PRACTICE MANAGEMENT

Ethical behavior in accounting is a function of actions, beliefs and perceptions from all areas of our world

The plethora of unethical behaviors continues to astound. What will be the impact on our country if unethical behavior continues? The loss of civility has also contributed to and affected unethical behavior. By Jim Lindell, Consider some current ethical

CPA, CSP, lapses: conflicts of interest; the

CGMA, MBA loss of privacy; religious leader, political party and COVID-19 behavior; the college admissions scandal and more. This author firmly believes that the root cause of ethical lapses comes down to selfishness. If you consider the above list of unethical behaviors, you already know the specific examples that fall under each of those categories and that wrong behavior occurs when one person believes that their needs, wants and desires are more relevant and take precedence over the rights — and possibly the safety — of another person. The reason selfishness is so critical to understand is that it drives inappropriate behavior beyond what we would consider reasonable bounds. Here is where it gets confusing. The vast majority of people have implicit boundaries that everyone within their group (or “tribe”) understands. For the most part, people will play by the same rules. At some point, one of the members of the group or tribe decides that they need an advantage; they want possession of something they don’t have and can’t get within the standard rules of behavior for their group.

As a result, they cross over the implicit boundary lines and act explicitly with unacceptable behavior.

What does this mean for companies?

These situations occur frequently in business and must be confronted. Organizations must do the following: • Demand ethical conduct from everyone. Ethical behavior should be emphasized at the initial contact with the company, especially at interviews. • Challenge prospective employees to define ethical behavior. Interviews should include candidate testing. Determine consistency in their responses and value observations. The evaluations should provide useful insight into the candidate’s ethical stance. • Be led by a chief executive officer who is adamant and passionate about an ethical company. The CEO must “walk the talk.” Employees at all levels view upper management with a jaded eye. The company suffers a damaging effect the moment senior executives begin to act contrary to company policy. Not only does this endorse unethical behavior; it also creates significant confusion for other employees as to appropriate boundaries. • Realize that there are different degrees of unethical or inappropriate behavior in an organization, and each should be dealt with accordingly. However, there is “a line in the sand” that — once crossed — must result in termination, regardless of the individual. That which is tolerated will become the norm if an organization is not careful. • Create a whistleblower policy and a vehicle to transmit potentially harmful information to the appropriate company authority. • Create policies that address all forms of inappropriate behavior, including sexual harassment, bullying, physical harassment, discrimination (gender, race, creed), conflicts of interest and self-interest business dealings. • Empower someone at the board level to ensure that senior management honors corporate ethical responsibilities. This individual must be willing to follow up on any significant ethical complaint. • Be concerned with ethical financial reporting practices. When we endorse or use questionable accounting practices, we must understand why we’ve taken those actions. If putting an organization in the best light is the goal for confusing accounting practices, this could quickly fall into a gray area or put us beyond our usual boundaries.

“The challenge is to recognize the norms and boundaries of the groups we work with and belong to. We must be aware when we cross over that line in the sand.

In speaking to CEO groups over the last couple of years, I have made a significant realization: Of more than 200 CEOs addressed, only two were able to correctly describe working capital. If CEOs can’t describe working capital, how well do you think the general public understands the financial statements we publish? When you consider that the financial statements may be the basis for people investing pension money or making personal investments, are we acting appropriately?

Privacy matters

We’ve gotten this far in the article and have not even discussed information technology. What happens when there is a violation of an individual’s privacy? Is it the result of the analysis of data we might have? What happens when privacy is violated because we did not keep data secure? What is the appropriate ethical action when we can identify individuals with facial recognition? What happens when we can trace locations of people through this software and — with that knowledge — ascertain confidential information? It really is scary. The technology is moving so fast we don’t even recognize where we can end up. The challenge is to recognize the norms and boundaries of the groups we work with and belong to. We must be aware when we cross over that line in the sand. Keep in mind that groups and tribes can have different rules and boundaries. Awareness is essential.

Jim Lindell, CPA, CSP, CGMA, MBA, is president of Thorsten Consulting Group, providing strategic and financial consulting, professional speaking, training and executive coaching. Contact him at jim@thorstenconsulting.com.