Ethics in Business

For those of us in the accounting profession, however, ethics is at the cornerstone of what we do. Clients look to us to provide impartial information about their company and industry. The business community depends on accountants to perform their jobs with the highest degree of accuracy and ethical standards. The stability of a free-market system depends, in large part, on unimpeachably exact audits and statements.

As more traditional accounting firms become involved in consulting, which to some slightly grays the line of impartiality, it is more important than ever that the accounting profession operate according to the highest ethical standards.

Most ethical lapses are so small as to seem insignificant. However, they add up over time, and can snowball into a serious situation. Poor ethical standards are most damaging in the long-term.

The biggest victim of ethical lapse is trust. A small breach of ethics is often known only between a few people. But this knowledge can destroy trust between fellow employees, and from there make its way up the ladder, destroying trust between employee and supervisor, and between divisions of companies. When ethical lapses become rampant, employee productivity declines, loyalty follows, soon major breaches such as employee theft begin to appear. Eventually, and worst of all, the most important advantage a firm has, the trust between a firm and its clients, erodes.

Why has such an important topic as business ethics gone unnoticed, even actively ignored? The biggest reason is that ethics is largely misunderstood. Ethical behavior-behavior conducted with honesty and integrity, has recently become muddled up with moral or political questions.

In the past generation, the business community for the first time was asked to consider political and moral consequences when making business decisions-whether to do business with South Africa during apartheid, for instance. The public's new interest has changed the way many companies do business.

However, as political and moral concerns have taken center stage, ethical concerns have been forgotten. Ethics has very little to do with political beliefs, or public opinion. Ethical behavior is a very personal matter, which requires that a person be honest and truthful in all business dealings.

Because ethical behavior is so personal, it is unlikely to be given any recognition. While there are many awards for corporate social responsibility, awards that recognize ethical behavior are rare. Ethics is viewed as something that is expected from employees-only when ethics codes are breached is the topic even discussed. However, this Monday Morning Quarterbacking approach to ethics gives employees who are being ethical day in and day out, without encouragement from above, the impression that ethics are not important.

A movement has begun to combat this impression. Business leaders know the importance of ethics--an international survey found that 78% of boards of directors are setting ethical codes of conduct, up from only 41% in 1991.

Ethical behavior starts at the top. Before a company can expect to be viewed as ethical in the business community, ethical behavior within its own walls-to and by employees-is a must, and top management dictates the mood. Ethical behavior by the leaders of an organization will inevitably set the tone for the rest of the company-values will remain consistent. Further, a well-communicated commitment to ethics sends a powerful message that ethical behavior is considered to be a business imperative.

Companies, led by top management, are increasingly adopting ethical codes of conduct. Modern ethics codes aren't just some simple platitudes set in a break-room plaque. Companies now commit considerable time and money to illustrate their reliance on ethical behavior. Companies now bring in consulting firms (including KPMG's own Business Ethics Services Practice), to craft a document with concrete rules and real meaning.

A modern ethics code will consider the main ethical dilemmas of a company's employees, and determine the most vulnerable ethical areas for the company. The execution of a company's ethics program depends on identifying these vulnerabilities. All future messages, from the code, to materials, to training, will focus on these major ethical dilemmas.

Companies are also interested in determining whether ethical behavior can be measured, just as efficiency and productivity are. KPMG's Business Ethics Institute is taking the lead on research in this area. Often companies must innovate ways to measure ethical behavior, which in turn motivates ethical behavior.

Once training, measurement and a new ethical code have been developed, companies are also hiring full-time ethical compliance officers, and starting ethics hotlines to report possible policy violations. Hiring a full-time ethics officer is another signal to employees that ethical violations will be taken very seriously. However, this person isn't just a watchdog-they will take a proactive approach to identifying possible violations before they develop. An ethics violation hotline is another essential step to ensure ethical compliance. Employees can call the hotline 24 hours per day, 7 days per week, to report violations or even to discuss potentially dangerous ethical situations.

As ethical behavior comes to the forefront, more and more companies will be taking these steps to ensure that the ethics of their company and its employees are unassailable.

For those of you about to enter the workforce, ethical questions are fairly faint on your radar screen. However, because companies, and especially accounting firms, are so concerned with maintaining proper ethical standards, it is important to reiterate the major principles of professional ethics:
Avoiding even the appearance of conflict of interest-This is most important in the accounting field. Especially when confidential financial material is involved, as in an audit, there can be no interest conflict. For instance, it is improper to hold stock in a company that you are auditing.

Keeping sensitive information confidential-Most, if not all, information you get from a client is confidential. As an accountant or consultant, you are usually dealing with some of the most sensitive material a client has. Therefore, that material, even its existence, should not be discussed with anyone outside the firm.
Full disclosure-Any information with any impact whatsoever on your duties or professional life should be shared openly and honestly with supervisors. At KPMG we encourage such honesty with a "time-bank" leave policy. There is no such thing as sick leave or personal days, it is all lumped together-employees can use the time for whatever they choose, making for a much more open workplace.

Devotion to responsibility-As a paid employee, you are expected to perform your duties to the best of your possible abilities, and to retain loyalty and respect to your firm.

You may have taken a business ethics class, where you learned theories of ethics and analyzed case studies of famous ethical dilemmas. This is important preparation-but in the business world, there won't be time to fulminate and analyze. Split-second ethical decisions are made every day-and if you follow the main professional ethics principles, making the correct decision shouldn't be difficult.