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Institutional integrity: from compliance to culture

Embedding values in every aspect of your business – from culture and incentives to leadership and communication – helps foster transparency and trust. This approach not only reduces risk but also strengthens reputation and supports long-term success.

Institutional Integrity

Culture

Incentives

Accountability

Communication

Leadership

Dynamics

Operations

Institutional Integrity

Welcome to Mishcon's institutional integrity hub which explores the forces that shape true integrity, drawing on insight from across the firm and leading external specialists. Together, we examine how organisations can build trust, strengthen reputation and support long-term success.

Select each topic from the diagram to build a holistic picture of what an organisation needs to demonstrate in order to truly earn the title of ‘Institutional Integrity’.

Organisational culture

Embedding compliance through culture

Leadership compliance (or lack of it) will directly impact on the culture of an organisation. In organisations where leaders ignore legal and ethical obligations, the culture is often damaged, resulting in negative behaviour trickling down the organisation.

With the expansion of corporate liability through failure to prevent  ("FTP") offences ongoing, and with recent high-profile public inquiries in mind, businesses will (or should be) increasingly considering the role that organisational culture plays in allowing, or preventing, criminal offences from being committed by persons associated with it. To limit legal risk, it is essential that organisations implement a positive culture that is integrated into every part of their business.

Since the implementation of the failure to prevent bribery offence in 2011, and the publication of the corresponding "adequate procedures" guidance, organisations have been aware of the importance of "top-level commitment" in setting the anti-bribery agenda. 

Principle 2 of the guidance states that "The top-level management of a commercial organisation (be it a board of directors, the owners or any other equivalent body or person) are committed to preventing bribery by persons associated with it. They foster a culture within the organisation in which bribery is never acceptable." The recently published FTP fraud guidance contains similar wording, noting that an organisation's board, partners, and senior management should "foster a culture within the organisation in which fraud is never acceptable and should reject profit based on, or assisted by, fraud." In a similar vein, corporates commit an offence if they fail to prevent criminal facilitation of tax evasion and also have a legal duty to prevent sexual harassment of their employees.

Increasingly, therefore, the onus is on businesses to demonstrate that they foster a culture that discourages misconduct and does not allow them to simply blame any misconduct that does occur on a few "bad apples".  

Incentives, rewards and institutional dishonesty: the role of UK SOx, malus and clawback

Poorly designed incentives can undermine ethical intentions and foster institutional dishonesty.

As English law expands corporate liability for failing to prevent offences, organisations are under increasing pressure to demonstrate a culture that actively discourages misconduct. While policies and leadership commitment are important, the structure of incentive and reward programmes – such as performance metrics, targets, compensation, and recognition – plays a critical role.

Incentives: shaping behaviour

Incentive schemes are intended to motivate employees and drive performance. However, if rewards are too closely linked to financial outcomes, or if ethical behaviour is not valued, employees may feel pressured to bend rules to meet targets. This risk is particularly acute in environments where success is measured solely by profit, rather than by the manner in which results are achieved.

The UK’s approach to corporate governance is evolving, with the anticipated UK SOx regime (modelled on the US Sarbanes-Oxley Act) placing greater emphasis on robust internal controls and accountability. UK SOx will require directors to attest to the effectiveness of financial controls, making it more difficult for organisations to ignore the cultural impact of their incentive structures.

Governance mechanisms

Organisations that proactively engage with their people (and with other stakeholders) to continuously gauge their cultural health are likely to develop a positive organisational culture and embed their core values. Several governance mechanisms can work together to discourage misconduct and promote a positive culture:

Company policies and procedures

Putting in place anti-fraud, anti-corruption and whistleblowing policies, codes of conduct and ethical guidelines, with consistent consequences for violations. These provide for clear parameters and expectations. If these values are reinforced by regular communications from senior leadership, they should become embedded in the fabric of the business. 

Training and communication

Ensuring relevant personnel are aware of policies and receive regular, scenario-based training on real ethical dilemmas. These can be across a range of areas, including ethics, risk, and compliance. These can be backed by disciplinary sanctions for non-compliance to underpin the organisation's culture and actively discourage misconduct.

