Accountability to Shareholders or Stakeholders?
Legally
accountable to Shareholders;
Strategically
accountable to Stakeholders
Threats to Good Governance & Accountability:
1) Misunderstanding Objectives & Fiduciary Duty
2) Failure to Identify & Manage Ethics Risks
3) Conflict of Interest
Causes of Judgment Bias- Conflicts of Interest:
1) Conflicting interests/loyalties that may sway judgment
2) Self-Interest
3) Fraud
4) Misunderstanding
5) Slippery Slope
Self-Interest Examples:
Bribes/kickbacks, gifts, special advantages, special treatment, dealing with relatives
Fraud Examples:
Misappropriation of funds, cheating on expense account, falsifying documents, stealing cash, falsifying results to obtain bonuses
Misunderstanding:
Confused signals/incentives, boss/everybody's doing it, cultural differences
Slippery Slope:
Small favor leads to ever-larger demands
Importance Aspects of an Ethical Culture:
1) Ethical leadership
2) Reward systems incorporate ethical considerations
3) Perceived fairness
4) Open discussions of ethics
5) Emphasizes employee accountability
Usual Dimensions of Ethical Programs:
1) Formal ethics code
2) Ethics committees
3) Ethics communication system
4) Ethics officers
5) Ethics training programs
6) Disciplinary processes
How Ethics Programs Effect Perceptions:
Existence of ethics program improves perceptions & behaviors on all dimensions
Most significant improvement when comparing company w/ ethics program to one w/o:
Tone at the top is more clearly understood
How to Avoid Implementation Problems w/ Code:
1) Top leadership guidance
2) General Principles
3) Guidance for making tradeoffs
4) Employees empowered to make ethical decisions
5) All employees receive Code & training
6) Reinforcement of Code compliance
Ethical Leadership:
Need the right tone at the top so that employees follow the ethical values (instead of ST profit maximization)
-Have to be both a moral leader AND moral person
Director & Officer Liability:
Managers/directors can be found personally liable for unethical behavior of the anyone in the organization
SOX Mitigation:
If there's an ethical failure, prosecution/penalty can be mitigated if company demonstrates did everything in their power to send employees message about ethics/have strong ethics program; shows person's a rogue factor
When Accounting Profession lost Credibility:
Also lost autonomy and self-regulation
-Now lawyers make the rules instead of accountants
20-60-20 Rule
20% would never commit fraud; 60% would commit if low chance of being caught; 20% will always commit
Chinese Wall
Info barrier in an organization to prevent exchanges or communications that could lead to conflicts of interest