Ethics and the next generation of business leaders

School supplies
By Nicola Sinclair, CA magazine

5 May 2016

Ethics is moving up the agenda in the business sector, but how can business schools and firms empower the next generation of leaders to foster a culture of transparency and accountability? Nicola Sinclair finds out.

In decades past, business was a function of capitalism; the responsibility of its finance leaders simply to maximise profit. Yet the current post-recession market is rather more circumspect, caught as it is in an ever-sharper lens of public, media and legal scrutiny. In today’s business sector, profit without conscience is a dangerous pursuit.

To act within the bounds of the legislative and regulatory framework is no longer enough in itself: increasingly, businesses are expected to embrace “ethics”, including professional responsibility, transparency and corporate social responsibility. Of course, “the public interest” has always been central to the ethos of the professions, including ICAS.

Recent “scandal” headlines dominating the media have seen a number of listed companies being publicly shamed (and financially punished) for a variety of ethical misdemeanours. There was basic rule-breaking, such as the 2014 Volkswagen emissions scandal; financial misrepresentation, which cost Tesco some £2bn in share value last year; and, most recently, tech giants Google and Apple felt the force of public outrage for an alleged “sweetheart deal” with UK tax authorities. It is no longer enough for businesses to follow the letter of the law – they must also follow the spirit of the principles on which the law is based.

A gamechanger?

This change is to some extent rooted in the financial crisis, but it’s also a more general symptom of modern times.

David Lister, a partner at EY and head of the Fraud Investigation and Dispute Services team in Scotland, has noted a gradual change in attitude over the years: “The role of ethics in business has been evolving for a while, but there has been a more noticeable recent change. In our clients, as their daily business activities became more visible, ethics moved accordingly higher on their agenda. The mantra of ‘profit’ has slowly been replaced by ‘profit, but not at any cost’.”

The teaching of ethics at business schools had all but died out... The recession highlighted it as a major gap in both education and business culture.

Lister attributes this increased visibility partly to the rise of social media, which has the capacity to spread information rapidly across a global stage, and to increased scrutiny and whistle-blowing in the financial world post-2008.

Professor Paul Palmer, associate dean for ethics, sustainability and engagement at Cass Business School in London, says: “When I joined Cass in 2003, the teaching of ethics at business schools had all but died out. A strong ‘market forces’ argument implied ethics was not a valuable commodity, and it was slowly squeezed out of the curriculum. The recession highlighted it as a major gap in both education and business culture.”

Clever devils to critical thinkers

The author CS Lewis wrote that: “Education without values… seems rather to make man a more clever devil.”

The phrase “clever devil” perhaps captures the public perception of misbehaving corporates, but of course even a devil’s cleverness will only get it so far. Ultimately, ethical transgressions hit not only an organisation’s brand integrity, but also its bottom line. As the business world begins to take notice, it will fall to the next generation of leaders to set a new course. Professor Palmer suggests that education needs to move from “just teaching skills, to teaching wisdom”.

“I chaired a 2009 taskforce for Cass which reviewed business ethics teaching and learning across all our courses,” says Palmer. “As part of that taskforce I researched the approaches taken by other business schools and found that there were two main approaches: an incremental approach, which involves a distinct (often elective) module in ethics, and a more integrated approach, which supports academic staff to introduce an ethical dimension to all their teaching and assessment. Cass has taken the latter approach, with the view that while we can’t teach a person to be ethical, we can teach them how to recognise and then deal with an ethical issue.”

It’s not about saying: ‘This afternoon we’re going to teach you ethics’. Instead, ethics permeates the whole course.

This pragmatic approach to ethics has also been successful at the University of Strathclyde in Glasgow, an institution that prides itself on being “the place of useful learning”.

“It’s not about saying: ‘This afternoon we’re going to teach you ethics’,” observes Professor Christine Cooper of Strathclyde’s department of accounting and finance.

“Instead, ethics permeates the whole course. This devolves responsibility to a broad range of academics, creating a more stimulating intellectual debate and exposing students to a range of perspectives.

"When I was a student, we were taught that driving profits creates a richer society, which ultimately benefits all its citizens. That was accepted almost without reflection. In the last few years we’ve seen an ideological change in economics and in society, and the best business schools will prepare students to deal maturely with those concepts.”

Beyond the textbooks

One way to teach a potentially unruly subject such as ethics in a meaningful way is through real-life case studies, an approach championed by Cass and Strathclyde. Strathclyde regularly welcomes guest speakers from accountancy firms and banks, and a recent presentation by a New York banker on the experience of having Federal Reserve agents in his office ignited a particularly useful discussion around whistleblowing.

