Contribute to an Ethical CultureBy
Scrutinize potential biases and lead by example to contribute to cultivating an ethical culture at your organization.
Biases can influence practically every human decision, either consciously or unconsciously. A recent Deloitte report, Untangling capital allocation, categorizes four behavioral biases that can color strategic capital planning: status quo or historical bias (“It’s just the way we’ve always done things.”); narrow focus (i.e., misunderstanding the impact of decisions due to evaluating too few criteria); optimism bias (i.e., being overly confident in forecasts and projections); and expert bias (i.e., making business decisions based on an expert’s opinion that may be founded on shifting or incorrect data). Finance professionals can diminish their biases by measuring key data points, factors, and results; using multiple criteria; looking at a decision holistically from different angles; considering risks; and speculating how it could go wrong, according to the Deloitte report. Fundamentally, working to instill an ethical organizational culture is also necessary to root out or mitigate biases.
Ethics means a set of moral standards and principles that professionals should abide by, setting an example of good conduct for their colleagues to follow. Warren Buffett espoused a “newspaper test” for making ethical decisions: How would you feel about a given action if it was written up in the newspaper the next day? If you wouldn’t want it publicized, then it’s probably not the right thing to do.
“It isn’t only the legality of something,” says Robert Belsky, vice president of finance at Gig Wage, a fintech payroll platform for gig workers and contractors. “Are you solving the problem in the right way? Doing things in a moral way saves a lot of time and energy in the long run because it reduces legal problems and brand-destructive decisions.”
There are common ethical issues, concerns, situations, decisions, and red flags that should be on a finance leader’s radar screen. For accountants, Belsky notes that a top-of-mind concern is recording revenue and expenses in a way that doesn’t obfuscate the truth.
“There’s a decent amount of pressure on senior executives to show growth, and accounting—even within the standards set by the FASB [Financial Accounting Standards Board]—can be more vague and more subject to interpretation than a lot of people think,” he says. “Asking whether the presentation of the numbers is a truthful representation of the underlying business is a good start.”
Accepting gifts or crafting deals with entities in which the executive has an individual investment could present conflicts of interest. Belsky notes that the types of conflicts related to decision making involving self-interest vs. what’s best for the company have to be mitigated by outlining specific plans for recusal or other measures, which is why building a clear set of ethical guidelines is so important.
SETTING AN ETHICAL TONE
There are a thousand little decisions that senior finance executives must make each day, with bigger ones scattered among them. Belsky emphasizes that consistency and transparency are key. “Employees and other stakeholders are intuitively dialed into inconsistency,” he says.
If you set a standard or a process, then sticking to it is important. Transparency is also a key leadership trait because it’s difficult to lead without establishing trust. “There’s a voice in everyone’s head that says, ‘It doesn’t matter if I do x or y,’” Belsky says. “I’m a big proponent of fighting against that voice because in a company setting, everyone is watching.”
CODE OF CONDUCT
Management needs to communicate the importance of the organization’s ethical standards, principles, and guidelines effectively. There are essential elements that every code of conduct or ethics statement must include.
“One of the wonderful things about our start-up stage is that we’re building the culture and the codes together as this small team of diverse people,” Belsky says. “There are basic guidelines we set about empathy and kindness paired with ethical values like honesty and transparency.”
Consistency between what you say and do is key for management. “Practice what you preach” is a truism that applies to communications and conduct in the workplace.
“Even if we communicate the importance of these ethical principles, if we aren’t also acting in the way we say we want people in our company to act, they won’t follow those principles,” Belsky says. “It’s important for management to embody the values and ethics they set.”
Finance professionals should lean on their organization’s code of conduct and guidance such as the IMA Statement of Ethical Professional Practice to navigate situations with ethical gray areas or no clear solution. Applying universal ethical principles to individual dicey situations can help management accountants find clarity and settle on the most ethical option.
That said, Belsky notes there really aren’t any hard-and-fast formulas for ethical decision making. The “newspaper test” can be broadly applied, but professionals will have to think critically about the issue at hand, weigh the risks and benefits, and understand the stakeholders who will be affected and how.
“For decisions that have gray areas and are important for the company, you have to put a lot of thought and care into trying to do what’s best and what’s right,” Belsky says.
THE ETHICS OF ESG AND CSR
Ethics is about more than just not breaking laws and following rules and regulations. Many ethical professionals decide to be advocates for implementing environmental, social, and governance (ESG) metrics and corporate social responsibility (CSR) objectives to ensure that leadership factors in the organization’s impact on all stakeholders, including the communities in which they operate and where their clients live.
“Professionals should care because it’s moral and right, but it can even be in the interest of the company and its shareholders to focus on some of their ethical responsibilities,” Belsky says. “How many times do we see a large company paying exorbitant punitive damages for something that was essentially a breach of ethics? I rarely see people tally the cost of ethical failures to shareholders on a running basis.”