Why firms need robust strategy on staff conduct

Over the past few years, organisations have experienced financial losses, regulatory sanctions, mass customer shifts and damaged reputation due to the misconduct of their staff.

The most common reasons include undisclosed conflict of interest, unfair treatment of customers or staff and negative market perceptions.

Unethical actions can easily be spread through social media leading to reputational damage.

This has driven the discussion on conduct risk to the top of the agenda for senior executives. Conduct risk is broadly defined as any action of an institution or an individual that leads to customer detriment, or has an adverse effect on market stability or effective competition.

Failure by individuals to behave in line with the expectations of the market, customers and regulators could lead to loss of trust, hefty penalties, legal fees and costs of re-building trust and confidence from stakeholders.

Conduct borrows heavily from the culture of an organisation, which refers to generally acceptable ways of doing things.

This brings to the forefront the need for organisations to actively monitor the actions of its staff and stakeholders, ensuring that the activities involved do not damage the brand and reputation of the organisation.

A key driver of misconduct is the lack of accountability for poor behaviour. The integrity of the entity may ultimately be damaged by a culture developed by staff who are not held responsible for their actions.

Individual staff who fail to disclose issues such as conflict of interest may eventually lead to increased reputational risk for the organisation.

This may result in extreme consequences such as fines and sanctions from regulators and loss of customers and staff.

During the 2008 financial crisis, most companies suffered huge losses related to excessive risk-taking. Executives were not held accountable for taking excessive risks that appeared profitable in the short term but were unsustainable in the long term.

Organisations should therefore have robust internal policies and procedures, to proactively monitor the conduct of their staff.

One way of accomplishing this is by having a performance management process for every staff that outlines desirable behaviours that should be exhibited.

This should be dependent on level of responsibility, clearly laying out rewards for good conduct and the penalties for misconduct.

Another way of ensuring that staff are regularly kept in check include conducting regular training and awareness sessions on fair treatment of customers, acceptable culture and ethical values.

All staff should understand how they are expected to conduct themselves while handling clients, doing business and even while at social events and social media platforms.

Those who witness a violation of these values should be encouraged to raise red flags without fear of victimization.

Additionally, as part of assessing staff conduct to customers, organisations may adopt mystery shopping to assist in identifying areas of improvements and training needs.

The writer is a risk consulting associate at KPMG Advisory Services Limited

The views expressed in this article are of the author.

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