TAKEAWAYS
As Southeast Asian economies grow rapidly, ethical risks continue to pose a threat to business stability. While the overall integrity climate has improved globally, significant headwinds remain in Southeast Asia – from leadership integrity gaps and corporate misconduct through to ineffective whistleblower protections.
The EY Global Integrity Report 2024 sheds light on these pressing issues. Surveying over 5,500 board members, managers and employees across the globe, it provides a comprehensive analysis of current corporate integrity challenges and insights for businesses to strengthen their ethical frameworks.
The survey found that Southeast Asia has made some improvements in compliance, with 71% of respondents reporting enhanced integrity standards. This figure surpasses the global average of 49%, demonstrating the region’s response to increasing regulatory demands, including Malaysia’s Anti-Corruption Commission Act, as well as Indonesia’s Anti-Corruption Law and Corporate Criminal Liability code that will be effective in 2026.
Yet, 44% of Southeast Asian respondents believe unethical behaviour is tolerated by senior management, compared to 31% globally. Tolerance for such behaviour not only erodes trust but also impacts the long-term viability of a business. This reveals a “say-do” gap, where leadership’s actions do not align with their ethical statements. This suggests that while compliance frameworks in the region are improving, many organisations remain focused on compliance on paper – that is, implementing policies without embedding them into the corporate culture.
The report found that organisations with a strong integrity culture build trust with stakeholders and attract more investments. Those with governance issues, on the other hand, face increased scrutiny and reputational risks. Driving a robust integrity culture requires going beyond a rules-driven environment to reinforce leadership accountability and ethical decision-making across organisational ranks.
Third-party risks remain a significant challenge in Southeast Asia, with 84% of integrity incidents in the region over the last two years involving third-party relationships. Alarmingly, 20% of respondents would overlook unethical behaviour by third parties if requested to by their managers, directors or investors, and 21% would do so if it positively impacts their career progression or financial compensation. This data point remains consistent with the prior survey results in 2022, signalling that companies need to strengthen governance frameworks for third-party relationships.
In Southeast Asia, organisations have incurred multi-million-dollar fines in the recent past for fraud and corruption violations which involved their third parties acting for and on their behalf, among other offences. As such, implementing robust due diligence processes is crucial to ensure that external partners adhere to the same ethical standards as internal employees.
Southeast Asia lags behind in protecting whistleblowers. Nearly two-thirds of respondents in the region feel pressured not to report misconduct, compared to 54% globally. Moreover, 44% do not believe their concerns would be addressed if they report unethical behaviour. Notably, half of senior management and board members also report feeling pressured to not report misconduct.
These findings point to significant room for improvement in whistleblower systems across the region. Organisations must urgently address these gaps by implementing confidential and transparent reporting channels that protect employees from retaliation. Not only does a strong whistleblower programme help to detect and remediate issues faster and at lower costs, it also reduces the risk of regulatory penalties and reputational damage.
Artificial intelligence (AI) adoption in Southeast Asia is increasing: 37% of organisations are already using AI tools while another 51% are exploring how AI-enabled tools may benefit them. As they increasingly leverage AI, businesses in the region are establishing the necessary governance frameworks to manage risks such as data privacy and algorithmic bias.
However, AI governance remains a challenge. The region’s relatively underdeveloped structures leave businesses exposed to the risk of unintended ethical violations. Without clear AI governance, businesses risk infringing data privacy and perpetuating biases in decision-making.
Setting up cross-functional AI governance teams and implementing comprehensive AI guidelines, such as those based on the OECD AI Principles, as well as addressing data privacy, fairness and transparency issues, are essential to mitigate these risks.
Environmental, social and governance (ESG) considerations continue to gain momentum but businesses in Southeast Asia are largely driven by regulatory requirements rather than internal reform. Almost 64% of respondents indicate that their ESG-related policies are compliance-driven, similar to the findings from 2022.
To ensure long-term sustainability, organisations must go beyond compliance and embed ESG values into their core business strategies, linking initiatives to profitability, risk management and stakeholder trust. Integrating ESG initiatives into everyday decision-making processes is crucial, as is ensuring that employees at all levels are aligned with the organisation’s sustainability goals.
To strengthen their integrity frameworks and mitigate ethical risks, organisations in Southeast Asia should focus on the following areas:
Strong governance and ethical behaviour not only protect organisations from legal and reputational risks but also foster sustainable growth in an increasingly competitive environment. By addressing the critical areas above, Southeast Asian organisations can strengthen their integrity frameworks, reduce corruption risks and position themselves as ethical torchbearers in the marketplace.
Philipp Kloeber, CA (Singapore), is Director, Forensic & Integrity Services at Ernst & Young Advisory Pte Ltd; and Ramesh Moosa, Associate (Specialist): “ISCA FFP”, is EY Asean & Singapore Forensic & Integrity Services Leader.
The views reflected in this article are the views of the writers and do not necessarily reflect the views of the global EY organisation or its member firms.
© 2024 Institute of Singapore Chartered Accountants
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