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Ethics Fatigue – Regulation vs Integrity

Author: Patricia Barker

None of us can fail to observe the increasing emphasis on ethics in accounting and in business in general, particularly following the high profile business collapses of the last few years. There are training courses, degree programmes, new codes, whistleblowers charters, new regulations and, of course, Sarbanes Oxley. It has become the sexy topic of the moment for trainers, educators and regulatory bodies.

However, many accountants find it a difficult area to get a real handle on and to identify as pertinent to them in their busy lives. They find themselves involved in compliance with additional corporate governance regulation, risk assessment, reporting of management reviews, setting up confidential whistle blowers lines and declaring their purity in business practice. They complain of having to conform to large doses of red tape all because of a few bad apples bringing business and finance into disrepute. We are probably at a stage of regulation and governance over-kill and much of the time spent on complying with new regulations could probably be better spent on innovation and developing new products. However, our exasperation with regulation should not give us an excuse for failing to come to grips with the real underpinning reason for corporate collapse – the failure of individuals to apply strong personal ethical values.

REGULATION ETHICS V INTEGRITY ETHICS The response of governments and professional bodies to ethical failures is to tighten regulation, codes, oversight bodies, and laws. Even if these regulations refer to integrity, the danger is that our radar shifts to compliance with regulation rather than to reflecting on our own behaviour and analysing our personal influences. Leaders who consistently profess and display morally positive attitudes are significantly more likely to set a tone in an organisation and to influence behaviour in that organisation than any number of codes and regulations. If you have a professed and active commitment to ethical behaviour and decision making and have as a goal self-governance with self-chosen standards, you will test your behaviour against internally imposed standards and are likely to be more critical and more reflective. Your colleagues and staff will be encouraged to share your commitment to self-managed conduct. If you are guided by rules and regulations your focus is on laws, regulations and the rules of your organisation and your goal will be conformity to externally imposed standards. You will tend to move towards compliance with the letter of the law and may, indeed, even seek complicated interpretations of the regulation in order to suit your preferred outcome. Your leadership would not then give rise to a management driven culture but rather to a lawyer driven culture. It is also likely that if you adopt a regulation approach to your ethical decision making, while it is possible that you may have short run successes, it is questionable whether the success of your leadership and or your organisation can be sustained. This approach of integrity ethics requires you to recognise that this issue of professional ethics is entirely based on trust and responsibility and is the point where a law has not been breached, a point where rules no longer serve and a point where there are arguments in favour and against a particular course of action. This all assumes that you automatically recognise when an issue has an ethical dimension, which does not always happen.

So, this is not an easy area. Those who provide simplistic answers like “If it smells, don’t touch it” or “If you wouldn’t like your mother to know about what you are doing – don’t do it”, do not help. If it is just a case of having bumped someone else’s car in the car park when nobody saw – that may present an ethical dilemma for you, assuming that you perceive it as an ethical dilemma. You may think either “It’s his fault, he shouldn’t have parked so far out and nobody has seen, so I’ll walk away.” Or “I caused the problem, I am responsible, I am liable. I will put a note on his windscreen giving my contact details and I’ll pay up.” This is just about you and your behaviour. However, if it is an issue at work, where there are others involved, the complexity increases. You may have to ask yourself, “Can we walk away from five million euro of business?” or “What would they think at head office?” or “Will my promotion and the promotion of my colleagues be effected?”. Ethical issues are complex and often not capable of black and white analysis. They require a high level of moral awareness. But the answer for good leaders is not to hide behind compliance with external rules and regulations. You must assess your own thinking and your own stance. Questions of professional ethics cannot be resolved by rules and codes. Dialogue and debate are essential. However, unfortunately moral behaviour is not something accountants discuss very much. This muteness impedes moral agency within our profession. Ask yourself “What do I do when I have an ethical issue?” and maybe, “Do I recognise an ethical issue?”.