Monitoring and risk assessment

Regular monitoring and periodic review of procedures and compliance, as well as of the nature and extent of exposure to potential offences. Companies can use surveys, focus groups and behavioural indicators to assess the culture. It is only through living and breathing its core values that those values become embedded into the culture of an organisation.

Governance structure

Having audit, ethics and compliance committees, compliance officers and clear reporting lines and accountability promotes integrity. Creating genuine psychological safety for employees to raise concerns without fear of retaliation is the core of a healthy organisational culture. These structures also provide continuous oversight and a uniformity of approach. 

Due diligence

Conducting due diligence on associated persons, reviewing contracts, monitoring staff well-being, and conducting due diligence in relation to mergers or acquisitions.

Proportionality

Fraud detection and prevention procedures should be proportionate to the identified risk and the nature, scale and complexity of the organisation's activities.

The most effective approach combines both cultural (such as leadership modelling ethical behaviour) and procedural (such as policies and procedures) elements. A genuine culture of compliance provides evidence that procedures are more than just "paper policies". Courts and regulators will examine whether policies are embedded in the organisation's culture and actually influence behaviour.

Failure to prevent fraud

Failure to Prevent Fraud

Discover how our audit and training services can strengthen your organisation’s compliance and integrity

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Assessing culture beyond compliance

A question for many organisations will no doubt be how it can measure or assess the nebulous concept of its "culture". However, the relatively limited number of prosecutions for failure to prevent bribery, and the fact that the failure to prevent fraud offence is, as yet, untested, mean that organisations have little to draw on by way of practical examples.

The primary defence available if wrongdoing is unearthed is demonstrating that the organisation had "adequate/reasonable procedures" in place to prevent the relevant offence. However, even if an organisation follows the guidance to the letter and satisfies itself (as best it can) that it would be able to rely on the "adequate/reasonable procedures" defence if wrongdoing were unearthed, this will not necessarily mean that its efforts have been effective and that, as an organisation, it is culturally sound. Indeed, the fact of wrongdoing having occurred tends to suggest otherwise.

The question of how to properly evaluate organisational culture may, therefore, be something that senior management has to wrangle with as the scope of potential criminal liability expands. Whilst leadership will set the tone, feedback from employees is likely to be critical to inform management whether efforts to instil a positive corporate culture have been successful, providing reassurance that, should an issue arise, the corporate will not be found criminally liable. This will also facilitate an early warning system that allows the organisation to address issues before they become a legal risk.

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Hear from our guest experts

Ben Johnson BRG
Ben Johnson BRG Ben is the Managing Director and Head of Forensic Investigations in EMEA at BRG, with 20 years’ experience of conducting investigations into fraud, audit failing, anti-bribery and corruption.

The importance of culture

It is something of a cliché, but in my experience of investigating fraud and corruption over the last 25 years, a robust workplace culture is critical in reducing the risk of both. Culture has a heavy bearing on the conduct of staff.

Most, if not all, firms pay lip service to this principle, but culture is much more than a set of policies and warm words from the Chair. However, all too often I see instances where the relevant boxes on checklists for culture are ticked but the reality on the ground in the business is different.

It is very easy for the c-suite to believe skin-deep messaging regarding their culture in corporate literature and policy documents without properly testing how this aligns with reality.

Read more

Some years ago, I worked on the fallout from the collapse of Anglo Irish Bank, which involved significant financial misstatements and resulted in several criminal prosecutions of bank executives. However, the Bank’s executives seemed to genuinely believe it had a high-integrity culture. The 2007 annual report proudly stated that:

We operate to the highest ethical and governance standards as we aspire to be a model corporate citizen. For this reason we invest heavily in the development and training of our staff, as well as maintaining the highest levels of integrity in our relationships with our stakeholders.

No doubt similar statements can be found in the annual reports of other companies subject to accounting scandals (Carillion comes to mind). All executives want to believe that their culture incentivises good conduct and compliance which can make it difficult for a realistic assessment to be made.

We see this also in rogue trading cases where the nascent rogue trader notices that the people who really earn the respect of peers and superiors (and big bonuses) are those making the most money, even if - or particularly when - they ride roughshod over controls to do so.

