Ethical dilemma 3: To be or not to be a NED
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In 2008, ICAS Research published the report "What do you do now? Ethical Issues Encountered by Chartered Accountants" by Dr David Molyneaux containing 28 true life case studies of ethical dilemmas faced by accountants either in practice or business.
In recognition of this work, in 2009 the ICAS Technical Policy Board then published "Shades of Grey" containing a further series of case studies, one of which is reproduced below.
The views expressed in these respective case studies are those of the Ethics Committee and do not necessarily represent the views of the Council of ICAS.
This case study gives general guidance only and should not be relied on as appropriate or comprehensive in respect of any particular set of circumstances. It is recommended that users consider seeking their own professional advice.
The authors or the publisher can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.
You have recently retired from your position as the Financial Director of Builditbig plc, a listed company. Builditbig plc operates in the heavy engineering industry and you worked there for over 12 years. Prior to this, you had spent 10 years as an audit partner in a large accountancy firm.
Subsequent to leaving your position at Builditbig plc, you receive a phone call from Alan, a head-hunter with an executive recruitment agency acting on behalf of a company's nominations committee. You had approached Alan some months before you had finished up at Builditbig plc, with a view to positioning yourself should any suitable roles become available. After the usual small talk, Alan cuts to the chase:
"You have been recommended to me as a suitable candidate for a very prominent non-executive role that is available at the moment. The company, which is in the financial services sector is seeking a non-executive director who will also serve as the Chair of its audit committee. Does this role interest you and if so can we meet to discuss it in more detail?"
You advise Alan that you will consider the proposal and get back to him. You hang up the phone and then consider the matter in greater detail. Your first instinct was just to say"yes" , however, you were somewhat surprised that the role in question was at a financial services company and your prudent nature decided that it would be wise to give yourself some time to properly consider the issues before making your mind up.
You are not struggling financially, you have a reasonable pension but the extra cash from this role would come in handy. Additionally, you are finding it difficult to fully unwind after years working to tight deadlines and coping with difficult challenges on a daily basis. This is why you had approached Alan in the first place as you knew even before you finished up at Builditbig plc that you would miss the buzz, the excitement and the challenge. A round of golf no longer has the same appeal when it becomes a daily occurrence.
You are therefore keen to put yourself forward for this role but you have a nagging doubt at the back of your mind - you have no work experience in the financial services sector. Eighteen months ago your doubts may not have been as acute but recent events have certainly raised your awareness of the complexities of the transactions which many financial services companies undertake. You are caught between two stools: on one hand, there is little doubt that your financial acumen will be of benefit to the company concerned; on the other hand you have concerns that your lack of expertise in this sector may impact on your performance. What should you do in the circumstances?
What do you do now?
Scenario 3: Analysis
What are the readily-identifiable ethical issues for your decision?
For you personally
As per the ICAS Code of Ethics a key principle is that:
"A professional accountant has a continuing duty to maintain professional knowledge and skill at the level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques. A professional accountant should act diligently and in accordance with applicable technical and professional standards when providing professional services."
You therefore have to assess your position very carefully. The issues which you have to consider are:
- if you decide to be put forward for the role then you must be open and transparent in your discussions with the head-hunter. The client may well be looking for someone not familiar with the financial services industry in order to bring a fresh perspective to the workings of its audit committee. You should also ask the head-hunter for a detailed role specification which should be available.
- you have to satisfy yourself that you can meet the requirements of the above principle if you are ultimately successful in getting the position, in this respect it would be helpful to find out whether the company provides a comprehensive induction programme for its new non-executive directors as this might help to alleviate your concerns.
Ultimately, you have to exercise professional judgment in this matter. If you do not feel comfortable being put forward for this role then you should of course inform the head-hunter accordingly. You may of course decide to be put forward for the role and if your concerns are not adequately addressed, then even if you are offered the role you should decline the appointment at that stage.
Who are the key parties who can influence, or will be affected by, your decision?
'You'; the head-hunter; the company and its directors; the shareholders; and potentially other stakeholders of the company.
What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?
You must ensure that your integrity is safeguarded by being open and honest with yourself and only allowing your name to be put forward for positions where you believe that you have (or can readily attain) the technical skill set (and other skill sets, if required), or where you can serve effectively as a member of the board, where the board is balanced by the presence of other technical experts.
The ability to make an informed impartial decision. The potential financial rewards are obviously a threat to your objectivity but ultimately you should not let these factors cloud your judgement in considering the interest of shareholders and other stakeholders.
Professional competence and due care
Can you quickly acquire adequate knowledge of the commercial, strategic, technical and regulatory requirements of the proposed role?
Your decision should be based on whether, after having considered all available information, you do believe that you would be a suitable candidate for the position.
Is there any further information (including legal obligations) or discussion that might be relevant?
It would be helpful to obtain details of the various regulatory requirements which will have an impact on the proposed role at the company concerned. If you advise the head-hunter that you are interested he will ask to meet with you and inform you of the name of the company concerned at that stage. At this meeting you will be able to enquire as to what form of induction programme/ongoing training does the company provide? You also need to establish exactly what the company is looking for. The company should have produced a detailed specification of the role and the skill set of the person that they are looking for. Ask the head-hunter why, in his opinion, you were "recommended" to him as a suitable candidate. You also need to ensure that you are aware of the responsibilities involved in being a non-executive director of a listed company.
It would also be appropriate for you to undertake your own due diligence on the company and on your prospective fellow directors if you decide to express your interest in the position e.g. what is its financial position, what is the culture of the organisation? Some information will be publicly available but other information may require referring to business contacts etc. Do you believe that even if you have, or can acquire the necessary skill sets, this is a company on whose board you would wish to serve and do you believe that the board would have the correct composition and balance?
Is there a conflict between the 'Guardian' and 'Commercial' strands of an accountant's responsibilities?
Care has to be taken to ensure that the potential commercial gains from taking up this appointment do not cloud your judgment as to whether you could meet the 'guardian' aspects of this role.
Based on the information available, is there scope for an imaginative solution?
Are there any other comments?