The moral maze

Let us accept, for the moment, that being ethical in business is a good thing. How is it, then, that what seems like an easy objective is fraught with difficulties?

Ethics underlie a great many actions, albeit classified in the business mind as financial, operational, people or systems issues. At its most basic, being ethical is doing the right thing according to society’s values. By and large, most people want to do the right thing and, with a little help, recognise what that is when they see it.

But where does personal behaviour stop and business behaviour start? If a well-known businessperson commits a highly immoral, but legal, personal act is that bad business behaviour? Probably not, unless the personal behaviour has a direct bearing on the business.

Of course, the magnitude of the behaviour may be such as to bring their credibility into doubt, or even bring disrepute to the business or profession – for example, at the extreme end of reasoning one could conclude ‘x is a hypocrite, therefore all businessmen are evil’.

The increasingly global nature of business, and the fact that it operates across societies, adds an interesting spin to the ethics debate. Bribery, for example, is considered totally unethical in our society, but seems to be the only way to do business in others.

Is imposing our values elsewhere unwarranted cultural imperialism, or a principled stance to help others escape corruption? If we are trying to positively help others, how do we ensure a common stance and prevent ‘ethical’ companies from being undermined by those less principled?

The law may have a role to play in some instances, as it already does with bribery of foreign public officials, though this needs to be on an international basis to be effective.

For all these high-level issues, individuals in business most often find they are pressurised into being unethical because there will be adverse consequences if they aren’t.

These threats to ethical behaviour can take many forms, including: self-interest (‘if I take this action we will make less profit and I will lose my bonus’); intimidation (‘if you disclose that, you will be sacked’); and familiarity (‘I should report that behaviour, but I don’t want to get this person into trouble because they are a long-time friend’).

Another possibility is that our intrepid businessperson gets unwittingly backed into a corner from which it is difficult to escape, honour intact. Perhaps the unethical position has been arrived at in a series of small steps, unnoticed until the cumulative effect becomes significant. Alternatively, public predictions of a certain outcome may have been made, the achievement of which turns out to be dependent on unethical actions.

So how do you prevent such a situation from arising? There are no magic solutions. The best protection would be to spot where the problems might be, minimise those where possible and face up to the others head on.

The ICAEW recently published guidance on ethical matters for members in business at The guidance does not provide a unique solution to all ethical problems, because the dilemmas that arise are too disparate for a one-size-fits-all approach. But what it does do is recognise that accountants may face ethical dilemmas resulting from the responsibilities to their employer and the profession being in conflict.

One solution it suggests is a ‘do-it-yourself’ ethical dilemma resolution framework, which helps to identify the problem by applying fundamental ethical principles – integrity, objectivity, competence, performance and courtesy – to business situations using a threats and safeguards framework.

This seeks to raise the awareness of threats encountered when complying with the fundamental principles and guides you through analysis and case studies as to the nature of safeguards you might put in place to combat these threats.

But any amount of guidance that is followed by chartered accountants alone is not going to make business ethical. What we need is a concerted approach to increasing people’s awareness of ethics and their importance, reducing the pressures to act unethically from all directions – a reporting/consultation mechanism that provides an escape route where pressures still exist and, if necessary gives protection to appropriate whistleblowing.

Some of these mechanisms already exist. For example, the combined code applying to UK-listed entities on a ‘comply or explain’ basis requires companies to have internal procedures for the reporting and investigation of ‘possible improprieties’. It remains to be seen how this will work, but coupled with a genuine, positive tone at the top, it could prove a powerful weapon.

Another visible development is reporting of corporate behavioural aspects. Corporate social responsibility is, to a large extent, a separate issue from business ethics, focusing on an organisation’s outside of its own assets and liabilities as traditionally measured. However, CSR reporting and similar developments are indicative of a trend towards evaluating business performance on a variety of counts, not just purely numerical aspects such as earnings per share, free cash flow or operating profit before debits.

We might pause to ask why we should behave ethically in business at all, if it is so difficult? Ultimately, the most powerful rationale for ethical behaviour in business is market forces.

Ethical behaviour does not directly earn money on a pounds-per-saintly-action basis, but the sum of individual ethical behaviour builds or destroys corporate reputation. Indeed in a few high-profile cases, one person’s actions can achieve that.

Similarly, if shareholders can see how individuals in a company behave (and thus by association, the company itself), they will start to vote with their pockets. Sooner or later, bad behaviour, while perhaps generating short-term super profits, will lead to long-term decline through public opprobrium or regulatory action – not an ideal long-term investment bet perhaps.

Doing good work quietly is the bedrock of ethical behaviour. However, a little transparency will do much to make the link between ethical behaviour and value to the business more obvious and thus make such behaviour more desirable – so long as it does not degenerate into a boilerplate ‘form over substance’ exercise.

Tony Bromell is head of accountancy markets and ethics at the ICAEW

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