Ethics In Practice – Article Published by ACCA

The Challenge for Accountants

Drawing on personal experiences of how organisations develop their core values, Paul Davis examines how accountancy firms can embed ethical decision-making.

Moral decisions are rarely black and white. Yes, we have laws and regulations and codes of conduct, but these are continually changing. You can think of any number of practices that were entirely acceptable at one time, but which are not acceptable any longer. Similarly, what is right for one person is often wrong for another. So what do you do when confronted by a dilemma? When it comes to ethics, how do you act?

The fact is that accountants are frequently faced with serious ethical questions. One of my accounting clients was recently asked by their client to understate the company’s stockholding on its balance sheet by a significant amount in order to reduce its profit and therefore its tax liability. Another was asked to reverse their decision to have qualified accounts. Several times, I’ve had situations where accounting professionals were asked to massage the figures to allow the company to secure better credit terms from suppliers.

Ethics and Ethical behaviour is embedded in an organisation when people are developed in accordance with their own values

If you work for a firm that has listed integrity, honesty and professionalism as its values, do you refer back to these before you make your decision? For many, the truth is that you don’t. You use your own judgement. And that is the fundamental misunderstanding that lies at the heart of the discussion around corporate values.

Despite the lofty claims that organisations always make on their websites, the truth is that a business can’t have a set of values. It’s an inanimate object. While a company can attempt to mandate being good, being fair, being honest and so on, doing the right thing falls ultimately on human shoulders. So values need to come from the individuals themselves.

Every human being takes an action based on their perception that it is more advantageous than disadvantageous to them. Therefore, unless an employee can readily see that there are more advantages to them to pursue the firm’s mission or the culture of that firm, they will not perform in line with desired outcomes on a consistent basis. That’s the challenge when it comes to ethics in business.

Internal priorities

While people may describe their values using those aforementioned terms – integrity, honesty, loyalty, reliability and so on – these are not in fact core values, not in the true sense. What I mean by this is that when it comes to their business or relationships, their philosophy is to try to deal with people with honesty and integrity, and to be loyal and reliable. These are what are important to them, but they are not their core values.

Values – or internal priorities as I prefer to call them – are fingerprint specific. They are the cause of differing standpoints and why so many conflicts can develop in relationships. Internal priorities are what are most or least important in your life. They determine your world view and generate your behaviour. They determine what you label good and evil, what you respect and disrespect, and your sense of worth. To know yourself, you must know your highest internal priorities.

Our internal priorities are shaped by our upbringing – our parents, schools, our community and church, together with all of our experiences and the individual ways in which those experiences are interpreted. You could have twins who grow up with completely different sets of values. So when you talk about shared values in an organisation of 2,000 or 200 or even just two people, you’ve got to wonder how that could possibly mean anything.

Because these internal priorities are unique to an individual, the best way a business can have all their staff engaged in the business is to first identify the internal priorities for each individual, and then go through a process of linking those internal priorities to the mission and philosophy of the business.

How is this achieved? One approach is to take clients through a series of questions that looks for evidence to establish each individual’s top three internal priorities. Once your internal priorities are clear to you, when you are confronted by a moral dilemma you will ask: what is the right thing to do? What would a wise person do in this situation? Again, while the rules are there for us, ultimately, each of us will act according to our own internal priorities. Ethical judgements are developed from the inside out, not the outside in.

Culture and mission

When individual priorities are known, we then look at the firm’s culture and mission. What it is trying to achieve? Now it’s a case of matching individual roles with those goals and asking the question: ‘How does the firm’s mission fulfil my priorities?’ At the end of this process, you have clear alignment between individual priorities and the culture and mission of the practice.

Ethics and Ethical behaviour is embedded in an organisation when people are developed in accordance with their own values, and then, when the dilemma arises, it is discussed and dissected in the light of those values. You can discuss hypothetical situations until the crack of doom, but you never know how anyone will act until you face that moral question in real life.

Ultimately then, values are not an empty promise on a website, they emerge as a natural by-product of making sure that you have the right people in the right roles. Establishing each person’s unique set of internal priorities is a central part of making sure that individual values line up with the company’s culture and mission.

Published by ACCA