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DEONTOLOGICAL AND UTILITARIAN CONSTRUCTS FOR RESOLVING ETHICAL ISSUES

(Anticipatory Ethics)

 Or

WHAT, ME WORRY? 

By Art Hayes

BOSTON AGA CHAPTERJANUARY 23, 2014

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• "For that which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual. For besides other considerations, everybody is more inclined to neglect the duty which he expects another to fulfill; as in families many attendants are often less useful than a few. Each citizen will have a thousand sons who will not be his sons individually, but anybody will be equally the son of anybody, and will therefore be neglected by all alike.” —From Aristotle's "Politics", Written c.a. 350 BC

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• My work is important because . . . .• My staff’s work is important because . . . .• My efforts are valuable because . . . .• The efforts of my staff are important because . . . .• Their time is as valuable as mine.• Late to meetings?• • Deterrence—Do we keep mopping up the floor like crazy, or just turn

off the faucet?

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• Two things are necessary to be successful—• • 1.• 2.

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• Query:  can you “learn ethics” in this course?•  • Probably not?  Actually, hopefully not!!  It is a little late for that!!

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What was the last ethical issue your office faced?

• How did it arise?• How was it identified?• How was it resolved (process)?• What was the resolution?• Why did you not see it coming?• Why did your then current policies and procedures not cover it?• Did it violate then current policies and procedures?• Did you amend your policies and procedures as a result?• Point—Ethical issues are like Fraud! Auditors/managers do not always see fraud, recognize its

signs/clues!• What were you doing on September 10, 2001?

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WHAT IS THE REAL MOMENT OF DECISION-MAKING REGARDING ETHICS?

• • The moment you take that first shortcut?• The moment you realize that you may not be able to control the

situation?• The moment you let someone do something they can hold against

you?• The moment you do something that can be held against you?• The moment you first think about doing something wrong?

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RECOGNIZING THAT YOU ARE IN AN “ETHICALLY CHALLENGED” ENVIRONMENT

• • • Bad Signs• • The firm/organization has its own legal department for handling “unfounded

allegations of corruption”• The firm/organization has hired a vice-president for ethics, shortly after a series of

well-publicized scandals• The firm/organization has a real vice president!! • Your hear jokes about the way the firm/organization pulled a fast one on the

competition and no one is the wiser

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You hear things like:

• Everybody else is doing it• That’s the way they do it at _____.• We will be re-examining our policies in an effort to avoid any confusion that might

result.• It is important to understand that the items currently questioned, all taken together,

have an insignificant impact on our indirect cost rate.• We actually undercharge what we could to precisely allow for errors and allowances.• Who’s to know?• If we don’t do it someone else will• This really doesn’t hurt anybody• They have insurance to cover things like this

• Pilferage and the warehouse

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• It’s like their cash surrender value• I was just following orders• These silly rules!! They just aren’t fair!!• Who came up with these things, anyway?• When I think of all that I have done for the company...• Other companies dilute their products as well• Our products are still safe for human consumption• It’s just an error in judgment

• (Beech-Nut Orange Juice)

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THIS YOUR SEMINAR.

• What do you want to cover?• • Index cards.• • HOW WOULD YOU LIKE TO DESIGN THE COURSE?

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• NUTSHELL/CLIFFNOTES VERSION• • 1. Issue recognition• 2. Figuring out the right answer• 3. Having the guts to do it (Snipers)

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• So what is the goal and purpose of this class?• • 1. Give you a framework for dealing with ethical dilemmas• 2. Improve your ability to identify ethical dilemmas• In particular give you examples of some ethical dilemmas you are

likely to face in your career an accountants, in the context of ethical standards and scenarios• 3. Provide you with suggestions for addressing ethical issues as

staff and as management

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• WHY ARE ETHICS IMPORTANT?• • TRUST—the basis of all relationships! Organizations/systems• It depends on consistency in decisions. Not a case-by-case relativism.• Business has to trust government to be the referee. Our economy

depends on fairness. The foreign Corrupt Practices Act—makes it hard on the U.S. companies not giving bribes overseas. Courts are essential.

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ETHICS

The discipline dealing with what is good and bad and with moral duty and obligation. A set of moral principles or values. A theory or system of moral values. The principles of conduct governing an individual or a group.

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• Greek—Ethos—Character• • Ethical—Conforming to accepted professional standards of conduct.• —Webster• • Ethics—Of or relating to moral action, conduct, motive or character.

Containing precepts of morality. Professionally right or befitting.• —Black’s Law Dictionary

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• Canon—A law, rule, or ordinance in general, and of the church in particular.• • Code of Professional Responsibility (for lawyers). The canons of the

Code of Professional Responsibility are statements of axiomatic norms expressing in general terms the standards of professional conduct expected of lawyers in their relationship with the public, the legal system and the legal profession.