THERE ARE DIFFICULT ISSUES FOR YOU IN CONSIDERING YOURSELF There are often some difficult background issues that may clutter your reflection on your own behaviour. It is important for you to consider the issues. These include, but are not limited to:

1. People, and this includes you, tend to rationalise their own behaviour. Rationalisations are mental strategies that allow you (and others around you) to view your unethical behaviour as justified. (Anand, Ashforth and Joshi, 2004). Often unethical acts do not come from one person. They often require the cooperation and consent of a number of people. The rationalisations (see Figure 1) have been described as:

-Denial of responsibility -Denial of Victim -Social Weighting -Appeal to higher loyalties -The ledger

2. It has been observed that in an organisation where people, especially managers and leaders are behaving unethically and rationalising their behaviour as mentioned above, they genuinely believe their own rhetoric and would be indignant if challenged with unethical behaviour. It has also been observed that such people generally subject newcomers to specific socialisation processes that lead them to accept the prevalent activities as normal. The combination of these two leads to mutually enforcing behaviours and perpetrators simply do not see themselves, in any way, as unethical.

3. We all suffer from lack of time these days. There are just not enough hours in the day to complete our list of ‘things to do’. Often when we are faced with ethical dilemmas we just do not have the luxury of the time to reflect on the issues, to unpack the consequences and to weigh up the pluses and minuses. Additionally, we have far more to do than we have time to do, so we live by trade-offs. We do the things that we see as measurable in terms of our own performance and we reward the measurable successes in our employees. This tends to drive us down performance outcome routes rather then performance behaviour assessment which is, itself, an ethical issue. 4. Most managers have been described as well-intentioned persons who simply fail to take ethical considerations into account when taking actions and making decisions. (Carroll, 2001) This makes them amoral – unethical by default and not immoral – that is positively taking an unethical decision. If this is the case, it leads to the suggestion that most management, in terms of ethical decision making, is like a large mound of Jelly that is inherently unstable and can be wobbled one way or the other by the slightest push.

5. Whistleblowers are talked about a lot now and we have set up hotlines and mechanisms for them to report unethical behaviour. However, the research still shows that we do not like them. We may admire them, but we don’t trust them and would have difficulty in subsequently employing them. In some respects, this may be cultural. There is something deep down in the Irish psyche that just does not like informing, even if we know it is for the greater good.

6. Personal ethics are complex and not simple, and the very complexity often pushes deep reflection off our radar. It is not a good idea to fail to engage in such deep reflection on your own behaviour. Think of your own level of cognitive development and of your perceptions of ethical issues, before you consider specific issues. Refer to Figure 2 to help yourself.

IN CONCLUSION … It is not easy to be ethical. It is a complex and multi faceted area. However, you are or you may become a business leader and your personal beliefs and behaviour in the workplace influence others and, inevitably, you are influenced by others higher up the organisation. If you are really to tackle this issue of ethics, it is imperative that you take an honest look at yourself and analyse your cognitive development, how you perceive ethical issues and how you behave. You need time to reflect on this and then you need a good mentor to discuss your analysis and conclusions. You might think of having discussions with your peers at work.

In the end of the day, you have to really live with your decisions and this involves looking through the veil of rationalisations that you may be familiar with hoisting.

NOTES: Arnand V. Ashforth B. and Joshi Mahendra (2004), Business as usual: the acceptance and perpetuation of corruption in organisations, Academy of Management Executive, Vol 18 No. 2 Carroll A B, (2001), In search of the moral manager, Business Horizons, March/April 7:15 Messick D., and Bazerman M. (1996), Ethical leadership and the psychology of decision making. Sloan Management Review, 37 (2): 9:22 Thomas T., Schermerhorn J. and Dienhart J. (2004), Strategic leadership of ethical behaviour in business, Academy of Management Executive, vol, 18, no. 2 Charts have been omitted from the online version of this article.

Patricia Barker, PhD, FCA, is Professor of Accounting at Dublin City University and serves on the Accounting Committee of the Institute of Chartered Accountants in Ireland.

Ethics Fatigue – Regulation vs Integrity

Author: Patricia Barker

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