Businesses need ethical decision-makers -ACCA
Financial crisis exacerbated by ethical failings :
ACCA (the Association of Chartered Certified Accountants) has urged
the business world to focus more on its ethical responsibilities and on
prioritizing the recruitment of senior executives and financial staff
with strong ethical compasses.
A new ACCA report, Risk and Reward - Tempering the Pursuit of Profit,
looks at where the financial system went wrong prior to the financial
crisis, with a massive failure of 'people risk' being identified.
Businesses should ensure a strong ethical culture |
The report was launched at an event at the London School of Economics
on June 3, 2010.
'The financial crisis has highlighted serious ethical failings,' says
Paul Moxey, ACCA's head of corporate governance and 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.'
Moxey continues: 'Take Lehman, for example. 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's never broke any rules; the
absence of any benchmark of conduct that would have prevented this sort
of regulatory arbitrage arguably actually legitimised what they did.'
Risk and Reward - Tempering the Pursuit of Profit identifies two
typical frameworks for ensuring risk and ethical behaviour: rules-based
or principles-based. Neither can offer a guarantee of responsible
business behaviour - prescriptive rules and regulations create loopholes
for the unscrupulous, while principles can create ambiguity and
confusion for those unsure of what is right or wrong, or an opportunity
for those looking for wiggle room.
The paper argues that a strong commitment to ethical business conduct
on the part of directors and key staff is a strong line of defence
against reputational damage and should be an essential part of any risk
management strategy.
The paper makes the following recommendations:
* businesses should prioritize the recruitment of senior executives
and financial staff who have a strong ethical compass
* businesses should ensure a strong ethical culture; this should
include setting the right tone at the top and then ensuring, and
monitoring, that this is reflected throughout the organization. Listed
companies should set out how they do this in their annual reports
* businesses should be aware of outsourcing their sense of ethical
responsibility to compliance with external rules
* 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.
'Ultimately, it is the people who make the decisions in any
organization, 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,' adds
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.
(ACCA)
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