Michael McMillan, Director of Ethics Education at CFA Institute, looks at how CPAs can be prepared when facing ethical dilemmas in the profession
The American author and philosopher Aldo Leopold once said: “Ethical behaviour is doing the right thing when no one else is watching – even when doing the wrong thing is legal.”
This quote raises an important question: why should we do anything, let alone the right thing, if what we are being asked to do (or what we are observing others doing) is legal and unobservable? The simple answer to this question is: values. An ethical dilemma occurs when we find ourselves in a situation or circumstance that conflicts with our personal values. These values, which are cross-cultural and universal include: honesty, respect, responsibility, fairness, and compassion.
According to Mary Gentile, author of Giving Voice to Values: How to Speak Your Mind when You Know What’s Right: “Most people want to find ways to voice and act on their values in the workplace, and to do so effectively.” In other words, most people want to be honest, respectful, responsible, fair, and compassionate at work and want to work in an environment that encourages people to behave in this manner. This suggests that people should be moved to act or express their values when they find themselves in situations and circumstances which conflict with them, regardless of who is watching or whether it is legal.
The three steps to ethical behaviours
Individuals can do this by going through a three-step process: preparing, anticipating, and practising (PAP). The PAP process begins by recognizing that ethical dilemmas are a predictable and normal part of life at work. As a result, we should not be surprised or shocked when we confront them. Instead we should prepare for them. According to Gentile, most ethical dilemmas fall into the following four categories 1) trust versus loyalty; 2) individual versus community; 3) short versus long-term; and 4) justice versus mercy.
Does this mean that we should prepare for every possible dilemma that we could face? Absolutely not. However, it does mean that we should prepare to confront the type of ethical dilemmas (or questionable practices) that are most common in our professions. For example, in the accountancy profession, ethical dilemmas often arise when clients choose an accounting method that portrays their companies in a favourable light and obscures other information. Auditors, on the other hand, believe that a more conservative method would portray the company’s financial condition more accurately although less favourably to some stakeholders, such as investors. Another example is the investment industry, in which firms sometimes encourage their advisors to sell products and services that will benefit the firm instead of the client.
Managing trust and loyalty
Both examples represent ethical dilemmas in which trust conflicts with loyalty. Individuals should anticipate and prepare for these situations before they occur. The public in the case of the auditor, and clients in the case of investment professionals are “trusting” them to do the right thing, however, their firms expect loyalty from them.
When individuals know what the right thing to do is, how do they go about doing it? First, they need to be able to anticipate how others will respond to their actions. What reasons and/or rationalizations will others use to justify their behaviours and how can individuals respond to them? Commonplace rationalizations/ responses could be: “everybody else is doing it so it must be okay,” or, “if we don’t do it, somebody else will,” or, “that’s the way they are doing it at firm X.” Appropriate responses to these rationalizations would be: “if everyone else is doing it what would be the consequences for our business practice and customer trust,” or “how would you feel if everyone knew what we were doing?”
Now that we have prepared for the inevitable and anticipated potential responses, we have to develop and practice our own responses: Who should we talk to? What should we say? How should we say it? Should we talk to a friend, mentor, the compliance department, an ombudsman, or other internal supervisory individuals? Practising our responses and actions requires an understanding of a firm’s policies, procedures, culture, and ecosystem. This enables individuals to raise concerns in a non-confrontational and collegial manner, ensuring that jobs or careers are not jeopardized, or offence caused to other parties who might be involved too.