Good corporate practice suggests that companies ought to act ethically and in keeping with applicable rules. This allows enhancing the companies’ sustained development and preventing legal damages and harm to their reputation. If companies do not act ethically and in keeping with the law, namely, not observing good Compliance practice, their administrators, their personnel, and the companies themselves will be liable to economic and criminal sanctions including fines, deprivation of liberty of the individuals involved, and even corporate dissolution.
There are several ways for companies to act ethically and legally. Among them, the most important is application of the “Tone at the Top” concept. According to that concept, all members of a company’s top administration (managers, members of the board of directors and of shareholders’ meetings) have the task and the obligation to set the tone of all company’s actions in accordance with corporate policies and the applicable laws and, above all, to evidence to the company’s staff that their actions are ethically and legally proper.
Several studies demonstrate how beneficial it is for every company if its top administration sets the ethical tone applicable to it. This is an essential feature of good present-day leadership. When the company’s personnel realizes that the top administration does not properly set an ethical tone for the organization, whether by doing or by abstaining from doing, the individuals lose confidence in the company and in its leaders, which could result in loss of productivity or, even, resignation of key personnel.
Some examples of clear and conclusive actions that a company’s top administration can adopt to demonstrate its commitment for acting ethically and legally are:
- Designate a person in charge of ethical and Compliance matters with the right to speak and vote at the company’s board of directors/shareholders meetings.
- Refuse business opportunities if there are any risks that such business might include some illegal component.
- Implement a robust Compliance program, and demonstrate through the administration’s actions that the necessary commitment to perform it exists.
- Penalize top administration members who perform unethical or illegal actions in the same manner as other persons in the organization who fail to abide by Compliance rules are penalized.
When a company’s administrators transmit the “Tone at the Top” concept to the personnel, they are showing leadership, protecting their good reputation, and generating quantifiable benefits for the company. The responsibility of acting legally and ethically falls on all individuals that are part of the company, and mainly on its administrators.
Warning: This newsletter by Pérez Bustamante & Ponce (PBP) is not and cannot be used as legal advice or opinion since it is merely of an informative nature.
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