The Volkswagen emissions fraud and the multiple Wells Fargo scandals are just two high-profile examples of business leaders allowing (knowingly or not) unethical behavior to take root in their organization’s culture.
The public fallout from these scandals reinforces that acting ethically is as important and material to a company’s performance as ensuring the financials are unequivocally accurate.
In no department is it more important to instill ethical behavior than accounting and finance. The nature of the work carried out by accountants requires it. Management, shareholders and potential shareholders, and creditors and potential creditors rely on their work to present a true and fair view of the company. But incorporating ethics guidelines in an employee handbook, as is the common strategy, is insufficient. Properly teaching ethics is the key. Accounting and finance leaders must consider and implement the following proven ways to ensure their employees act with the utmost integrity.
Set an example
Possibly the most crucial way to instill ethics in an organization is to lead by example—confirming that the expectation of good conduct is followed at all levels. How you, as a leader, express these policies and procedures depends on the size of the company, but it is everyone’s job to communicate when something does not look or feel right. With a strong ethical culture, no one should fear retaliation for speaking up.
According to Ed Safran, managing partner and chief risk officer at Omega Options Trading Group and a member of the Institute of Management Accountants’ Committee on Ethics, “It really does start at the top. While there are many consultants and so-called ethics experts, nothing beats the CEO as the best person to lead and teach employees about the importance of ethics, and more importantly, how ethics relates specifically to your company.”
In practice this can mean involving the CEO or finance leader in ethics workshops covering actual circumstances that affect your company or industry. Highlighting these situations makes the issue of ethics “real” to the people working in the company. Having the president or CEO lead the meetings and discussion only makes a stronger impact. This works especially well in small to midsize companies but can also work in larger firms.
Reinforce core principles and values
An explanation commonly cited after ethical scandals are uncovered is that the guilty party simply did not know they were expected to conduct themselves ethically. For example, in the Wells Fargo “fake accounts” scandal, employees creating the accounts believed their highest priority was making their quotas versus acting ethically. To set expectations (e.g., that you expect high ethical principles to govern all relationships between different parties), make an announcement to your company’s stakeholders and verify any promises made are followed through. As a starting point, the IMA Statement of Ethical Professional Practice sets forth four ethical principles to guide any company’s methods of operation: honesty, fairness, objectivity and responsibility. These principles should be written with more specific examples in the form of a “code of conduct,” widely circulated to employees, investors (if any), creditors, suppliers and the local community and continuously reinforced by senior leadership teams.
Establish the right tone
While finance leaders can ensure all stakeholders are acting ethically, it is also critical to communicate ethical beliefs and expectations in the appropriate tone. Ed Manley, CPA, chair of IMA’s ethics committee and vice president and corporate controller at American Standard, says ethics is best taught in a positive, supportive and engaging manner.
Building trust is critical, and communication (via town hall meetings, Q&A sessions, the company newsletter, multiple choice quizzes with prizes and even ice cream socials) helps achieve that goal. However, this approach only works if the leadership team really believes in ethics, lives it and embeds the practices, which implies the organization has invested the time and energy in developing core values. For this reason, the urgency behind the leadership team embodying ethical practices cannot be stressed enough.
If accounting and finance leaders have not considered ways to establish an ethical culture in their company and ensure the interests of all stakeholders are properly aligned, the opportunity is here and the time is now. From Enron to Wells Fargo, anyone can see that a seed of unethical behavior can grow and eventually upend or destroy a company. To avoid scandals and misconduct, finance professionals must embrace ethical practices, and then communicate their vision to the rest of the company. From setting an example from the very top to developing the appropriate and consistent tone, the time and effort are worth it—establishing a trustworthy company pays off tenfold for those leaders willing to go the extra mile.
Curtis C. Verschoor, CMA, CPA, is a professor at DePaul University, a research scholar in the Center for Business Ethics at Bentley University, and Chair-Emeritus of the IMA’s Committee on Ethics.