February 2018 In this issue Reputation, regulation, and repercussions
2018 Edelman Trust Barometer 21st CEO Survey Climate risk disclosure
CIMA roundup of responsible business issues â€” Â February 2018
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Contents 2 News Ethics online 2 Reports and events
5 Responsible business The decline in corporate culture Cost of transparency in boosting sales
Reputation, regulation and repercussions
Climate risk disclosure
Technology for improving government performance
Detecting foreign bribery
3 IFAC Latest from the IFAC Global Knowledge Gateway 4 Reporting The battle for truth Global CEO survey
Smarter corporate reporting Dirty money on the big screen The ethics of artificial intelligence The big bug bounty The high risk of compliance 9 More from CIMA Ethics The fight against illegal business practices Ethics checklist 9 Helplines and support Ethical webcasts CIMA Ethics Helpline UK legal helpline
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Reports and events
Reputation, regulation and repercussions
All the latest ethics resources can be found online, whether you are looking at taking the rights steps in an ethical dilemma, interactive e-tools to guide you through the code, or case studies to prepare for your exams. Access all the latest ethical resources.
Integrity is the most commonly breached principle of the Code of Ethics by registered members and students. The latest issue of Financial Magazine highlights how many professional bodies have seen the volume of conduct complaints rise over recent years for varying reasons. Whether these cases involve knowingly misrepresenting statements for financial gain or sharing confidential information on CIMA exams — the Code is explicit, it is not acceptable. The article explains the stages involved in CIMA’s conduct process, and guidance on the types of misconduct CIMA can investigate. Access the Financial Magazine article.
Technology for improving government performance The CGMA briefing ‘Technology — Improving local government performance: strategy, communication and cybersecurity’ discusses how finance can help local authority leaders address key management challenges. It focuses on the development and communication of strategies for digital excellence, with emphasis on cybersecurity. The briefing includes case studies from Europe and Asia explaining how governments have developed their digital strategies. Access the full CGMA briefing.
Ethics are important to me because ... Every professional member needs to be respected and trusted if they are going to contribute to the success of businesses. CIMA members help businesses to succeed and in so doing must uphold the highest professional standards. [FM, Dec 2017] Bob Beedham, FCMA, CGMA Chair - CIMA's Professional Standards Committee (PSC)
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IFAC Latest from the IFAC Global Knowledge Gateway The IFAC Global Knowledge Gateway provides insight, ideas and information from around the globe, related to ethics, governance, sustainability and a range of other areas. You can find out more about the Gateway in this short YouTube animation. Latest on the Global Knowledge Gateway: • Understanding ethics in a digital age • Accountants mindset in tackling corruption • Building a culture of innovation • Disclosing climate related financial information » Visit the IFAC Global Gateway.
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The battle for the truth
Global CEO survey
The 2018 Edelman Trust Barometer reveals a world of seemingly stagnant distrust. The survey conducted in 28 countries with over 33,000 total respondents shows record-breaking drops in trust in certain countries. The media is now the least-trusted institution globally with high levels of distrust in 22 of 28 countries. Businesses are expected to be agents of change where 64 percent of respondents believe that a company can take action that both increases profit and improves economic and social conditions in the community where it operates.
The PWC 21st CEO Survey questioned 1,293 CEOs from around the globe on topics of economic growth, business strategy, people and trust. It revealed faith and optimism among CEOs in the economic and business environments for the following 12 months. Some of the key findings in the survey include:
Interestingly, 69 percent of respondents say they expect their CEOs first priority to be building trust in the organisation and 64 percent find that CEOs should lead on change rather than wait for the government to impose it. The Edelman Trust Survey notes that there has been no recovery in trust since 2017, whilst some countries and sectors fare better than others, institutions have a lot to focus on. Access the full 2018 Edelman Trust Survey.
