Transparency and compliance: a fad or a business need?

Ganna Gerasymchuk

Transparency and compliance: a fad or a business need?

The demand of the Ukrainian business for integrity has been growing for several consecutive years, with the perception of compliance gradually changing – from a bureaucratic function to a full-scale driver of change, in processes and approaches.

Over the last year, the number of fraud and corruption incidents in the world has significantly increased. The Kroll Global Fraud Report-2019 cites 84% of CEOs having been exposed to at least one fraud incident during the last year. Such incidents significantly affected employee safety (82%), revenue or business continuity processes (78%), reputation (65%), and government relations (65%) of the surveyed companies. Simultaneously, Kroll commends the improvements in the efforts of governments and companies in identifying and resolving such issues.

Ukraine clearly has a long way to go in the world integrity ratings, ranking 120th with 32 out of 100 possible points in Transparency International Corruption Perceptions Index 2018. The trend, however, is becoming clearer, as the local business increasingly prefers transparent and ethical practices. A vivid illustration of this trend is the creation of the Ukrainian Network for Integrity and Compliance (UNIC), which today unites more than 55 companies from 53 cities and towns of Ukraine that cumulatively employ more than 100 thousand people.

Who and why needs compliance in Ukraine?

In countries with the developed stock markets and large number of companies whose shares trade publicly, there is no need to explain the benefits of a strong reputation. In Ukraine, however, the lion’s share of investment is made privately and the real value of business becomes clear only at the point of its sale. Needless to say, in environment like this the benefits of integrity are, let’s say, not immediately evident.

That is why international corporations have championed the compliance movement in Ukraine and initiated the creation of the UNIC. They were the first to realize the importance of launching the Network uniting ethically driven companies in need of sharing successful practices of setting goals and streamlining processes in line with compliance demands.

When it comes to the large local companies, they have followed in their international counterparts’ footsteps attempting to capitalize good reputation. In order to expand the geographical footprint, growing and scaling the successful business models is not enough – internal decision-making systems and stakeholder relations require serious overhaul. For such companies, UNIC serves as a platform for fostering trust between the potential clients, partners, and subcontractors – through educational and discussion events and networking.

Local companies interested in implementing compliance practices join UNIC to gain access to the regularly updated online-library of templates, guidelines, digests, policies, presentations, and research data from the Network’s events.

The key factors motivating Ukrainian companies to gravitate towards compliance practices are mergers and acquisitions, the need for external investors, and entrance to the more developed markets.

Andrii Volos, Legal and Compliance Counsel, ELEKS: “The question is not whether the Ukrainian companies should be joining UNIC, but rather – how important are integrity and compliance to the local businesses? If the answer is “yes”, the next step is clear. A developed compliance culture is not another ephemeral benefit, but one of the prerequisites to successful cooperation negotiations, which may not even start with a company whose compliance controls are weak. It’s really hard to overestimate the role of UNIC in establishing and developing compliance culture in Ukraine: it appears to be the only community not only promoting, but also helping to implement transparent business practices. The Network provides their members with much-needed knowledge and skills, a space to share experience – successful and otherwise, as well as expertise and answers to the most pressing questions. Any company striving to enter the international markets compliance is a necessary step, which UNIC can help make effectively”.

What’s stopping business from being compliant?

It is mostly the overwhelming desire to get results “here and now” that prevents the Ukrainian companies’ from implementing compliance practices. In the short-term, dubious practices, indeed, often produce high results. That is why companies with neither long-term planning nor sustainable approach to business are rarely interested in compliance and continue ignoring the risks associated with their business style.

The lack of shareholder or management will to change the established habits and approaches to work and lingering unpreparedness to invest in the internal transformations also pose obstacles to effective compliance. Though the losses from weak and ineffective risk management systems range from thousands to millions U.S. dollars. For instance, internal investigations results frequently show that the losses from employee or subcontractor fraudulent actions exceed the volume of potential investment in compliance by several times.

We, at UNIC, certainly help to clear the doubts and to answer the questions of the interested companies, for our membership entails a range of commitments. A company with superficial or merely formal approach to compliance and continuing dubious practices risks being expelled from the Network. Consequently, the companies not prepared to transform to adhere to the UNIC principles and to implement anticorruption practices often delay their decision to join the Network.

Another factor influencing a company’s decision to join UNIC is the intensity of competition in the industry. There are numerous companies in Ukraine whose products and services risk losing competitive advantage in the event of introducing transparent business practices. Clearly, these companies are not priority membership candidates for UNIC.