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• Fiduciary—the term is derived from the Roman law and means a person holding the character of a trustee, or a character analogous to that of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires.• • A person having the duty, created by his undertaking, to act primarily

for another’s benefit in matters connected with such undertaking.

• Moral—Of or relating to principles of right and wrong in behavior. Sanctioned by or operative on one’s conscience or ethical judgment.

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SYNONYMS—

• Moral• Ethical• Virtuous• Righteous• Noble

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WHAT GOES WRONG?HOW DOES IT GO WRONG?

• Smart people do very stupid things. Why?• Rational Lies• Temptation• Quick/snap decisions• Bad intentions• Cocky/over-confident (I can control it)• Short-sighted (Duh, I didn’t think about that)• Gullible• Moral relativism• Peer Pressures• Ambition

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OTHER PRESSURES ON ETHICAL THINKING AND BEHAVIOR

• Fear of Failure• Fear of disappointing others• Unsharable Problem(s)• Carelessness• Insensitivity• Ignorance of the rules• Disregard for the rules• Weighing out options• What keeps us honest?

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• Stops us from looting?• Something to lose• Consequences!!

• Limitation of scope• Turbulence is always unexpected!• • The Norlands audit case/materiality• Tortoise and the Hare• Shooting Stars fall, too.• Most quid pro quos involve little real money

• But then you owe them

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Common ethics survey findings• 1. Only one manager in a corporate setting actually tried to make use of a code of ethics

or any other ethics devise• 2. Some companies link ethics with commandments: Be loyal and perform well!• 3. Senior managers forget what life is about in the trenches• a. They are detached from day-to-day ethical issues• b. They become jaded as their careers advance• 4. Company executives are out of touch on ethical issues• 5. Organizational pressures lead people to be unethical by doing the “easier wrong”

rather than the tougher right• 6. Whistleblowing is a professional hazard. Whistleblowers are hung out to dry. People

who encourage it back off during investigations

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• 7. The majority of managers fear repercussions from doing the “right thing”• 8. Sleazy behavior does not hurt, and even seems to accelerate career

advancement• 9. Many managers received explicit instructions from middle managers to do

things that were unethical or illegal• a. Falsify calculations of rate of return on new investments• b. Overlook kickback schemes• c. Overlook safety defects in products• d. Ship products that do not meet customer specifications• e. Find ways to fire employees• f. Acquiesce in cover-ups involving sexual harassment• G. Ship items not ordered at year end

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HONESTY AND FRAUD IN THE ACCOUNTING ENVIRONMENT

• • A matter of trust• Essential element of accounting• A guarantor of the truth• Reliability• Fraud• Deceit• Cheating• Surprise• Trick

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• Cunning• Unfair• Unjust advantage• Immoral• May be perpetrated within an entity• For or against the entity• Management or lower level•

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DESIRABLE PROCEDURES TO SUPPORT AN ETHICAL CULTURE 

• A highly ethical tone at the top• Viable and known codes of ethics• Procedures in place to resolve ethical issues• An ethics officer or ethics committee• Ethics hotline staffed with objective listeners• Regularly scheduled training programs for officers and employees• Certification of the code of ethics by officers• An ethical culture that supports taking the right action and encourages reporting

unethical practices• Positive and supportive treatment of whistleblowers

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WAYS TO AVOID PROBLEMS

• • 1. Create a situation in which employees feel they can admit openly to problems

• their superiors respect them• they can take some risks

• they have good expectations of how they will be treated should difficulties arise or their proposed plan of action fails to meet expectations

• 2. Be accessible to employees and to the media• 3. Create important interrelationships between business performance and corporate

ethics• 4. Recognize the dangers surrounding poor performance• 5. Recognize the dangers in times of significant organizational and strategic changes• 6. Recognize the dangers of encouraging highly innovative and bold strategic moves• 7. You want a creative firm

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• BUT consider the benefit of certain organizational processes to encourage innovative thinking• use of teams• appropriate measures of performance• rewards for success

• 8. Hire smart and competent people• 9. Predispose your firm to be supportive and cooperative, not

subject to internal suspicion, petty politicking and strife

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• 10. Realize these matters will not just happen spontaneously• 11. Do not orientate your ethical efforts solely toward individual actions, but also include

the entire organizational context, along with the actions of individuals• 12. Do not focus on a problem-solving approach

• avoiding problems is just as much a challenge as dealing with problems already at hand• 13. Do not focus on only dramatic problems, occurring at times of incredible pressure or

temptation• these will be read about in the newspaper• your business ethics should relate to everyday actions and not just major ethical dilemmas

• 14. Do not focus ethics efforts just at the senior manager level• people throughout the firm must be significantly involved in shaping ethical thinking

• 15. Let moral principals provide standards, but do not overlook the wisdom of practical experience in making decisions

