Strong ethical leadership is important for all professional accountants. But it is also important throughout the various phases or elements of the “human capital value chain”: attracting, retaining, developing, rewarding, and, eventually, retiring people.
Attract
Ideally, fostering ethical behavior in accountants early in their career and providing good role models should start as early as possible. It can be an advantage for organizations to establish relationships with academia and raise awareness about the International Education Standards™, developed by the International Accounting Education Standards Board (IAESB), as a way to help ensure that the competencies and skills required by the profession are built into relevant academic programs. This helps ensure that accountancy programs are producing “work ready” accountants. Ethics education is an important element in such academic programs, including knowledge of the International Ethics Standards Board for Accountants (IESBA)’s Code of Ethics for Professional Accountants, or an equivalent national code.
But values are also important. Having a set of relevant and clearly articulated organizational values is a good way to communicate about what is important to an organization and the expected behavior of the people who work there. This also helps ensure new employees and/or volunteers will be a good fit with the organizational culture. Technical competence is often not sufficient on its own to achieve success, there must also be a good cultural fit. Clearly communicating the values up-front, for example, on your website where open positions are advertised, may help you receive applications from candidates that fit your needs.
When interviewing, assessment forms that include sections for both evaluation of your organization’s values as well as the particular role-specific competencies are a good way to help an interviewer focus on important areas and help ensure that candidates are assessed fairly and consistently. Ethical behavior should generally appear somewhere in this mix. Situation-based questions may also be used to gather relevant information about behavior. For example, you could ask candidates to describe a situation when he or she was confronted with an ethical dilemma and what he or she did and why.
Retain
Attracting talent is often a big challenge, but retaining talent can be an even greater challenge for many organizations. Staff retention is important for an organization to maintain stability and institutional knowledge, carry out its activities effectively, and, ultimately, be successful. For smaller organizations, retention as a part of succession planning may be essential to the organization’s survival. In addition, the inability to retain staff is expensive, with the cost to replace staff often estimated at a multiple of the cost to hire them initially. This is mainly due to time and cost required to train new staff, and related loss of productivity.
The tone at the top of an organization is an important factor contributing to a strong organizational culture and to retention. The senior management team serve as role models for behavior your organization wants to foster because it is filtered down and throughout the rest of the organization.
Formalizing a code of conduct is a good way to help communicate the expected behavior in an organization. IFAC’s Defining and Developing an Effective Code of Conduct for Organizations provides useful guidance in this regard.
Performance management and providing regular feedback are also important for talent retention. To encourage the desired behavior, performance appraisal should cover both the organization’s values and role-specific competencies, including a focus on ethics.
Develop
As professionals grow in their careers, they must be continually developed in order to perform effectively and help their organizations to be successful. Depending on a person’s role, interests, and future potential, development may take many forms, including technical specialization or leadership skills.
Training in ethics is an important part of the development of a professional accountant. In some jurisdictions, minimum levels of training hours in ethics have been established to recognize the importance of ethics. The ethical challenges faced by managers will likely differ from those of more junior staff, so to be effective, ethics training should be tailored for the appropriate level of staff. Furthermore, since professional accountants accept a responsibility to act in the public interest, their actions go well beyond satisfying the needs of an individual client or employer, so relevant ethical training must be sufficiently broad.
Some tools that may be helpful include the IAESB’s Ethics Education Toolkit, consisting of study guides and videos, and the IESBA’s Ethical Considerations Relating to Audit Fee Setting in the Context of Downward Fee Pressure. In addition, webinars, training interventions that involve role play, case studies, or real-life examples of ethical dilemmas in the particular organizational or professional context are a “hands-on” and useful way to provide effective training that can be applied in practical situations.
Reward
Reward is a challenging area and includes both financial elements, such as compensation schemes, salary, bonus, etc., as well as non-financial elements, such as staff recognition programs or other motivational initiatives.
Ensuring that appropriate criteria are established to encourage and reinforce desired behavior is essential in promoting ethics. An organization’s values often serve as a source for such criteria. Sometimes reward schemes are implemented to accomplish one goal, but if they are not carefully designed they may inadvertently lead to undesired consequences. An example of this is Enron, where the company’s stock price was a factor in determining compensation. This provided a strong incentive for employees to manipulate the financial statements. The artificial financial results drove the stock price up, which had a positive impact on employees’ performance bonuses. However, the ultimate consequence was disastrous for the company, its employees, and shareholders.
In the case of bonuses, another consideration is to whom they are awarded and whether organizational bonuses or individual performance bonuses are used. If bonuses are awarded on a purely individual basis, then individuals may be motivated to behave or do things for their own benefit or for the good of their particular department, without thinking about the organization as a whole, or good ethical behavior and what is the “right thing” to do.
Each organization must find reward schemes that work in its own particular business environment and culture. Well-designed reward policies and processes, together with transparent communication and consistency in their application, are important factors in finding the appropriate balance and avoiding inadvertently encouraging undesirable behavior.
Moving On
As the saying goes, “all good things must come to an end,” and sooner or later people are going to leave an organization. Their departure may be voluntarily, for example, leaving for a better career opportunity or early retirement, or involuntarily, for example, as a result of workforce reductions, performance issues, or worse—such as violation of policies or unlawful behavior.
In all these cases, organizations should strive to develop robust processes and train their leaders to exemplify strong ethical behavior, with the objective of enabling departing individuals to leave on the best possible terms, and to the extent possible to function as good ambassadors for the organization going forward.
Disciplinary processes should be clearly established and communicated, and when they must be deployed, this should be done consistently and fairly. This does not mean that any confidential information in a case should be revealed because that may subject the organization or its leaders to legal liability. However, it does mean that people should be comfortable that formal procedures are in place and that the process can be trusted. Involuntary departures may spark a spectrum of emotions for those leaving and for those left behind. Managers tasked to deal with such matters should be appropriately trained and experienced since they may be challenged to behave fairly and impartially, and demonstrate ethics and integrity in a stressful situation.
Final Thoughts
There are opportunities to foster ethical behavior throughout all the elements of the human capital value chain. Having strong values that are known by staff, an appropriate tone at the top, leaders that are well trained and exemplify strong ethical behavior, combined with effectively designed policies and robust processes that are communicated transparently, will help an organization be successful.
