RED FLAG INDICATORS
How to detect signs of poor ethical culture or violations of compliance
Signs which point to the possibility that a violation of compliance or integrity may occur are called red flags. It is important for employees, and leaders in particular, to recognise them, because in this way they can prevent harmful practices or respond to or reduce the consequences of harmful practices that are already taking place in a timely manner. Red flags relevant for the individual organization will be dependent on particular product lines, business channels, geographic and supply chain considerations, among others. Companies are urged to develop and frequently revisit common red flags that are relevant to their businesses and products. Leadership needs to ensure that employees on the front lines including the sales force and order intake employees, among others are included in the development process and continuously educated on spotting red flags and knowing what to do when identifying them.
Below are some examples of characteristic red flags developed by internationally recognized institutions and proven in practice. They should be reviewed as guidance, but each company should develop red flag indicators that are specific to their business.
“The first dishonest act is the most important one to prevent.”
– Dan Ariely
“Good leadership based on ethical principles will always bring results in the sense of the company’s success.”
– Boštjan Gorjup
Indicators of bribery and other corrupt practices:
[Source: The Best Egmont Case Award Publication, 28 BECA Publication, p. 10]
*Note: Similar indicators may also be signs of money laundering (or fraud), as money intended for or received as a bribe must be made legitimate.
Experience shows that also the following red flags occur in the case of corruption:
Various forms of white-collar crime often intertwine in practice. Corruption and fraud is often accompanied by money laundering, conflict of interest (network of personal connections), abuse of power or office, extortion, counterfeiting of documents, etc.
“The higher an individual is on the social ladder, the greater the weight of their attitude to the moral and ethical norms. And managers are very high on these ladders. The position they hold provides them with power and influence because their decisions affect the position of the company they lead, and of all who are connected with it, including owners, employees, clients and suppliers. The indirect circle is, of course, much wider. They maintain and improve their reputation not only with the business results they achieve, but also with their ethical stance, which is an important insignia on their career path and, because they are public figures, in their private lives.”
– Vojko Čok
Indicators of deteriorating ethical culture and fraud, which may cause high financial and psychological losses, damage your reputation and destroy your brand: