Business, Accounting and Personal Ethics

Sources Used Trevino, Linda, Gary Weaver, David Gibson, and Barbara Ley Toffler, “Managing Ethics and Legal Compliance, California Management Review, Winter 1999 Nanda Ashish, “The Professional Pledge and Conflict of Interest, Harvard Business School, 1999 Seglin, Jeffrey, “How to Make Tough Ethical Calls”, Harvard Business School, 2000 AICPA Code of Professional Conduct

“One of the most difficult but enduring lessons to be learned by professional accountants is that technical brilliance without sound ethical values is hazardous to themselves, their organizations, their fellow professionals and society as a whole.”

98% of Fortune 1000 companies have formal ethics or code of conduct documents. Of those 78% have a separate code of ethics and most distribute them widely within their organizations.

How should I act? Ask yourself the following questions: Is it legal? If someone did it to you, would you think it was fair? Would you be content if it appeared on the front page of your hometown newspaper? Would you like your mother to see you do it?

Who does it affect? Financially  The company  The stock price People  Employees  customers and vendors The community at large  Externalities  Environment

What is the “Five” Approach to Ethical Decision Making? What is the effect on profitability? What is the effect on legality? What is the effect on fairness? What is the effect on the rights of shareholders? What is the impact on the environment?

When do ethical violations occur? There are significant personal gains to unethical behavior Practice is motivated by economic goals Risk of detection is low Risk of future losses is limited Transactional services rather than relational

What to do to prevent unethical behavior Perception of commitment to values Consistency between policies and actions Openness Existing reporting system Rules apply to everyone Ethics has impact on daily decision making Follow up on lapses

What is necessary for a Corporate Code of Conduct? Top management must endorse General rather than specific rules Guidance on tradeoffs If in doubt, encouraged to seek counsel Fair hearing process Assign responsibility to update code Distribute code to all employees Training in support of the code Compliance encouraged

Accounting Code of Conduct To serve the public from whom my authority is derived To serve my profession and contribute to its institutions To practice at the highest professional level To maintain an ethical posture characteristic of a learned profession To maintain my ethical skills so that the public is served with competence To maintain a state of independence at all times to decisions are reached with objectivity. To work with my colleagues with mutual respect

AICPA Code of Professional Conduct “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.”

Accountant’s Responsibilities Public Clients Creditors Governments Employers Investors Business Community Stakeholders

How to Act “Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.” Integrity Objectivity Due Professional Care Genuine interest for the public

Integrity Honesty Candidness Within constraint of client confidentiality Public interest comes before personal gain and advantage Principled Doing what is right and just Observe both the form and the spirit of technical and ethical standards

Objectivity Impartiality Intellectually honest Free of Conflicts of interest Independence

Avoid conflicts of interest Continuing assessment of client relationship What are some conflicts of interest for accountants?

Due Care “..observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member’s ability.” Strive for excellence Diligence Mastery of the common body of knowledge Knowing when to get expert help, consultants Thorough Supervision

Characteristics Discretion Skepticism

Obstacles to Ethical Behavior If it’s necessary, it’s ethical False necessity trap If it’s legal and permissible, it’s proper It’s just part of the job It’s all for a good cause I was just doing it for you I’m just fighting fire with fire It doesn’t hurt anyone Everyone’s doing it It’s OK if I don’t gain personally I’ve got it coming I can still be objective

“The real test of our ethics is whether we are willing to do the right thing even when it is not in our self-interest” From Josephson Institute of Ethics

Remember actions speak louder than words!