There are successful companies in Ukraine that are relatively transparent and intent on eradicating internal fraud, but continue the relations with dubious subcontractors. They do not realize how the external environment influences their business and how the potential partners view and evaluate their reputation. Companies like these do not see the benefits of UNIC membership at once, but should their reputation or cooperation terms worsen as a consequence of a poor subcontractor choice, they are likely to change their approaches.

Olena Dubovska, Compliance Officer Kernel: “Fighting corruption and other dubious practices is a long-term systemic commitment that we, at Kernel, take seriously. Building the compliance function helped us to boost efficiency and to create the atmosphere of trust and transparency. We mitigated our risks by making compliance part of all operations and fostered the right business culture among our partners and subcontractors. We have also been actively informing the public about the local and the international anticorruption initiatives we support. We believe in creating the anticorruption ideology, rather than merely responding to the external demands. Kernel fully shares UNIC compliance principles and is a proud member of the Network. UNIC is an excellent platform to promote the idea of responsible business and to implement the international integrity standards. We have received numerous benefits from active participation in the Network’s events: our reputation improved, competitive advantage increased, partner relations improved, our high performance standards were confirmed. Our company strives to be the best at what it does, so we view UNIC membership as a unique opportunity to improve operations and enhance our integrity”.

The bottom line: collective compliance benefits and opportunities

We, at UNIC, constantly work on attracting the new members – on our own and using current member recommendations. We spread the word about our events and achievements and invite the potential members to try and attend.

One of the important UNIC membership advantages is the opportunity to join efforts with the like-minded companies in bringing about collective action on the industry level. It is only possible to widely implement compliance practices and to hold public dialogue with the government collectively – no single company can do this alone.

Since 2018, UNIC offers the Certification of Compliance and Business Integrity level based on the ISO:37001Anti-bribery Management Systems. The decision to award a certificate is based on evaluating the level of integrity and compliance and the quality of anticorruption policies of the interested company. The independent experts, in line with the best international practices, conduct the certification-related evaluations. The certification means a company defined its compliance risks, developed an anticorruption system or policy, implemented that policy and uses its principles in daily operations.

Proving the high level of reputation and reliability is a prerequisite to cooperating with the international financial institutions and counterparties. UNIC, in such a case, serves as a “seal of quality” of sorts. The Network members pass the potential investors’ and partners’ due diligence procedures much faster and with greater success than the non-member companies.

Sharing experiences, practices, and achievements with the other market players and involving employees in compliance-related trainings and discussions definitely help strengthen the internal systems and the employer reputation of UNIC members. While expert guidance and access to the compliance-themed publications, trainings, cases, templates, and research data provide the level of interaction and expertise a company would not be able to obtain by itself.

Finally, the mere process of transforming internal practices, systems, and processes is definitely beneficial to re-evaluate the company’s current market positions, prospects, and opportunities, as well as to motivate both executives and middle managers.

Maryna Romas, Head of Ethics and Business Integrity, Sanofi Ukraine: “Fighting corruption, attracting investment, and creating favorable business environment in Ukraine have been declared as priorities by government officials numerous times. However, it is important not only to declare, but also to act upon what’s been declared. UNIC is a great example of really ethical actions aimed at fostering the culture of business integrity, as well as supporting and educating companies who decided to implement compliance programs. UNIC is the only public organization in Ukraine uniting companies from various industries, regardless of their structure and size. It is truly an association of the like-minded members who understand that sustainable development and successful business directly depend on the absence of corruption risks in the long term.

Guided by the principles of transparency and having a volume of experience in developing compliance programs, Sanofi was one of the first pharmaceutical companies to join the Network to cultivate business integrity in Ukraine and share our international experience. Sanofi demonstrates by example the advantages of ethical approach to business and is always ready to support those who strive to uphold the European values”.

Ganna Gerasymchuk has more than 10 years of experience in advising international businesses on legal matters in Ukraine. From 2011 until 2015, Ganna worked as a Corporate lawyer and a Compliance officer at a global construction company. She was responsible for implementing Corporate Code of Conduct and for educating employees on anticorruption policy behavior.

Before joining UNIC in February 2017 as a Head of Secretariat, Ganna held a position of Head of Legal at international tyre manufacturer and already actively promoted the idea of business integrity and ethics in Ukraine. Ganna holds a Master degree in law from the Kyiv National Economic University, named after Vadym Hetman.