The Accountant March-April 2016

BUSINESS PRACTICE AND DEVELOPMENT
BUSINESS PRACTICE AND DEVELOPMENT
By Dr. Erick Outa, otxeri001@gsba.uct.ac.za, Photo: SeminarFest
BUSINESS AND
ACCOUNTING
ETHICS
What happens to leaders and
what can they do to improve
standards of ethical behavior?
A
story is told based on Oliver
Stone’s Wall Street popular
movie, which portrays
unscrupulous dealings of
people involved in securities
trading based on non-public information.
A corporate raider character, by actor
Michael Douglas, in a dramatic scene says,
“Greed is good!” The implication is that
greed is an acceptable motivation and that
business people will do anything to make
money, including engage in unethical
behavior. In reality, greed is unacceptable,
and unethical behavior will destroy a firm’s
ability to make money. Although the goal
of any firm should be to increase its owners’
wealth, to do so requires the public’s trust.
In the long run, that trust depends on
ethical business practices.
What then is ethics and why does it
matter? Ethics business dictionary.com
describes ethics as the basic concepts and
fundamental principles of decent human
conduct. It includes study of universal
values such as the essential equality of all
men and women, human or natural rights,
obedience to the law of land, concern for
health and safety and, increasingly, also for
the natural environment. A google search
says the purpose of ethics in business is to
direct business men and women to abide
by a code of conduct that facilitates,
public confidence in their products
and services. Companies with good
ethics attract customers to the
firm’s products, thereby boosting
sales and profits. In Kenya, the
Code of Ethics for Professional
Accountants includes the entire
IFAC (International Federation
of Accountants) code together
with specific requirements under
Kenyan context.The IFAC code
of Ethics establishes ethical
requirements for professional
accountants. While this code
conspicuously appears on the
ICPAK website, no research
has been undertaken to tell the
extent to which it is used and how
it has impacted the accounting
profession and the general Kenya
public. Many ICPAK registered
accountants serve in the country
in various capacities and sometimes
it is worth knowing how they coexist
with ethical issues in their
environments.
Companies with sound ethical
standards make employees want to stay
with the business, and therefore increase
productivity, attract more employees
wanting to work for the business, reduce
recruitment costs and enable the company
to get the most talented employees and also
attract investors and keep the company’s
share price high, thereby protecting the
business from takeover. Unethical behavior
or a lack of corporate social responsibility,
by comparison, may damage a firm’s
reputation and make it less appealing to
stakeholders. Profits could fall as a result.
While adequate research has not been
undertaken in Kenya to provide evidence
on the relationship between applying
ethics and the resultant benefits, the
general belief around the world
shows that ethical behavior
in organizations are quite
beneficial.
Michael
Josephson, a
speaker and
lecturer on
the subject
of ethics
notes in
Chapter
1 of
Ethical
Issues
in the
Practice of Accounting, 1992, the “Ten
Universal Values” as “honesty, integrity,
promise-keeping, fidelity, fairness, caring,
respect for others, responsible citizenship,
pursuit of excellence, and accountability”.
The question is, how practical are these
values in the very complex society where
we live and how comes there is a perception
that they are missing in society?
In George Washington’s farewell
address to public life, September 17, 1796,
he said that the survival of freedom on
American soil would have nothing to do
with him, and everything to do with the
character of its people and the government
they would elect. What is it about
character of a people to behave ethically
and elect ethical leaders?In considering the
impact of ethical values on a society, Dr.
Katherine and Murphy Smith indicated
Chuck Colson’s response, “Societies are
tragically vulnerable when the men and
women who compose them lack character.
A nation or a culture cannot endure for
long unless it is under girded by common
values such as valor, public-spiritedness,
and respect for others and for the law;
it cannot stand unless it is populated by
people who will act on motives superior
to their own immediate interest”. Chuck
Colson was described as US President
Richard Nixon“dirty tricks” man and an
architect of the Watergate scandal. He
acted against the advice of his lawyers, by
pleading guilty to obstruction of justice, a
step that he depicted as “a price I had to
pay to complete the shedding of my old
life and to be free to live the new”.
The Role of Education and
Professional Institutions
There are bits and pieces of ethics in the
education and professional institutions
covering ethics and so the question is
whether these institutions have a role to
play in ethics and if so how comes ethics
is so much questioned in our society.
Specific responsibilities of the
accounting profession are expressed in
the various codes of ethics promulgated
by professional accounting institutes.
In the US, AICPA’s first principle of
professional conducts states: “In carrying
out their responsibilities as professionals,
members should exercise sensitive
professional and moral judgments in all
their activities.” In Kenya, “Professional
Accountants are required to apply the
conceptual framework to identify threats
to compliance with the principles,
evaluate their significance and apply
safeguards to eliminate them or reduce
them to an acceptable level” according
to Erick Kimani who once chaired the
disciplinary committee of ICPAK. Dr.
Smith’s assertion is that “the main reason
for having ethical guidelines is not to
provide a cookbook solution to every
practice-related problem, but to aid in the
decision-making process for situations that
involve ethical questions. Business persons
will encounter novel situations in their jobs
and will need ethical guidelines to handle
them effectively”.On a practical basis, for
example the Institute of Management
Accountants recently established an
“ethics hotline” to help members resolve
ethical dilemmas. Ethics counselors offer
confidential advice, solace, and comfort to
management accountants who may have
no other place to turn for help.
How Do You Measure Success?
In Kenya, there are allegations of
corruption across the board while the
courts have struggled to prove such cases,
many times without success, but the
question that remains is that some people
are richer and powerful than their incomes
or status permit. Can we consider rich and
unethical people as successful even in the
absence of “wrong doing” charges against
them?
Dr. Smith narrates a popular story of
a meeting that may have taken place at
the Edgewater Beach Hotel in Chicago in
1923. There is some debate as to whether
the meeting in fact occurred, but what is
not in question is the actual rise and fall
of the men featured in the story, who were
nine of the richest men in the world at
the time: (1) Charles Schwab, President
of the world’s largest independent steel
company; (2) Samuel Insull, President
of the world’s largest utility company;
(3) Howard Hopson, President of the
largest gas firm; (4) Arthur Cutten, the
greatest wheat speculator; (5) Richard
Whitney, President of the New York Stock
Exchange; (6) Albert Fall, member of
the President’s Cabinet; (7) Leon Frazier,
President of the Bank of International
Settlements; (8) Jessie Livermore, the
greatest speculator in the Stock Market;
and (9) Ivar Kreuger, head of the company
with the most widely distributed securities
in the world. Twenty-five years later, (1)
Charles Schwab had died in bankruptcy,
having lived on borrowed money for
five years before his death. (2) Samuel
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