Association of Chartered Certified Accountants urges businesses to focus more
on ethical responsibilities and aim to recruit senior executives and financial
staff with a robust moral compass.
a new report ‘Risk and reward – tempering the pursuit of profit’ the accounting
body investigates the weaknesses of the financial system prior to the financial
crisis and identifies a significant “people risk”.
financial crisis has highlighted serious ethical failings”, says Paul Moxey,
ACCA’s head of corporate governance & risk management and one of the
authors of the report. “Businesses of all kinds, including the banks, have been
increasingly policed by reams of rules and regulations. But we have seen during
the crisis that, despite all these regulatory requirements, or perhaps because
of them, individuals exploited gaps.”
to the case of Lehman Brothers as an example, Mr. Moxey continued: “According
to the official US government investigation into its collapse, Lehman’s
executives were able to move debt on and off their balance sheets at will by
picking and choosing which legal jurisdictions and accounting standards they
wanted to comply with. “But in doing
this Lehman never broke any rules; the absence of any benchmark of conduct
which would have prevented this sort of regulatory arbitrage arguably actually
legitimised what they did,” he added.
report outlines two general frameworks, a rules-based and a principles-based
one, to ensure risk and ethical behaviour.
concludes that neither will be able to guarantee responsible business behaviour,
as prescriptive rules create loopholes that can be exploited. Principles on the
other hand can lead to ambiguity and uncertainty, thus leaving “wiggle room”.
ACCA paper advocates commitment to ethical business conduct by directors and
key staff as the main part of a risk management strategy to avoid reputational
recommendations include the prioritisation of recruitment efforts on senior
executive with a reliable ethical compass and the creation of a strong ethical
culture within the organisation. This ensured by setting the right tone at the
top and monitoring that this is reflected throughout the organisation. The
measures undertaken to do this should also be communicated externally by listed
companies in their annual reports, the accounting body said in a press statement.
Businesses should be aware of
out-sourcing their sense of ethical responsibility to compliance with external
addition businesses should maintain the higher internal profile – with sufficient
resources – given to the risk function since the onset of the financial crisis
and not be tempted to cut this back when recovery sets in.
it is the people who make the decisions in any organisation, so the
effectiveness of any set of rules or code of practice will be dependent on the
competence and integrity of the individuals who have the authority to actually
make decisions,” said Mr. Moxey. “Finding the right ‘ethical’ candidate for job
vacancies can be a tricky task for businesses; the simplest way to shortlist
likely ethically literate candidates is to look for those with qualifications –
such as the ACCA qualification – that place ethics at the centre of their syllabus.”