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• 16. Be sensitive to those “minor” ethical issues which might not be recognized• employees resenting the way they are treated• employee cynicism about management’s intentions• 17. Do not treat ethics as a best Sunday dress, something to be used only on

special occasions• 18. Reward difficult decisions that are beyond the letter of the law• the decision to rework an order because of marginal quality, even if the • defects might not be noticeable• affects the relationship with the customer• also affects the way the employees feel about the firm’s commitment

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• 19. Do not expect that taking this approach to more sensitivity to ethical problems will be easier in the short run!!!• but it can become habitual and natural

• 20. Recognize the dangers involved in decentralized operations• 21. Recognize the dangers in entering unfamiliar business waters• international operations• a new technology• consider turning to firms and individuals who have been successful in such

circumstances for advice

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• 22. Do not think your firm can survive without any ethical misconduct of one kind or another!!!• every firm has ethical shortcomings, breakdowns or confrontations!!!• human weakness• the inherently perplexing nature of some ethical situations• the emergence of unanticipated ethical issues • strive to minimize them• in frequency• in severity

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• 23. The two main principals in dealing with ethical issues are:• avoid ethical problems whenever possible• deal effectively with those that arise

• 24. Try to be very good at encouraging ethical behavior and discouraging unethical behavior• 25. Try to develop an ability for recognizing and acknowledging the moral

difficulties your firm faces and an ability to respond appropriately• 26. When there is an ethical problem

• make every effort to satisfy all parties concerned, if not totally, at least as a best possible solution

• reflecting a diligent and fair-minded effort

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• 27. Recognize that contentious ethical problems actually provide a litmus test of management’s ethical resolve• do not demonstrate an inability or unwillingness to put them to rest!!• the way you deal with them provides your firm with the best experience available

• 28. This stuff requires deliberate and skillful managing that is on-going and pervasive.• • Definition of an ethical firm: An enterprise that has earned the respect and

trust of its employees, customers, suppliers, investors and others by striking an acceptable balance between its economic interests and the interests of all parties affected when making decisions and taking actions

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Learning From the Experience of Ethical Firms

• Avoiding Ethical Problems•

• The ethical firm is one where employees are motivated as a matter of course to behave ethically in their work.• Many ethical problems are avoided because companies become skilled in taking into account the interests of all parties

affected by each business decision or action.• Aphorism: “An ounce of prevention is worth a pound of cure”. This applies as much to moral as to physical well-being.

• • Resolving Ethical Problems• • Human weakness, the inherently perplexing nature of some ethical, situations, and the emergence of

unanticipated ethical issues are some of the reasons why ethical breakdowns and confrontations arise in even the most high-minded corporate settings.

• Recognizing and acknowledging the moral difficulties and an ability for responding appropriately.• Without the moderating effect of a well-established moral culture, the number and nature of troublesome

ethical problems can escalate beyond management’s capacity to solve them.

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Managing the Business Ethics Process

• • Developing Ethical Sensitivity• • Senior managers must be aware of the common difficulties that can impede ethical leadership.• Senior managers must develop a sensitivity to the specific moral issues that affect or threaten their firms.• Without this sensitivity, senior managers can unwillingly cause or allow improper conduct to take place.• • Strong Competitive Strategy and Operating Management• • The second prerequisite action in the business ethics process is for senior management to ensure that the

business is well managed in all other respects.• Poor operating performance invites cutting close to the line of acceptable behavior - and even crossing it -

to avoid the consequences of failure

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• Under pressure from the board of directors or threats of takeover, even senior managers with the best of intentions can fall prey to the lures and tyranny of the bottom line.• Strong and effective management makes it easier to behave ethically

when the organization can achieve its financial goals through upright business practices.

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A Business Ethics Program 

• The third element in the framework for managing corporate ethics is promoting ethical behavior throughout the firm.• Basic considerations of a sound business ethics program:

• Development of policies and organizational agreements that promote organizational concerns for the interest of the different parties affected by the firm’s operations.

• Provide safeguards against corrupting business pressures.

• Examples of management efforts to nurture an organizations’ ethical values:• Inspirational talks• Offering ethical training• Setting good examples• Disciplining misconduct• Being responsive to employees who are concerned or confused about ethical issues.

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Ethical People

• • Fourth (element) component of the business ethics process is to staff and surround an

organization with ethical people.• Recruit people with strong moral values.• Help employees to connect their personal values to their work activities.• Place people skillful in providing moral leadership in positions where such leadership can have the greatest

effect on others in the organization.

• The major point concerning sound strategic and operating management is to highlight the important enabling role that excellent commercial and financial results play in fostering corporate ethical behavior and not specifically to instruct on business administration.

• In managing business ethics - results are not always proportional to effort measured in terms of just making changes (input) but does relate positively to the quality and consistency of the efforts.

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Starting with informed leadership

• • Only when management’s good intentions are also informed intentions is it in a

position to create a corporate context that motivates and supports ethical behavior.• • You can get off to a bad start, if you don’t:•

• Think through what management wants to achieve.• Develop the understanding and expertise needed to bring about changes in the corporation’s

commitment to higher ethical standards.

• Management must create conditions favorable for gaining widespread commitment.

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HOTLINES

• • 1. Nothing is off the record

• Okay, I’ll just tell you then, I can’t take it anymore!

• • 2. They are at risk

• Bluffed by their boss• I just talked to Art Hayes and he said you were giving them information!! There is no practical way to stop this!!

They must be ready.

• • 3. Advise them to make sure of their sources

• Are they being used by others who are afraid to step forward—perhaps because they know they do not really have anything!!

• Turn them into detectives for you!!• Alexandria

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ARE COMPLIANCE STANDARDS ADEQUATE?

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•Are they watered down?•Lowest common denominator?•Does compliance really mean anything?• • T.

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PERFORMANCE EVALUATIONS

• Fairness• Objectivity• Probationary• Remedial help• A refuge?

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TYPICAL REACTIONS OF THE ACCUSED (actually, the reactions of their attorneys)

• • Our old friend, the loophole. What exactly is a material business relationship?• • They fully complied with the law• They intend to defend the case aggressively• The case is unprecedented• We believe the case addresses industry-wide issues that the commission should address by rule• In no way have we breached fiduciary duties or defrauded any of the shareholders of the mutual

funds• My clients have been given assurances that regulatory lawyers for the fund had approved the

practice• The SEC by this enforcement action is really trying to create new rules that had never really been

promulgated before

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• BEARDSTOWN LADIES ‘FESS UP TO BIG GOOF• WSJ 3/18/98• • The price of grandmotherly advice may be going down soon• The group of grandmotherly investors had been the darlings of the media.• • They said yesterday that an audit by Price-Waterhouse shows that their 10 year average rate of return was 9.1%

and not the 23.4% touted on the cover of their best-selling book!! (The Dow Jones Industrial Average was up an average of 12.1% in the same period)

• • “They are terribly sorry for the error and any confusion it may have caused.” (Larry Vaughn, the fictional mayor of

Amity in Jaws in announcing that the beaches were reopened after a great white shark had been caught, “I’m pleased to announce that the beaches are reopened. A large predator was caught which supposedly injured some bathers.”)

•

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• Betty Sinnock, the long time treasurer, said the mistake resulted from an error made when she tried to figure out the return for the period from 1984 to 1993. She thought she was getting a return figure for the 10 year period. Instead the remarkable 23.4% return applies only to the two year period 1991 and 1992. (Carefully worded, huh?)• • “I don’t want to say (hmmm) it’s a computer error because I had to be

the one who put it in.” said Ms. Sinnock, who is 66 years old.•

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DANGEROUS MYTHS AND REALITIES

• • Myth: Ethical problems can be remedied without much time or effort.• Reality: Impossible! Must commit time, money, and information to solve the problem• Myth: What a company needs is a well-communicated code of ethics.• Reality: If the code is not supported by the culture, the employees will view it as a sham.• Myth: Top managers are needed to champion an ethical position.• Reality: Every manager and employee must accept responsibility to make integrity real.• Myth:All one needs is a good set of ethical principles.• Reality: Both principles and processes are needed. Responsibility integrates both processes and

principles.• Myth: There is only one right way to solve an ethical dilemma.• Reality: Options are essential in order to incorporate all stakeholders and nurture healthy

communications.

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• Myth: There is only one right way to solve an ethical dilemma.• Reality: Options are essential in order to incorporate all stakeholders and

nurture healthy communications.• Myth: Experts can tell us how to handle ethical problems• Reality: Relying on Experts keeps people imprisoned. Empowerment is

essential to moral leadership.• Myth: If one had clear rules, one would not have any problems.• Reality: If the existing rules do not apply, people get frustrated and stuck.

Empowering people with the ability to think for themselves is essential.

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LESSONS LEARNED FROM AN INTEGRITY AUDIT 

• Having employees with integrity in an organization is necessary, but not sufficient.• Mutual trust and openness are absolutely necessary• The best way to solve ethical problems is my involving others• Responsibility is the key organizing concept and principle• Ethical principles exist and are shared by all• Planning for integrity has a high value• The decision-making process needs to take into account the perspectives of the stakeholders• A clear sense of mission and stewardship is shared throughout the organization• Living models need to show the way• • What’s in it for me?

