Business is full of ethical dilemmas. But can regulation help accountants to deal with them? Lesley Meall considers the issues.

Sophie is an accountant with a problem; you could call it an ethical dilemma. She has been asked to identify “non-revenue generating” customers so that her employer, a medical supply company, can cease trading with them. Sophie’s problems start when her task generates a list of charitable relief organisations, and she decides to do the right thing. She spends her own time checking her employer’s costs to see if she can identify any potential cuts. In the process she discovers that a contract to supply 500,000 kits of medicine for delivery to Somalia includes a large commission payment to a Kenyan distributor.

Sophie asks for an explanation and is told, “When supply trucks leave Kenya the backs are stuffed with medical kits and the glove boxes are stuffed with cash”. This is so that when the drivers are held up at illegal roadblocks they can pay up, rather than be shot. Sophie is no longer sure what is the right thing, or how to do it. She is aware of her legal responsibilities, the ethical guidelines of her profession, and the procedures and structures her employer has. But the consequences of putting them into practice is keeping her awake at night.

Ethics are complicated. The world has no single, universally-accepted set of rules or principles for ethical behaviour. But while philosophers can philosophise, accountants have no such luxury. The profession has to debate ethics, reach conclusions and take actions in the knowledge that they will be scrutinised, analysed, discussed, questioned and tried in a court of public opinion – where appearances matter more than substance.

Fundamental principles

 “Over the past few years, perception has been driving the debate on professional ethics,” says Martyn Jones, chairman of ICAEW’s ethics standards committee. ICAEW’s Code of Ethics demands the highest standards of ethical behaviour through its fundamental principles: integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. Failure to conform can lead to fines or expulsion. These principles inform the UK Corporate Governance Code (see box, right) and the Audit Firm Governance Code. But the European Commission seems to be leaning towards more rules.

“I think it is a sad thing that in discussions about ethics people always start talking about rules and laws,” says Jones. Codifying everything could turn accountants into box tickers and lead to a mindset where people believe that anything they do is fine as long as they don’t break any rules, he adds. “Ethics are about trying to do the right thing even when nobody is looking,” says Jones. But he knows appearances matter too, and accountants must consider how their actions could look. He says, “You have to ask yourself, ‘How would this appear to readers of the Daily Mail or Private Eye?’”

Firms of all shapes and sizes are well aware of this. “We have a plethora of procedures, codes of conduct and manuals,” says Scott Barnes, chief executive of Grant Thornton. “But it is just as important to have a culture where people are comfortable about speaking out, and we have encouraged that.”

Would more laws lead to a more ethical profession? At the regional firm George Hay, legislation such as the Bribery Act and Anti-Money Laundering (AML) Regulations have been built into the relevant guidelines, training and procedures, but the impact on ethics seems to have been limited. 

“Before, if we suspected a client of some sort of wrongdoing, the dilemma was, ‘Does this go beyond our ethical guidelines, and do we want to disengage?’” says Toni Hunter, partner and George Hay’s AML reporting officer. “We always erred on the side of caution. Now we are duty bound to blow the whistle. If a client is being deliberately evasive, if there are strange cheques leaving an account, or there is simply any doubt, staff members know they must report this to me. Then I decide if this should be logged with the Serious Organised Crime Agency, and tell the employee involved to keep their eyes and ears open, without changing their behaviour, so as not to alert the client to the fact that they are under suspicion.”

Accountants in industry also believe that they can be relied on to behave ethically without more rules and regulations. “I look back at my ACA training and it clearly showed the ethical approach required,” says Jonathan Coiley, finance director at Acorn Engineering Group, who qualified before ICAEW introduced the Structured Training in Ethics programme. “When an ethical issue lands on your doorstep there is adequate guidance open to you,” he says. As well as the Code of Ethics, ICAEW provides helplines and online support, though Coiley adds, “My ethical approach as an FD fundamentally rests on my nature to be honest, fair and correct in everything I do.”

Right from wrong

Rohan Hewavisenti, director of finance and business at the British Red Cross, is certain that, regardless of rules and regulations, there is a basic level at which people know what is wrong and what is right – even if they don’t always do the latter. “I recall being very disillusioned 20 years ago when some Lloyds names lost a lot of money and the government stepped in to give them a helping hand. This has now repeated itself with the banks,” says Hewavisenti. So, soon after qualifying as an ACA, he decided to “do something more rewarding” with his career, and moved into the third sector.

There are many different ways of reconciling your personal moral code with that of your chosen profession. But what society considers immoral or unethical changes. And it may sometimes be appropriate to tolerate a lesser moral evil in order to avoid a greater one. Practices of questionable morality in one place, or culture, or religion, are judged acceptable or even desirable in others. For example, in China, it can be considered the done thing to make business decisions based on what’s best for your family. In the UK, that may be considered nepotism. There are grey areas – both inside and outside the profession.

Take the thorny issue of tax avoidance and tax evasion. “There could be a perception that accountants are walking near to the edge, but we have a centralised function in the tax practice  that constantly reviews our policies and procedures to ensure that we don’t,” says Barnes. But microeconomic behaviour can have macroeconomic consequences, as Prem Sikka, professor of accounting at the University Of Essex, points out. “There are lots of examples of things that were considered avoidance until they were challenged and then they became evasion,” he says, “but there is a limit to how many resources the state can spend addressing this.”

Head off down this particular road and you quickly arrive in an ethical quagmire. A place so complex and multi-faceted that it’s nigh on impossible to agree on a single, universally-accepted set of rules or principles for ethical behaviour. So where does this leave the profession? Trying to do the right thing and be seen doing the right thing in a world that is fraught with the dangers of moral relativism and pragmatism. And where does this leave Sophie? Well, it’s probably going to be a while before she gets a good night’s sleep.

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A response to Sophie’s dilemma

Clearly Sophie should not associate herself with misleading information. The guidance on this is found in Part 2 of ICAEW’s Code of Ethics. 

It is also likely that the dilemma as described is illegal under the bribery and money laundering legislation and accordingly there may be whistleblowing issues internally and externally, depending upon the precise circumstances. While members such as Sophie have duties of confidentiality to their employers, these can be overridden as set out in section 260 and section 360 of the Code.

Members can call 01908 248250 for free, confidential advice on issues such as ethics, anti-money laundering and the Bribery Act. 

Originally published in Economia, April 2012.