent about shortcomings, staying accountable and owning up to any mistakes.
Integrity isn't simply a matter of good compliance or ticking a box. Rather, as business consultants EY observe, 'When integrity drives a business, the overarching question changes from 'Is this allowed?' to 'Is this right?''
Business integrity means closing any gaps between your intentions and actions, ensuring your interactions with customers, employees, suppliers, investors and regulators are aligned with your stated aims and purpose. And finally, making sure that organizationally, you always behave in an upstanding way.
Why Is Integrity Important in Business?
Running your organization with integrity is the right thing to do ' that's a given.
However, it would be disingenuous to ignore the very tangible commercial benefits integrity in business can deliver. From a purely commercial perspective, integrity makes sense. Ethisphere's 2021 World's Most Ethical Companies honorees, for instance, outperformed a comparable index of large-cap companies by 7.1 percentage points in the five years to January 2021.
In an increasingly online world, many consumer and client interactions with brands and corporations are virtual. When physical interaction with your people, your locations and the way you do business is reduced, the things your company stands for become increasingly important. If you want to be known for all the right reasons, embedding an ethical approach throughout your organization's DNA is vital.
Businesses are increasingly being judged by their performance on environmental, social and governance issues. Requirements like those set out by the Task Force on Climate-Related Disclosures for environmental initiatives and results to be included in annual reporting put ESG credentials front and center and make them very public. The pressure to evidence honesty and integrity in business is growing all the time.
How Can Businesses Show Integrity?
When we ask how businesses can demonstrate that they operate with integrity, the primary answer is: by putting in place a leadership that facilitates it.
The board sets the tone here. Establishing the right culture at the top of your organization will ensure that integrity permeates through the entire business. Your board and leadership team play a key role in embedding all aspects of governance, risk and compliance ' of which integrity is a core component.
Suppose business integrity is integral to your way of working. In that case, this will influence your interactions with customers, your internal reward and recognition structures, your work with suppliers, regulators and other third parties, and your relationship with your investors. When business ethics and good governance are the foundation of your operations, this will shine through in every interaction you have.
A historic blocker to corporate progress in ethics-related issues has been a lack of clear standards; the absence of an agreed framework has made it harder to identify goals and priorities and to measure improvement. Today, this seems to be changing, certainly in the realm of environmental, social and governance. In September 2020, the World Economic Forum's International Business Council published a consolidated set of ESG global standards; we will see over time whether this marks the start of a more consistent global approach to business integrity and ethics.
In tandem with this, it is increasingly the norm to reference issues related to integrity in your business reporting, as with the TCFD requirements for annual reports. Organizations that are ahead of the game on ESG, CSR and integrity-related issues can evidence this in their reporting, making them a more attractive choice for investors and customers.
How Integrity in Business Can Deliver Organizational Benefits
Aside from the fact that integrity should be the default setting for any business operating legitimately and ethically, there are some clear benefits to better business integrity:
1) A Positive Organizational Culture
Creating a business environment that embeds ethical behaviors top-down, from the board to the shop floor, drives increased trust and respect. A company culture that is based on decency and honesty rather than mistrust and negativity will deliver benefits throughout the entire operation.
2) Easier Employee Attraction and Retention
Unsurprisingly, having this sort of culture makes it far easier to recruit the talent you need and keep hold of the employees you have. People want to work for organizations with good working environments, positive reputations and a strong sense of corporate purpose; in a survey by recruiters Robert Half, 75% of workers named integrity as a key attribute for business leaders.
Conversely, you want to employ people who share your ethical rigor ' a defined sense of business integrity enables you to build a talent pipeline that reflects your organizational values.
3) Better Customer Relationships
If your customers and clients believe your organization is integrous and trustworthy, they will view you more favorably. Research from business consultants Accenture found that for 64% of US consumers, purchasing considerations are driven by a company's ethical values and authenticity. Integrity in business aligns your principles with like-minded buyers and turns customers into advocates.
4) Improved Business Performance
As evidenced above, ethical performance has consistently been shown to track business performance. Conversely, prioritizing profit over integrity harms business relationships and can do irreparable damage to your corporate reputation.
5) Reduced Compliance and Governance Risk
Reputational damage isn't the only threat you'll face from a lack of integrity. The risk of regulatory breaches from unscrupulous business practices leaves you open to fines and other penalties. The where the direct and indirect costs of remediation can be substantial.
6) Ability to Deliver on CSR Obligations
In an increasingly interconnected world, organizations cannot ignore their corporate social responsibilities. Businesses are expected to have a positive impact, not just commercially but also within the communities they operate and society overall.
CSR, ESG, Governance, Risk and Compliance (GRC) ' all these similar and interconnected concepts are growing in importance for stakeholders, customers and employees. Attempting to make strides with any of them without the underpinning of business integrity risks accusations of greenwashing and insincerity.
7) A Stronger Supply Chain
Integrity in business can also help you develop stronger partnerships with suppliers. In a world where provenance is increasingly important to consumers and unpredictable events can disrupt businesses' plans, sustainable supply chains are more important than ever. Work with suppliers who share your business ethics, and everyone benefits.
8) Improved Relationships with Your Stakeholders
A code of business integrity will pervade your entire organization, helping you work more effectively with employees, investors, regulators and influencers.
How to Enhance the Integrity of Your Business
If these many benefits have convinced you to focus on improving your business integrity, where should you start? Having a clear understanding of the term is an essential foundation (hopefully, this article has helped there).
You then need to determine how this can apply in your organization and set priorities for your approach. A focus on business integrity is likely to incorporate elements from across your ESG, CSR and GRC strategies.
Next, you need to decide how to operationalize your goals ' this can be the main challenge for many businesses. Putting in place tangible objectives and the metrics to measure them are often the first stumbling blocks.
This is where Diligent's ESG Solutions can help. Our suite of solutions will help you to:
- Understand the World Economic Forum's ESG global standards
- Implement actionable plans to deliver on them, with relevant metrics
- Access a library of other standards and regulatory obligations, enabling you to measure and make progress towards your ESG goals
- Access the largest governance data set in the world, giving you unprecedented opportunity to benchmark your approach and achievements
- Tap into ESG 'health scores' for your company, industry and competitors, so you can identify red flags and prioritize areas for action