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DEFINITIONS OF ETHICS LEVELS

• Level I: THE LAWS AND RULES ALL CITIZENS ARE EXPECTED TO

FOLLOW.• • Level II: THE STANDARDS GOVERNING THE CONDUCT OF

MEMBERS OF A PROFESSION, i.e., accountants, doctors, lawyers, etc. (These standards are written in lieu of laws to provide the users of professional services with assurance as to the competency, integrity, and objectivity of their services)

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• Level III: THE ETHICS OF THE CULTURE (A set of customs of a given society, class, or social group which regulates relationships and prescribes modes of behavior to enhance the group’s survival)

• Level IV: MORAL RIGHT AND WRONG (The moral quality of a course of action that pertains to personal behavior as measured by world standards)

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ETHICS AND INTERNAL CONTROLS ???Tone at the top!

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• Reflections on the way persons develop their ethical compass• Family• Church• Peers• Television, media• Internet, social media• School

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Adaptive Human Behavior

• Learning the advantages and disadvantages of lying, cheating and stealing

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TWO AND A HALF PRIMARY SYSTEMS

• 1. Deontology (Immanuel Kant)• (Neon Deon Greek for duty)

• Categorical imperatives• Emphasizes maxims, rules, principles• (promises must be kept)• (do your duty)

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2. Utilitarianism (Ethical balance)

• Results-oriented• Maximize good• Minimize bad• Rights and duties have no independent standing

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Act Utilitarianism

• Considers the consequences of only the specific act presently under consideration (lying to avoid a homicide)

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b. Rule Utilitarianism

• Considers a set of rules by which life should be lived (if everyone followed the rule, will the result be the maximum probable good consequences?) In effect, there really is just one rule modify any rules which do not maximize good

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d. Okay, so what’s the problem, Bubba?• Measurement of utilities• What if you lose for the greater good?• Conflicts of interest (John Rawls Justice as Fairness

predetermining the right action in a particular society without knowing what role you will play in that society)• Sophie’s Choice times 5

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A MODERN SYSTEM

• Ethical Realism

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BASIC PRINCIPLES OF ETHICS

• Responsibilities• Public interest• Integrity• Objectivity/independence• Due professional care• Scope/nature of services

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PROCESS OF RESOLVING ETHICAL DILEMMAS

• What is an ethical dilemma?• Common Attributes• A dilemma• Conflicted

• Values• Interests

• Something at stake• Sensitive issues

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What contributes to them?

• Lack of communication• Lack of intervention

• Maybe it will go away• The “model” auditor—Davis Mitchell

• Cognitive dissonance--rationalizations

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What are the answers?

• Really a range of possible responses!• A continum• The old balancing act• Horns of a dilemma?• Logic? (no emotional elements?)

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answers• 1. Be able to recognize ethical issues when confronted by them

• Moral implications arising from situations• Developing an ‘issue spotting ability’

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2. Ability to reason properly

• If just good vs. evil, it is easy!!• Instead it is two goods or two evils• We must be good problem solvers

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3. Must be able to isolate and evaluate competing ethical claims

and valuesA complex thought process

• Understanding principles involved

• Applying the principles to the situation at hand

• Analysis of competing interests of stakeholders and values inherent in the decision choices

• Evaluation of various alternatives

• Including the ability to predict the consequences of each choice to all stakeholders

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APPLYING A PROBLEM-SOLVING STRUCTURE TO ETHICAL PROBLEMS IN GENERAL

• Describe all relevant facts and note assumptions.• • Describe the ethical perspectives and responsibilities of the parties.• • Describe the separate legal perspectives and responsibilities of the

parties.• • Note potential value conflicts among the parties.

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• Describe the principal value conflicts.• • Determine possible courses of action and the resulting long- and short-term

consequences.• • Describe ethical principles which are affirmed or rejected in those proposed courses of

action and distinguish utilitarian (consequences) principles from deontological (pure principles) justifications.

• • Consider whether ethical realism assists in resolving the dilemma.• • Choose and defend your position.

• Remember—it is a range of responses!

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ETHICS AND INTERNAL CONTROLS

ETHICS

INTERNAL CONTROLS COMPLIANCE WASTE/ABUSE FRAUD

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ETHICAL REALISM

or• Pertinent Ethical Rules, Interpretations and Rulings

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NATURE OF PROFESSIONS

• Exclusive• Membership is valuable• Guarding the gate• Specialized body of knowledge• Commitment to social purposes (justify its existence)• Capacity (and legal standing) to regulate itself• Principal responsibility is to ____________?

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ETHICAL FRAMEWORK

• Commitment to a way of life that is• intellectually complex• demands constant updating of knowledge and skills• public service is presumed• make difficult judgments in which technical competence and moral values are

intertwined• confront moral dilemmas routinely• held to the high standards of professional codes

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WELL, WE HAVE ETHICS, DON’T WE?

