Bridging the ethical divide

More organisations are voicing a commitment to ethical performance, but their proclamations do not appear to be matched by action—a disconnect that is emerging as financial professionals are facing more pressure to act unethically.

That ethical divide was among the key findings of “Managing Responsible Business: A Global Survey on Business Ethics”, which was released by the American Institute of CPAs and the Chartered Institute of Management Accountants in May. The report also makes a case for how CGMAs are uniquely positioned to help companies track and manage ethical performance.

The survey of almost 2,000 professionals with finance roles in nearly 80 countries follows a similar study conducted in 2008. The latest results reveal that:

• About 10% to 15% more organisations are providing statements of ethical values and a code of ethics as well as related training, hotlines and incentives such as performance-based rewards. But corporate leadership appears to be less engaged. There was a decline in the number of corporate leaders who held formal responsibility for ethics—from 67% to 60% for the board and from 55% to 49% for the chief executive.

• About 80% of companies have ethics codes, yet only 36% collect ethics management information.

• Sixty-one percent of management accountants think it is important to collect and analyse ethical information, but one in five doesn’t think his or her organisation will do so in the near future.

“The overall message is clear,” the report says. “While there have been positive developments in terms of building the architecture for ethical codes and policies, the translation of these into practice is lagging behind.”

More pressure to act unethically

The down economy may have something to do with the divide. Challenging competitive and economic conditions have meant that executives are often focusing on more immediate concerns such as cost-cutting.

Respondents said they felt more pressure to act unethically during an economic downturn, and the report showed geographical differences in those pressures.

While the majority of respondents viewed their organisations as ethical, 35% of respondents said they felt some pressure from colleagues or a manager to compromise their organisation’s standards of ethical business conduct. That’s up from 28% in 2008. The shift was due in part to high pressure in some emerging economies.

More than half of the respondents from India, Malaysia, Pakistan, Sri Lanka, and Zambia said they felt some pressure to compromise their organisations’ ethical standards. The United States and the United Kingdom reported the lowest pressure—18% each.

Closing the gap

To be sure, there have been strides in efforts to prevent or encourage the reporting of unethical behaviour: Incentives for staff to uphold organisations’ ethical standards increased, as did training and the use of ethics hotlines. But the disconnect between rhetoric and reality is evident in attitudes toward adjudication.

Of the respondents who reported ethical misconduct, only half were satisfied with how their ethical concern was handled. Among those who did not report misconduct, the main reason was the perception that reporting would not make a difference.

“The results indicate that ethical culture overall, backed by trusted leadership and clear processes, still needs to be strengthened,” Philippa Foster Back, director of the Institute of Business Ethics, said in the report.

The increasing emphasis on ethics has a direct impact on those working in finance. In turn, finance employees—including CGMAs, who are bound by either the CIMA or AICPA code of ethics—have a key role in supporting ethical conduct and collecting, reporting and monitoring ethical information, the report says.

And it appears companies are recognising that: Finance-related roles are now seen as having greater responsibility for ethical standards—with the finance director/chief financial officer up from 34% to 39% and the head of internal audit up from 24% to 28%.

Additional resources

Full report: To see the full report – which explores the importance placed on business ethics, ethical performance and management within organisations, and the specific role played and challenges faced by individual chartered global management accountants – click here. 

Responding to ethical dilemmas: The principles underlying both CIMA’s and the AICPA’s professional codes are: Integrity and objectivity; professional competence and due care; confidentiality; and professional behaviour and conduct. The institutes have developed training material and interpretations to help members comply with their respective codes. This tool provides links to resources to help members navigate and respond to ethical dilemmas.

Ethical reflection checklist: This checklist is designed to provide organisations and individuals with an overview of how well ethical practices are embedded in the business. With the importance of ethics and non-financial reporting rising on the global agenda, organisations not only need to be managing their business responsibly, but increasingly, they are being required to demonstrate it, too.

Ethics case study:  This hypothetical case study highlights issues related to non-disclosure at the corporate level that come to the attention of non-executive financial managers and controllers, particularly those issues surrounding the discovery reporting and resolution of disclosure issues created by the actions of other employees or executive officers or directors.

—Jack Hagel (jhagel@aicpa.org) is the editorial director of CGMA Magazine.