• CEOs in Africa and Asia Pacific are more concerned with the threat posed by potential ethical scandals in comparison to those from North America and Western Europe • Out of all the potential business threats to an organisations’ growth prospects, CEOs are ‘extremely concerned’ about the cyber threat and the speed of technological change • 30 percent of CEOs in Africa identify the ‘lack of trust in business’ as a threat to an organisations growth, followed by 23 percent of CEOs in Central Eastern Europe • The challenge remains for CEOs to increase pressure holding individual leaders accountable for any organisational misconduct (overall 59 percent agreed or strongly agreed) The PWC 21st CEO Survey provides a snapshot of the types of issues CEOs face today, it serves as a reminder for businesses to assess their long-term goals, as well as analysing current performance and value. The survey found 20 percent of CEOs believe there is a declining trust between their organisations workforce and senior leadership, thus building trust and a positive corporate culture is imperative. Explore the data and access the Global CEO Survey.
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Responsible business The decline in corporate culture
Cost of transparency in boosting sales
Corporate tone needs to be set from the top of an organisation, it is the most effective way to influence business culture. Research highlights that although board directors understand the importance of culture, very few are implementing policies that influence good corporate behaviour.
Businesses can financially gain from being more transparent.
The report ‘Board Leadership in Corporate Culture: European Report 2017’ by Board Agenda and Mazars in association with INSEAD illustrates this discrepancy and the importance of setting a tone from the top of an organisation in order for it to be disseminated within. The report highlights that ‘almost two-thirds of directors say that their boards either do not consider culture as a part of their formal risk assessment or fail to routinely consider the risks associated with their corporate culture’. It provides a set of recommendations to promote corporate culture including engaging with investors and improving the expertise in the boardroom. The report finds that although there is an awareness of corporate culture, boards are yet to find a way to discuss it in a meaningful way. Access the full report and the Financial Reporting Council report on culture.
Research highlights how the disclosure of product costs can increase its sales, especially if the firm is trusted and the disclosure is voluntary. Academics from University of San Francisco and Harvard Business School studied an online retailer’s sales. The retailer disclosed its costing information on the costs of materials, hardware, labour, duties and transport — to give customers a greater understanding of pricing structure. Alongside this the retailer also highlighted the ‘true cost’ and competitor cost for similar items. The research findings showed that the retailer sold 44 percent more of its cost transparent wallets in comparison to those that were not. Embedding transparency in the business model through openness and communication has many advantages. Although some companies may be more inclined than others to do so, there is merit in creating and maintaining a framework that provides information that is beneficial for others, whether they are investors, shareholders, stakeholders or clients. Retailers providing cost-transparent product information could mitigate the risk of corruption in their supply chain and create a benchmark for other sector industries to follow, from automobiles to housing. Read the full article.
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Climate risk disclosure Over 200 firms have pledged to regularly report on the risks climate change poses to their business and introduce initiatives to reduce their impact. It will allow shareholders and investors to make informed investment decisions. The pledge is part of the Task Force on Climate-Related Financial Disclosures and includes companies such as BlackRock, JP Morgan Chase and Vanguard. Reporting on climate risk disclosure will promote greater transparency and awareness on businesses developments toward the Sustainable Development Goals (SDGs). The 17 SDGs set out by the United Nations were developed from the Millennium Development Goals with a stronger focus on bringing global stakeholder’s together to end poverty, protect the planet and ensure prosperity for all. Access the full article and find out more on United Nations SDGs.
Smarter corporate reporting For companies to adapt to the changes in business environments, Accountancy Europe propose changes to the traditional corporate reporting framework. The new reporting framework “Core and More” creates a better depiction of a company’s economic position and performance. Companies reporting “Core and More” include information on: • Core: Key financial and non-financial figures, prospects, and risks • More: Complete financial statements, detailed sustainability information, and employee-related information The “Core and More” reporting concept is consistent with Integrated Reporting <IR>, which is crucial to value creation of organisations. Access the full IFAC article.
Dirty money on the big screen A new documentary on Netflix by Alex Gibney shines light on Volkswagen diesel scandal, payday loan cheats and brazen acts of corporate greed and corruption. Watch the scandals unfold, what are you waiting for? Watch on Netflix.
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Detecting foreign bribery The Ethics of Effectively detecting foreign bribery presents many AI challenges, some practical and others political. Law enforcement find themselves with the challenge of uncovering, investigating and prosecuting an offence which many have no incentive to disclose.