As well as citing contemporary examples, such as Apple’s recent share re-purchasing, Professor Cooper finds that history offers its own lessons. She says: “I teach a module on accountancy in the second world war, which might not seem immediately relevant to finance in the 21st century. The course explores the ruthless efficiency of the Nazi war machine, which relied on tight bureaucracy and immense diligence in its accounting.

"Were the accountants in that system just ‘doing their job’, allowing themselves to be blinded to everything but the numbers? Ultimately we ask: do accountants have moral culpability?

“Rather than being suddenly hit by these issues, universities have a responsibility to make students aware that they exist. In the modern business world people do lose their jobs, get fired, move resources and push up prices, and these can have profound implications for the people at the end of the process. Many of our students go on to work for one of the Big Four, and immediately experience the pressures and stresses of entering a major corporate machine. It’s intellectually stimulating and exciting, but it can also be lonely and challenging, so it’s crucial that our students leave us with the ability to really think.”

Ultimately we ask: do accountants have moral culpability?

“At the University of Glasgow we have a long tradition of teaching ethics as part of our flagship Bachelor of Accounting degree. We find that an integrated approach allows for a broad discussion of the issues, while we also offer a range of specialist, standalone courses that facilitate more depth of understanding. Students always give really interesting, commonsense answers to ethical dilemmas, but they’re not necessarily ethically informed. Specialist ethics courses allow us to improve their awareness of specific ethical theories and literature, which can then be applied to real-life case studies in a more mature fashion.

“In recent years we have seen topics such as ethics, human rights and sustainability become more important – our honours elective on Ethics in Accounting and Business is one of the most popular options – but really the appetite among students has always been there. Young people are very passionate about these sorts of issues.”

The Power of One

Indeed, harnessing the passion and principles of new professionals could prove key to transforming what at its worst can be a ruthless working culture. Says David Lister: “When I look at the graduates joining us at EY, the millennials as a generation have been brought up in an age of information and visibility. They’re more willing than their predecessors to challenge authority and ask tough questions, and as an industry we need to educate and support them, not stifle them.”

Professional bodies such as ICAS have a key role to play, not only in holding its members to a high standard of professionalism, but in fostering a culture of openness and support.

ICAS’ initiative, “The Power of One” aims to do just that, stressing the role of personal responsibility in business ethics. This coincides with a proposal to add “moral courage” as a sixth principle of the ICAS Code of Ethics, alongside: integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

[Whistleblowers] should be perceived as heroes for highlighting unethical practice, yet in some quarters there’s still a fear of there being negative consequences to their actions.

“It takes enormous moral courage to take an ethical stand in a corporate structure that often makes ‘doing the right thing’ difficult,” says Professor Paisey, who serves on the ICAS Ethics Board. “Just look at the stigma that’s still attached to whistleblowers. They should be perceived as heroes for highlighting unethical practice, yet in some quarters there’s still a fear of there being negative consequences to their actions. I think The Power of One initiative will prove very helpful, accompanied by greater support within the professional community. While it’s important to have moral courage, we also need a change in corporate culture so that doing the right thing doesn’t require such courage.”

A question of culture

While, in the US, bodies such as the Securities and Exchange Commission pave the way for greater support for whistleblowers, regulation and legislation in the UK tends to provide a lighter touch framework, with industry commentators generally favouring a more organic change from within the sector over the imposition of tough rules and penalties.

“Ethical standards such as the ICAS Code of Practice or the Financial Conduct Authority’s Approved Persons regime help to encourage gradual culture change alongside increased regulation,” says Professor Palmer. “It’s important that the change comes from leadership and genuine desire. The voluntary principle still trumps the compulsory principle.”

From his experience in EY’s fraud investigation and dispute services team, David Lister says “iceberg issues” represent a general, unseen threat to ethical working culture.

“Iceberg issues are those day-to-day business activities that seem innocuous on the surface but have unseen potential to cause massive damage,” he explains. “No business wants to be disgraced on the front pages of the national press, but sometimes the underlying business environment drives unethical behaviour. One of the biggest issues is incentive mechanisms, which can unintentionally encourage the kind of risk-taking and irresponsible trading that no board would want.

"The other key thing is how to create a culture that embraces openness. Hierarchies can stifle challenge and individuality, but we should encourage those people who have the intelligence and integrity to make a stand. Rules and regulations help to define how a business operates, but the impact of human behaviour means that ethics, and the part they play in the entire ecosystem, need to be addressed.”

The full version of this article appears in the April 2016 edition of CA magazine.


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