Strategic Integrity Management as a Dynamic Capability
Novartis International AG
Thunderbird School of Global Management
October 31, 2011
Strategic Management in the 21st Century. In: Wilkinson, T. (Ed.), Praeger Publishers, 2013 Forthcoming
Increasing societal expectations regarding responsible business conduct as well as an increasingly fierce enforcement environment are placing integrity and compliance highly on the list of management priorities. However, although many companies are investing serious efforts into compliance programs and are increasing the headcount within their compliance organizations it seems to be striking that severe ethical breakdowns still happen on a very regular basis. The reason may well be that strongly relying on classical elements of compliance programs to prevent misconduct such as establishing numerous policies, strengthening awareness training and increasing monitoring mechanisms works like trying to win the Tour de France with flat tires.
Typically, structural causes are the driving forces behind systemic misconduct. These include; unbalanced incentives systems that determine bonuses, salary increases or career progression without any consideration of moral behaviors; a lack of responsible leadership; or a climate in which speaking-up is not an accepted practice but instead, represents a career risk that could lead to repercussions.
Therefore, we suggest that in the interest of further preventing and reducing cases of misconduct a more analytic and less ideology driven discussion about the real and systemic root causes of integrity issues needs to take place. Unethical conduct should not just be viewed as lack of integrity or lack of certain character qualities of some individual employees. Such a perspective does not recognize the complexity of most corporate integrity or compliance issues. Research has shown that the apparent frequency of ethical misconduct is being caused by organizational factors that create enormous psychological pressures on individuals. This then leads to situations where even managers who are considered highly moral deviate from everyday ethical norms.
People that constantly claim that compliance failures are mainly caused by the ethical misconduct of individuals – let’s call tem bad apples – and simplistically refer to the lack of personal integrity seem to confuse the real root causes. They may generate some kind of moral alarm but are not helpful in terms of finding systematic and sustainable solutions to the problem.
In this chapter we describe how dynamic integrity management processes can be integrated into the "game-changing" organizational systems in order to avoid negative conduct. Further, we will build a road map of how integrity management can actively drive positive effects on firm performance and we describe how integrity management can be used dynamically as a strategic tool that creates positive effects on firm performance.
Number of Pages in PDF File: 35
Keywords: integrity, compliance, incentive schemes, business ethics, integrity management, corporate social responsibility, sustainability, strategy, capabilities, strategic management
JEL Classification: L20, M14, M52, G39
Date posted: May 24, 2012 ; Last revised: June 17, 2012