• Sure, codes, but let’s look further . . .• • Who can sanction?• • Conflicting codes• • Self-serving codes• • Lack of clarity and specificity in wording• • Political reality in self-enforcement

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• Conflicting duties and the adequacy of reports• • Competition, professional courtesies and jealousies• • “Duties” regarding fraud• • “Duties” in industry• • “Duties” regarding government•

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HOW DO WE GET A HANDLE ON HOW ETHICAL OUR OFFICE IS?

• One approach is the use of surveys and then comparisons of the results over time.

• Many surveys are out there…look on the internet….

• Develop your own…• The question of anonymity

• You must follow through and provide transparency to your staff• Show it really matters, is worth their time and efforts and does influence your decision making and

actions

• They are watching to see if you are really going to change anything

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Example of a survey:• A comparison between 2010 and 2012• survey results indicate that:

• staff continue to have a high level• of understanding of:

• entity values,• principles and expected behaviour• outlined in the entity’s Code of Conduct• Belief that staff and management use this document to

• guide workplace decisions

• staff continue to trust colleagues to• behave in an ethical manner

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• there is a slight increase in staff agreement that supervisors provide• incentives and positive reinforcements to staff who act in an ethical

manner, are open to feedback, and behave in a way that is consistent with the organization’s Code of Conduct

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• there is a slight increase in staff awareness of training in corruption• prevention and in how to apply the organization’s Code of Conduct

when making decisions

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• there is a slight increase in staff awareness that the organization has a system where staff can anonymously report unethical behavior, and in staff being comfortable challenging and questioning colleagues

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Some typical questions• My supervisor is open to feedback.• I know the organization’s values/principles.• I am aware that the organization has a system where I can

anonymously report unethical behavior.• The organization’s Code of Conduct helps me understand what

behavior is acceptable.• People who are promoted within the organization behave ethically.

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• I trust senior management to behave in an• ethical manner.• I tell others what a great place the organization is to• work.• I know what is expected of me in my role.• I am comfortable challenging and questioning• colleagues.• My supervisor provides incentives/positive reinforcement to staff who

act in an ethical manner.

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• I am aware of the values implicit in the organization’s strategic plan.• It is not OK to download personal information such as music clips

onto an entity laptop, even if it is being used at home.• I will seek help in making a decision when I am unsure how to act.• People who report inappropriate behavior within the organization

would have detrimental action taken against them.

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• The entity’s Code of Conduct values and principles guide workplace decisions within the entity.• I believe senior management care about the welfare of staff.• People behaving in a manner contrary to the entity’s values/

principles will be challenged.• I know that my behavior must be consistent with the Code of

Conduct.

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• It is OK to buy personal items on an entity credit card so long as it is repaid to the entity at the end of the month.• I trust our senior management to do the best thing for the entity and

its staff.• I have been trained in how to apply the Code of Conduct

values/principles when making decisions.

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• My supervisor behaves in a way that is consistent with the Code of Conduct and values.• People in the organization talk about behaving in an ethical• manner.

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• When faced with a choice, I choose to act in accordance with the entity’s Code of Conduct.• The entity regularly conducts training in corruption prevention for

staff.• It is OK to accept a gift worth $30 from a vendor even if the person is

evaluating the tender because the Code of Conduct allows acceptance gifts up to $50.

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• I know when I can independently make decisions in my job role and when I have to consult others to make decisions.• Management make little effort to stop unethical behavior.• The ethical standards of the entity are not made clear.• I know who to talk to if I am faced with an ethical dilemma.

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• I would report another member of the staff who is behaving unethically.• I trust my colleagues to behave in an ethical manner.

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If the organization could do one thing to assist staff in minimizing fraud and corruption what would it be?This optional question was answered by 80% of survey respondents as follows:

• Encourage and Nurture Ethical Culture• Improve Awareness and Understanding of Policy and Procedures• Strengthen Reporting, Investigation and Disciplinary Policy and

Procedures• More Monitoring and Oversight of Individuals, Systems and Processes• Improve Control Procedures

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The survey ended with the following comments:

• We would appreciate your feedback on the survey questions, design and online completion process (maximum of 500 characters).

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• If an organization only considers “ethics” as an additional step in the decision-making process, rather than an integral part of every day activities, the members of the organization are missing the point. For, an ethical firm considers ethics a part of every aspect of the organization and its operations. Ethical sensitivity had better be on the plant floor and in the offices of every segment of the operations and not just in the board room or the office of the “ethics officer.”

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• After all, the decisions determining the organization’s ultimate ethical bearing and reputation, including the headlines when things go badly, are occurring at the field level, as well as in the board room. That is the only tone which will be truly successful in the long run. Otherwise, “ethics” becomes someone else’s problem in the organization—just like such technical practices as internal audit or cost accounting.

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SEDUCTIONS AND ANTIDOTES

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Having to always be right. Wanting praise without criticism. Having to always win.  PRIVATE SECTOR 

Profit necessity and rational lies  PUBLIC SECTOR 

No threats, no progress, no money. 