The Organisation for Economic Co-operation and Development (OECD) conducted a study looking at how foreign bribery is detected. It examines the practices developed in different sectors and countries that have led to successful detection of foreign bribery with a view to sharing best practice. The study identified the importance of raising awareness and increasing tailored training to better detect bribery. There are many potential detection sources that are not utilised and can improve the efficiency of the overall process. Read about the full study.
There has been an increasing discourse on Artificial Intelligence (AI), the impact it has on society, policy and businesses. The briefing by Institute of Business Ethics showcases the framework of values and principles for the use of the AI, these include: • Accuracy, ensuring that AI systems are correct and clear from bias and systematic errors • Organisations should set accuracy levels to determine expectations and an acceptable standard. • Respect for privacy, organisations should be prepared for data protection compliance • Interpretability, ensuring that algorithms can be explained in simple terms to showcase how things work to the public • Fairness, where businesses must pay close attention to how the developments of AI will affect their workforce and employees • Integrity, ensuring that AI is used for its intended purpose • Control, algorithms that companies understand should be used to have full functionality and control • Impact, measuring the impact of AI technology can help an organisation identify risks or consequences • Accountability, ensuring a clear understanding of responsibility for the decisions made by AI programs • Learning, a better understanding of AI programs in business leads to greater awareness and transparency
Businesses need to engage in greater multi-stakeholder dialogue considering the application and impact of AI developments. Access the full IBE Briefing.
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The big bug bounty Businesses are continually at risk from fraud and corruption. If the correct measures are not put in place to mitigate these risks — the repercussions are severe. Forbes reports that many businesses are partaking in bug bounty programs, this is where experienced online hackers are financially compensated for finding vulnerabilities in company systems. Ensure that you are best prepared to mitigate fraud and corruption in your organisation with our CGMA Guidance, ‘Keeping Business Clean: A CGMA Guide to countering fraud and corruption’. Access the full article.
The high risk of compliance A recent survey found most large UK companies have unresolved regulatory compliance issues. The survey, conducted by Baker McKenzie, on over 500 UK multinational companies confirms that successful companies take an integrated approach to compliance. Many companies continue to operate in silos viewing compliance as a barrier to growth and reducing its role within business. Of the 500 companies surveyed, findings revealed that 52% have unresolved compliance issues yet to be discovered by a regulator, and 57% have had a violation uncovered by a regulator. The survey uncovered how companies are overwhelmed by the risk exposure of their business, which will only increase as regulation becomes more complex. The global law firm, Baker McKenzie highlight the importance for companies to report on non-financial information regarding their compliance programmes, including their approach on bribery and corruption, modern slavery and climate risks. The Compliance and Investigations Partner Tristan Grimmer says: ‘Businesses need to get their house in order and ensure their compliance function is agile enough and aligned with the business such that it can respond quickly and effectively to these new requirements.’ Access the full survey Connected Compliance: The Business Case for Compliance Integration.
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More from CIMA Ethics
Helplines and support
The fight against illegal business practices
Watch the Financial Management magazine video highlighting how management accountants are leading the fight against illegal business practices. You can also access further webcasts on ethics and responsible business.
Access all CIMA webcasts and responsible business videos. They include interviews, animations, seminars and guidance on ways that CIMA members have dealt with ethical dilemmas.
Access the Ethics webcast.
Ethics checklist Go through the steps in the ethics checklist to make sure you have covered the right steps to resolve your ethical dilemma. Access the checklist.
CIMA Ethics Helpline This free confidential helpline offers ethical guidance and assistance with applying the Code of Ethics, available to all CIMA members and students.
UK Legal Helpline Law Express is for CIMA members and students in the UK and Europe. This service gives access to information online at no charge, and a low cost professional legal advice phone line. • Find information about CIMA’s helplines and support at cimaglobal.com/helplines. • Access the Code and all ethics resources at cimaglobal.com/ethics. • Alternatively, send your ethics query in an email to firstname.lastname@example.org.
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Read the February edition of CIMA's Ethical Lens here