Frameworks for tackling ethical dilemmas and evaluating the ethical considerations

If an organisation’s senior managers need to make strategic choices so that it can reach its targets, they will require control systems to guide it towards the intended destination. The risks that the organisation will face on that journey are numerous. A variety of control systems can be used to reduce those risks to an acceptable level, if not eliminate them. 

They include HR controls, whereby employees are properly trained and motivated to do the right things. They also include mission statements and corporate cultures and management styles. A  company’s internal code of conduct is another critical control system, but students must also understand the role of ethical codes in the management accountancy profession and how to use them to deal with the kinds of ethical dilemmas that many of them will inevitably face in their work.

There has been much academic discussion on how to formulate an ethical approach to solving such problems. This suggests that, if you want to determine whether a proposed course of action is ethical

or not, ask yourself how you’d feel if it were reported on the front page of this newspaper and became public knowledge. Would it cause you any embarrassment? Would it embarrass your employer or client, your family or friends, your fellow  professionals or the wider accounting community? If you think

it would, it may be that the plan is not ethical and needs to be reconsidered . Other useful frameworks include the “virtue test” (how would a virtuous person whom I look up to react in my situation?) and the so-called Biblical golden rule: do unto others as you would have them do unto you. Of particular relevance to management accountants is the social contract theory – ie, that accountants have a contract with society – given the emphasis that IFAC’s and CMA’s codes of ethics place on the duty of accountants to serve the public interest first and foremost. Again, this can be useful while assessing options in an ethical dilemma. When faced with any question on ethics, candidates should appreciate that any actions proposed to solve a dilemma must accord with the five fundamental principles laid down by CMA for the ethical conduct of its members and students. The principles – integrity, objectivity, confidentiality, professional behaviour and professional competence, and due care – are drawn from the IFAC code of ethics, which all accountancy bodies affiliated to IFAC use as the basis for their codes. An overall approach should first ensure that the solution is legal, bearing in mind all relevant regulations. Second, it should be in line with CMA’s fundamental ethical principles.

What is ethics?

Ethics is concerned with what society considers to be right or wrong. It therefore relates to standards of behaviour. At first this may appear to overlap with one purpose of law, in that law seeks to address behaviour of which society disapproves. However, ethical principles may be adopted that discourage behaviour that is undesirable but legal. For example, during the expenses scandal that arose in the UK in 2009 regarding claims for reimbursement by politicians, one politician responded to criticism by stating that she had done nothing illegal. This rather missed the point, as the general public may still regard legitimate expenses claims as inappropriate, and therefore unethical.

Ethics lacks the certainty usually provided by the law, as individuals may consider some things that are legal to be unethical. In turn, views on morality differ, so even when ethical principles are codified by professional bodies or commercial organisations, they may be regarded differently according to the moral principles of each individual.

Corporate codes of ethics

Corporate codes of ethics are published by private sector organisations in order to communicate their values and beliefs to stakeholders. These include:

• customers, whose buying decisions may be influenced by ethical considerations
• shareholders, whose investment decisions may be influenced by ethical factors
• employees, who have to know the standards expected of them
• suppliers, who need to understand the expectations of their customers and also that they will be treated ethically during the course of the commercial relationship
• lobby groups, who may have specific interests in certain practices of the organisation
• the community in which the organisation is situated, which may seek reassurance that the organisation will act in its interest as an employer and as a good ‘corporate citizen’.

• Conflicts of interest arise from various sources. The accountant may be asked to:

  • take a decision on a matter in which the individual has a personal involvement, such as where the accountant has a family or personal relationship with the client
  • advise a company that is in direct competition with an existing client
  • support two clients who are in competition with one another.

  • Ethical dilemmas arise when the accountant has to consider two or more seemingly incompatible ethical obligations. For example:

    • he may be asked by a manager to remain silent about certain matters that would have an adverse impact on the financial accounts of an organisation, thereby testing the accountant’s loyalty to his manager on the one hand, and his responsibilities as a professional accountant on the other
    • he may consider that the policies of his employer are unethical and may find it difficult to reconcile personal values with those of the organisation
    • he may be advising a long-standing client who is also a personal friend, only to discover that one of the client’s family is behaving dishonestly, thereby playing the bond of friendship against the professional duty to give objective, truthful advice.
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My suggested approach to answering questions on ethics comprises the following five steps:

1. Analyse the situation. Most ethics questions are presented as “A asks B to do C, which is in breach of D”. B will probably be you or someone who has come to you for advice and A will probably

be a senior manager or boss. You can take it that D is your institute’s ethical principles or some similar code of conduct that B should follow. As accountants, our codes of ethics always take precedence

over any corporate code that might apply to our status as an employee. There shouldn’t be a clash, but our professional codes come first if there is one.

2. Identify the ethical principles involved. Your main reference guide should be the code that governs your conduct as a CMA student and, hopefully, a future member. Most scenarios will cover a number of

ethical principles. Typically, these will involve confidentiality (are you being asked to disclose client information?), integrity (are you being asked to give false or misleading information?) or objectivity (are you under economic pressure from your boss or personal pressure from a friend or relative?)

3.  Identify the available courses of action. There will usually be more than one. Think widely – the more points you can make, the more marks you can earn, as long as your suggestions are practical.

4. Analyse the consequences of each option. Think clearly and logically about what the outcomes would be if you were to make the choices you have identified.

5.  Make your recommendation. If a report is called for, provide one. Even if it’s not specifically required, the report format can be a useful way to present your answer. And always remember the other golden rule: never recommend anything that will break the law or any of the fundamental

principles of CMA’s code of ethics

The IFAC Code offers a framework through which ethical dilemmas may be addressed.  When faced with ethical conflicts, the decision taker should consider:

• the facts of the situation
• the ethical principles involved
• related fundamental principles
• relevant internal procedures
• the alternative courses of action
• consequences of each alternative course of action.

• Conclusions

  Ethics is not an easy subject but one that has become critically important in a business environment in which failure to adhere to proper standards can have a devastating effect on organisations, investors, suppliers, employees and, of course, customers. Looking back over the past 25 years, there have been several high-profile corporate scandals that have all involved the human ethical failings to some degree. They include Enron and WorldCom in the US, Parmalat in Italy and Maxwell Communications, Polly Peck and Barings Bank in the UK. Arguably, the revolution in information communications technology has meant that more people know about these issues, and more quickly than ever before, and that such events are nothing new. Perhaps this is one of the very reasons why professions must constantly reaffirm their commitment to ethical values and high standards of moral behaviour.