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A PARTICULARLY POWERFUL SEDUCTION

When things are not going well, focusing on trying to work our

way out of this mess, instead of thinking out way out.• • Fighting the currents instead of drown-proofing ourselves.• • When productivity slips, we start down the road of

manipulation, which leads to bitterness and defeat.

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PARADOXES

• Paradox—• • Leaders are supposed to know it all and tell everyone what to do!• • But leaders have to delegate to get anything done. • • Paradox—• • The work is done by workers. We have to train and re-train them.• • But the real challenge is to re-train the managers. If we do not, all our efforts are wasted.

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• Paradox—• • Communication is usually downward and lateral. We think communication is being understood by others. Getting our

message out. It really begins with understanding the other person.• • Paradox—• • Is the harmony of the group more important than the victory of an individual?• • Paradox—• • Apologizing appears to be a sign of weakness and an admission of guilt (it is preferable to ignore/deny things).• • But it really is a show of courage and strength.•

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• Paradox—• • Leading is about winning. But it is about winning assent to goals. So you do not have all the power. You need

them! After you have assent, it is still reaching those goals through others.• • Paradox—• • Fear is a great short-term motivator. Perhaps the best!! It shows immediate results!! But it is a dead end.• • Paradox—• • Rewards are a great short-term motivator. Almost as good as fear. And It seems so positive! But it is also a dead

end.•

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• Paradox—• • What you may think is a great reward motivator may be punishment

for some.• • Paradox—• • Public ranking of employees as a means of recognition of top

achievers. But what about the rest?

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 Paradox— 

Severe punishment appears to be even more effective than mild punishment.

   Paradox— 

When things are “quiet” it may mean there is great unrest. 

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• Paradox—• • Most employee problems seem to just erupt out of nowhere.• • Paradox—• • When things seem to be falling apart we tend to want to step in and “solve it.”• • • • Paradox—• • Most “perks” are really motivation neutral. They do not tie in with measurable performance.•

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• • Paradox—• • When you yell at the group to single out the bad eggs, the bad eggs are the only ones who do not listen!• • Paradox—• • Our “pep talks” frequently attack the self-esteem of our people. They find them demeaning.• • Paradox—• • Professional victims seek professional rescuers.• •

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• Paradox—• • Although profit is essential to organizational life, a business must exist for some purpose higher than

just financial aspects alone; it must serve some useful purpose.• • Services/products• Customers and clients• Employees and associates• Competitors• Investors• Profit• • Paradox—• • Sometimes our greatest victories are truly just beyond the storm clouds.

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• Paradox—• • Sometimes inaction is the best action.• • • • Paradox—• • If you do not get into details you do not care; if you dive into too deeply you are nit-picking!• • • • Paradox—• • Consistency and predictability are not the same and are impossible to do.

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• Paradox—• • You hire bright, talented people, but you cannot assume people will come to you already knowing what to do

and how to do it and brimming with the spirit to keep on doing it.• • Paradox—• • We have to help people help themselves.• • Paradox—• • In being a “strong” leader we do not align people with us. We set them against one another. It becomes a race

to the throne for favors.•

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• • Paradox—• • We (should) learn a lot more from our failures than from our successes.• • Paradox—• • We tend to withdraw from problems.• • Paradox—• • Learning what went right for others may not help us in our particular situation.

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• Paradox—• • In order to influence the behavior of people we cannot deal just with their

behavior. We must also deal with their thinking patterns. A person’s performance is directly related to the way he or she thinks about the job.

• Paradox—• • What has worked for you may not work for others. Even others who seem

to be just like you.

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• Paradox—• • What does not work for you may work for others.• • Paradox—• • Problems outside the office, which you can do nothing about, can profoundly affect their performance

in the office.• • Paradox—• • You have to really know your people, but the closer you get to them the more difficult it may be to act

objectively.

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• Paradox—• • It is difficult to truly and accurately review, assess and document another person’s

performance over an extended period of time. It is difficult to weigh the pluses and the negatives objectively.

• • • Paradox—• • If we concentrate on the thinking part of the job, we appear to be too conceptual.•

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MOTIVATION KILLERS• • Disappointment• No Excitement• Disillusionment• No promotions/promises not kept

• (Two-year experience rule)• Discouragement• Dropping findings• Lack of Pride• What is the point?• Cavalierly dropping findings.• Asking for advice and then criticizing.• Inconsistent treatment.• Dishonesty, especially regarding taking care of your staff.• Not reading reports.• Too many questions.•

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THE POWER OF APOLOGY

• • Apologies:• • “I’m apologizing for the conduct that it was alleged that I did.”• • “I regret deeply any injuries that may have been done in the course of

events that have led to this decision.”• • “Mistakes were made.”

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• A genuine apology, offered and accepted, is one of the most profound interactions of civilized people.

