Charles Weinstein, CEO EisnerAmper LLP, discusses leadership and ethics in business"

Ethics and Leadership Charles Weinstein, CEO, EisnerAmper LLP Frank G. Zarb School of Business, Hofstra University September 27, 2010

Ethics and Leadership • My remarks today are “through the eyes of a CEO of a public accounting firm” – Responsibilities of a CPA – Responsibilities of a CPA firm – Core Values with Case Examples

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Responsibilities and Obligations of a CPA • One service is the province alone of the CPA, and that is audit and other attest work.

• The value in an audit or attest report is the independence and professionalism of the CPA providing the report.

• The AICPA’s Code of Professional Conduct is the cornerstone of independence and ethics for the CPA in the United States.

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AICPA Principles of Professional Conduct •

Responsibilities – In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

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The Public Interest - Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.

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Integrity - To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

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AICPA Principles of Professional Conduct •

Objectivity and Independence - A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

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Due Care - A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability.

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Introduction: Tone at the Top • Why is it good business? A firm’s culture is the first line of defense against economic fraud “…nothing is more effective…than clear, unambiguous company values paired with strong leadership that emphasizes ethical conduct at all levels.” The Center for Audit Quality “…13 percent of senior managers and board members said that misstating financial performance was justifiable in today’s economic climate.” Ernst & Young 2009 European Fraud Study

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Core Values - Integrity Integrity is the adherence to moral and ethical principles; soundness of moral character; honesty.

Dictionary.com • Case in point: The rating of bonds by a major ratings agency

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Core Values: Fiduciary Responsibility Reputation: something that can be built up over years and destroyed in an instant • Case in point: “Who is your client?” The major investment bank that bet against its own clients

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Core Values: Decision Making Learning when it’s right to make a business decision and the difference between that and the wrong decision • Case in point: Huge fees from abusive tax shelters result in $450 million in fines and ruined careers

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Core Values: Ethical Behavior In cases where there is a distinction between the public interest and your self interest, you cannot rationalize away the right answer • Case in point: Manipulation to “smooth expenses” over many years instead of announcing and fixing an error when discovered

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Core Values: Independence • • • • • • • •

INDEPENDENCE AT BREEM’S DREAMS You are in the market to purchase a car and visit a used car lot – Breem’s Dreams.

A salesman approaches you as you set your sights on a beautiful Corvette that is “priced to move”.

After agreeing on the terms you inform the salesman that you are ready to buy the car pending an inspection by a mechanic.

The salesman, who will earn a big commission on this sale, happens to be a licensed mechanic and tells you that he recently inspected the car and it is just like new.

Are you ready to hand him a check and drive home in your dream car?

Why not?

The salesman’s commission may impair his objectivity The salesman calls over the lot’s owner, Jack Breem, who understands your hesitancy to rely on the salesman’s inspection. The owner pulls the car into the shop and tells the lot’s mechanic to inspect the car. After the inspection the owner walks out of the shop to give you two thumbs up and wishes you well with your new sports car.

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Core Vales: Independence, con’t •

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You noticed an auto repair shop down the road. The mechanic does a thorough inspection and gives you the green light saying the car is in great mechanical condition. However, when you ask for his business card you notice that his name is Nick Breem, who happens to be Jack Breem’s brother.

Are you ready to buy the car now? Why not?

The family relationship my impair his objectivity You really want this car so you call a friend who refers you to John Smith, a mechanic that has no ties to Jack Breem, the salesman or Breem’s Dreams. After inspecting the car John Smith confirms all of the other reports and declares the car in top mechanical condition Are you ready to buy the car? Why? The engine was inspected by an independent mechanic with no financial interest or other relationship with the used car dealership.

A few months later you tell a friend about the great experience you had with Breem’s Dreams. They call you from the lot to say that they found a car that they are interested in, but need a mechanic to inspect it. Since Jack Breem, Nick Breem and the salesman all told you the truth about the Corvette will you refer your friend to one of them or to John Smith? Why? John Smith because he was objective in fact AND appearance

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Learn How to Walk Away • Case in point: One of our own clients – There were questions about the appropriate accounting treatment of complex financial instruments – Our escalation of review: • From the engagement partner to the technical partner • To the client’s CFO and the CEO • To the audit committee of the board • To resignation

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Learn How to Walk Away • Case in point: Another one of our clients – Fraud had been uncovered – Management changed: new CEO, new CFO – Legacy Chairman of the Board – Audit Committee chair favors removing Chairman, we agree – Full Board declines – We agree to part company

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Ethics and M&A What I’ve been doing the past nine months • Eisner LLP and Amper, Politziner & Mattia, LLP – The positive effects of transparency – The critical role of due diligence – The importance of culture in a merger or combination

• Case in point: Can a multi-billion bank and a multi-billion dollar brokerage firm merge over a weekend?

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The Five C’s (and a Sixth) 1. Conscience – acting with intellectual honesty 2. Care 3. Competence – knowledge and skills, but also a willingness to be reviewed 4. Commitment – diligence in the performance of duties 5. Courage – to always act with integrity Linda De Beers Presentation at Dubai International Financial Center Seminar, 2009

Let me add a sixth “C” 6. Compass – follow your moral compass 16

Ethics and Leadership

Sometimes the hardest thing to do is the right thing, when no one is watching

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Questions?

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