Another cultural problem I often see in corporate fraud cases is the culture within the finance team. Problems can arise when the culture of the finance team is subservient to the business and it is seen as their job to help the business report better performance rather than objectively reporting actual performance. When it comes to CFOs, it is important to have someone robust in place who will be able to withstand inappropriate pressure to report better results.

It is therefore vital that organisations thoroughly test and understand the culture on the ground in their business and not assume that the admirable wording of their policies will automatically filter through to the behaviour of staff.

 

Key contacts

Mark Kaye
Mark Kaye, Partner, Mishcon de Reya Mark is an expert in complex transactions and cross-border advisory work, with a particular focus on organisational culture, governance, and ethical compliance.
Celia Marr - Mishcon de Reya
Celia Marr, Managing Associate, Mishcon de Reya Celia specialises in acting for individuals and corporates in relation to criminal and regulatory investigations and prosecutions.
Christia Malaktou
Christia Malaktou, Managing Associate, Mishcon de Reya Christia is a specialist in mergers, acquisitions and corporate reorganisations, with expertise in embedding robust governance, compliance and ethical culture within organisations.

Book a free 15 minute session with our experts

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Best practice for incentive programmes

To ensure incentives support a healthy culture, organisations should:

Align incentives with values

Performance metrics should reflect not only financial outcomes but also adherence to ethical standards and legal obligations. Recognising employees for managing risks or upholding codes of conduct signals that integrity is valued.

Balanced scorecards

Incorporating financial, operational, and ethical dimensions into performance assessments prevents any single metric from dominating, reducing pressure to compromise standards.

Implement malus and clawback policies

Contracts and reward schemes should include clear malus and clawback provisions, communicated to staff. Remuneration committees must use these powers effectively, and investors increasingly expect sanctions for serious failures, even in supervisory roles.

Strengthen internal controls (UK SOx)

Regular reviews and testing of internal controls over financial reporting and incentive schemes, with board-level oversight, are essential. Audits and compliance committees can identify and address misaligned rewards before they become legal risks.

Transparent recognition systems

Recognition programmes should be transparent and based on clear criteria. Celebrating ethical behaviour and whistleblowing, not just sales or cost savings, helps embed a culture of openness and accountability.

Employee feedback

Anonymous surveys, focus groups, and open forums provide valuable insights into how incentive programmes are perceived and whether they drive the right behaviours.

Checks, balances, and oversight

Internal systems and controls, such as compliance committees and independent audits, are vital for monitoring the impact of incentives. The UK SOx regime will require directors to take personal responsibility for the effectiveness of these controls, increasing accountability. Properly implemented malus and clawback provisions deter misconduct and provide a means to address issues if they arise, demonstrating to regulators, investors, and the public that the organisation takes its responsibilities seriously.

Mandatory training on ethics, risk, and compliance, supported by disciplinary sanctions for non-compliance, should be integral to corporate culture. Linking remuneration and promotion to visible ethical commitment is increasingly common, especially in regulated sectors.

Malus and clawback: accountability mechanisms

Malus and clawback provisions are increasingly used to address misconduct linked to incentives:

  • Malus allows organisations to reduce or cancel unvested bonuses or awards before they are paid, if misconduct or risk management failures are identified.
  • Clawback enables the recovery of bonuses or awards already paid, typically in cases of fraud, dishonesty, or material mis-statement.

These mechanisms reinforce that rewards are conditional on ethical behaviour and compliance, and provide boards with practical tools to respond to wrongdoing, underlining the importance of integrity at all levels.

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Remuneration and incentives – setting the right tone

Unregulated firms can learn valuable lessons from the remuneration rules applied to financial services firms by the FCA and PRA. While these regulations are not mandatory outside the sector, their underlying principles are highly relevant for any organisation aiming to foster integrity and reduce risk through effective incentive design.

Key principles from Financial Services Regulation

The FCA and PRA frameworks are based on the idea that "what you reward shapes what people do". Decades of experience shows that poorly designed incentives can drive misconduct, create conflicts of interest, and harm both customers and firms.

Unregulated firms should examine whether their own incentive structures, even for junior staff, might unintentionally encourage undesirable behaviours. For example, rewarding sales staff solely on volume can lead to overselling, while measuring customer service only on call times may result in rushed, ineffective support.