• • It can restore damaged relationships on a small or grand scale.• • If done correctly, it can heal humiliation and generate forgiveness.

• But if botched—• • Intended, but not delivered.• Delivered, but not accepted.• • It can further strain relationships—• • Creating life-long grudges and bitter vengeance.

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• Some basic motives for apologizing—• • 1. To salvage/restore a relationship.• 2. Empathy/regret.• 3. To escape punishment.• 4. To relieve yourself of a guilty conscience.• It undermines your self-concept.• • To make it work, there must be an exchange of power and shame.• • You give the other person the power to forgive you.

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• KEYS TO A SUCCESSFUL APOLOGY• • 1. Clearly acknowledge that a norm or an understand of the relationship was violated by you.• 2. Accept responsibility for it.• 3. Be specific, not just, “I’m sorry for what I have done.”• 4. Show that you understand that it hurt the other person and that you are sorry for that.• 5. Explain why you did it and that such actions are not representative of the kind of person you are

and it will not happen again.• 6. State that your actions were not meant as a personal affront to the person.• 7. Suffer. Communicate guilt (distress), anxiety (potential loss of the relationship matters to you),

and shame (your disappointment with yourself).• 8. Offer an act, beyond the mere words.• 9. Make it public if the insult was made in public.• 10. Tailor it to your personality and the situation.

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11. Recognize that it is an interactive negotiation process—a deal must be struck emotionally satisfactory to all involved.

• 12. Think of the apology before you take actions necessitating the apology.• 13. Consider the magnitude and the timing.• 14. When properly done it is an act of—

• Honesty• Generosity• Hope• Commitment• Self-development• Courage• Strength of character• (Exposure of our vulnerabilities)

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TOP TEN SIGNS YOU MAY HAVE ETHICAL PROBLEMS

• • 10. You notice that on casual day the predominant headgear is a ski mask.• • 9. The most common comment in the suggestion box is “If youse knows whats good fer you, you’ll keep yer mouth shut”!!• • 8. You observe staff frequently carrying violin cases, but you never see any violins.• • 7. When the CFO overhears you comment that you bet you missed your carpool, she asks you what kind of odds you will

give her.• • 6. When interviewing a new accountant and you ask him what the present value of a 10-year annuity of $1,000 a year at

an inputted interest rate of 5.67% is, he just smiles and says “What do you want it to be?”• • 5. You observe autographed pictures of Ivan Boesky, Michael Millikin, Joseph Jett and Leona Hemsley in the lobby.•

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• • 4. The staff overseeing random drug tests are also known as “Cheech and

Chong.”• • 3. The firm has its own coroner.• • 2. The towels in the restroom are imprinted “Hyatt.”• • 1. The towels in the restroom are imprinted “Department of Correction.”•

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TIPS TO FISCAL OFFICERS ON HOW TO EFFECTIVELY LIE, CHEAT AND STEAL

• by Arthur A. Hayes, CPA• As printed in Insight

• The magazine of the Illinois CPA Society• June 1997

•  

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Who Is Responsible for Detecting Fraud?• There are really three options facing you.• • 1) Do the right thing. This is not being passive. It is not just being

a “good employee,” if that means adopting the mantra of “hear no evil, see no evil, do no evil!” If you refuse to see or hear evil around you, you are doing evil!!• • 2) Be passive. Do not take any extra steps to develop, implement,

or support good internal controls. And, too, through your passivity, permit, if not condone, possible corruption

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• 1. Where do you work? Do you just sit in your office, or do you go out and roam around?• • 2. Is the door to your office open? Do you invite others to come in and talk with you?• • 3. How do you define your role and the extent of your responsibilities and powers?• • 4. Do you take actions that support or undermine the ethical environment of your organization?• • 5. Do you surround yourself with relatively inexperienced assistants?• • 6. Do you routinely accept personal responsibility for things that go wrong within your span of authority?• • 7. Do you adopt or support an “us” vs. “them” attitude about internal and external auditors• • 8. Have you “expanded” your professional credentials or work or life experiences to inflate your accomplishments?• • 9. Do you pride yourself in generously giving people “the benefit of the doubt” in questionable issues and actions?• • 10. Do you indicate to others that loyalty to the company and to you is THE key to advancement in the organization?

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AICPA ETHICS FRAMEWORK• Rule 101 independence• Section 102-integrity and objectivity

• Interpretations• Ethical rulings

• Qui tam cases

• Section 201—general standards—accounting principles• Professional competence• Due professional care• Planning and supervision• Sufficient relevant data

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• Section 300—responsibilities to clients• Section 301—confidential client information• Section 302—contingent fees

• Section 400—responsibilities to colleagues• Section 500—other responsibilities and practices• Section 501—acts discreditable• Section 502—advertising and other forms of solicitation• Section 503—commissions and referral fees• Section 505—form of organization and name