Practical steps for all staff levels

  • Balanced scorecards: Adopt performance measures that reward both quality and quantity. For instance, including accuracy and safety metrics for warehouse staff helps protect customers and employees.
  • Conduct measures: Recognise and reward ethical behaviour and collaboration, not just results. This reinforces organisational values.
  • Avoid cliff-edge incentives: Structures where small differences in performance lead to disproportionate rewards can encourage gaming and short-termism. Graduated incentives are fairer and promote sustainable performance.
  • Deferral and clawback: While more common for senior roles in regulated firms, the principle that rewards should reflect long-term outcomes can be applied more broadly. Simple measures like probationary periods before bonuses vest can help align interests.
  • Business benefits: Adopting these principles is not about adding bureaucracy, but about sending clear signals through pay and recognition. When incentives align with organisational values and long-term goals, firms reduce operational risk, improve customer outcomes, and embed integrity into everyday decision-making.
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Hear from our guest experts

Peter van Veen
Peter van Veen Peter is an expert on business integrity. He is the Director of Corporate Governance at the ICAEW, and he previously ran the business integrity programme at Transparency International UK.

Rewards and incentives: how they shape culture and ethical behaviour

Incentives and rewards play a key part in shaping the organisation’s culture. When designed well, they encourage both ethical behaviour and good business results whilst at the same time discouraging unethical behaviour.

Read more

Seven key elements of a well-designed incentives and rewards programme:

  1. Incentives at the top shape the organisation's culture. Tone from the top is important in setting the right culture and so is setting the CEO’s incentives and rewards. The CEO’s incentive structure will set the risk appetite, urgency and what is seen as optional rather than essential for the whole organisation.
  2. Balance long-term vs short-term incentives. Incentives shape the company’s risk appetite and this in turn can impact the company’s culture and values. For example, focusing primarily on hitting quarterly financial targets could encourage excessive risk-taking that leads to unethical and unsustainable business practices.
  3. Incentives should not be focused purely on financial results, but rather a range of soft and hard targets that encourage ethical and long term, sustainable business practices. However, companies should be careful to not create a checklist approach to ethical business metrics that can be gamed to gain a bonus or deliberately manipulated to withhold one.
  4. Set achievable targets. If targets are set that are very hard to achieve, don’t be surprised if unethical or even illegal behaviour takes place to try to achieve these targets, such as cutting corners, paying bribes to win contracts or artificially inflating numbers.
  5. Do not reward outcomes over and above the means to achieve them. It is important to celebrate wins, but not wins at any cost. How results are achieved should be an equally important part of the reward and incentive structure. Consider metrics around cross-functional collaboration, customer satisfaction, quality and employee and customer trust.
  6. Ensure staff are not rewarded or promoted if they have deliberately breached the company’s values or code of conduct. Nothing is more corrosive to a company’s culture than a perception that there is a rule for a select few and another for everyone else. Bullying, sexual harassment, bribery or expenses fraud should never be tolerated, and certainly not seen to be rewarded, no matter how senior or successful a dealmaker the employee is.
  7. Ethical behaviour should be rewarded. Those that walk away from a deal because a bribe was demanded should not miss out on their bonus if they don’t make their targets as a result. Those who speak up with the company’s best interests at heart should also be celebrated and rewarded. Create a culture that encourages staff to speak up, seek help if in doubt, and for their managers to encourage and welcome these conversations.

 

Key contacts

Lizz Hunter
Liz Hunter, Partner (non-lawyer), Mishcon de Reya Liz is a leading expert in equity incentives and employee reward, advising organisations on designing and managing share plans and incentive structures that align with ethical, tax and governance best practice.
Guy Wilkes - Mishcon de Reya
Guy Wilkes, Partner, Mishcon de Reya Guy is a leading specialist in financial services regulation and investigations, advising on high-profile regulatory disputes, compliance, and enforcement matters across the financial and professional services sectors.

Book a free 15 minute session with our experts

To help you benefit from our specialist expertise, we are offering you a free 15 minute online session, where you can discuss with one of our team any follow-up questions you may have about the content.

 

Book now
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Accountability

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Communications

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Leadership

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Dynamics

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Operations

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