Everyone’s a winner: ‘Shades of Grey’ ethics case study
ICAS has updated its ‘Shades of Grey’ ethical dilemma case studies publication. This latest edition refreshes the original ‘Shades of Grey’, published in 2009, and features 19 case studies including a number of new scenarios.
The dilemmas are intended to cover a wide range of situations that might be faced by chartered accountants in business or in practice. Each scenario is focused on you and at the end of each scenario the requirement is for you to make a decision and do something.
In the following case study extracted from the publication, you are a recently qualified CA working on the sale of land that belonged to a company that has gone into liquidation. The sale procedures state that bids must be submitted by noon. At the last minute, you receive an anonymous call from a prospective buyer, saying they’re willing to pay a premium above the highest bid received by 11.55am, and, if you provide this information, you will personally be rewarded.
Everyone’s a winner
You are a recently qualified CA, working in the insolvency department of a medium-sized accountancy firm. You are currently working on the sale of a piece of land that belonged to a company that has gone into liquidation. The sale of the land stipulates that bids have to be submitted via email by midday that day. A few bids have been received but not as many as were anticipated. You are sitting drinking a cup of hot chocolate eagerly awaiting the “High Noon” deadline in order that you can collect any further bids and get out for your lunch.
At 11.30am you receive a call from a prospective buyer who wishes to remain anonymous. The caller informs you that they are very interested in the land but do not want to have to pay over the odds to ensure that they get it. Therefore, they make the following proposition to you:
They are willing to pay a premium of 15% above the highest bid received by 11.55am provided they are informed beforehand of the highest bid received.
The caller advises that this way everyone wins explaining succinctly as follows:
“Your firm and ultimately the bank win because a higher fee is received for the asset in question, I win because I do not have to make an unnecessarily high blind bid and you will also be rewarded by me for your hard work.”
The caller reiterates that this is the most effective outcome for all parties concerned and that your boss will be delighted that a last-minute offer has at least ensured a reasonable return for the asset in question. The bank will also be very pleased as this sale will increase its level of return on the debt outstanding.
You advise the caller that this is not the way that you or your firm do business and that if they want to attempt to purchase the land then they should follow the required procedure of the sale and email their bid prior to the midday deadline.
The caller advises that they respect your integrity but advise that this type of activity is commonplace in the industry and insinuates without naming names that other more senior personnel within your firm have taken advantage of their very generous financial terms in the past. Furthermore, the bank is unlikely to be happy if it was to find out that your firm had rejected a higher bid than what was eventually obtained for the asset. This could have a serious impact on any future work being awarded to your firm and your own career would suffer as a result.
The caller then advises that they will phone you back in five minutes for a decision as to whether you will accept their proposition. You do not get a chance to reply, as the caller then hangs up.
What do you do now?
What are the readily-identifiable ethical issues for your decision?
For you personally
The fundamental ethics principle of Integrity states the following:
“111.1 A1 Integrity involves fair dealing, truthfulness and having the strength of character to act appropriately, even when facing pressure to do otherwise or when doing so might create potential adverse personal or organisational consequences.
Fair dealing includes respecting values of equality, diversity and inclusion.
111.1 A2 Acting appropriately involves:
(a) Standing one’s ground when confronted by dilemmas and difficult situations; or
(b) Challenging others as and when circumstances warrant,
in a manner appropriate to the circumstances.”
In addition, the fundamental ethics principle of Professional behaviour states:
“R115.1 A professional accountant shall comply with the principle of professional behaviour, which requires an accountant to:
(a) Comply with relevant laws and regulations;
(b) Behave in a manner consistent with the profession’s responsibility to act in the public interest in all professional activities and business relationships; and
(c) Avoid any conduct that the accountant knows or should know might discredit the profession.”
The first issue is to determine whether you immediately raise this with someone senior before the caller phones back?
Secondly, when the caller does phone back do you transfer the call to someone more senior, or do you get someone (preferably someone more senior) to listen in to the conversation as a witness, or do you merely deal with the caller yourself?
The third issue is whether you raise sensitively and professionally, the caller’s accusation relating to senior staff internally within your firm. Consideration should be given to discussing the matter with your firm’s Ethics Partner, if there is one, or if not, with a trusted partner within the firm.
Also, by saying “you will also be rewarded by me for your hard work” the caller is clearly showing an intent to improperly influence your behaviour and you would not be permitted by the Code of Ethics, and indeed the law, to accept this inducement.
A lapse in integrity is a significant issue. How will it affect your personal reputation if you do not act appropriately in these circumstances?
For your firm
Do the culture and leadership of the firm emphasise the importance of ethical behaviour and the expectation that employees will act ethically?
Is there a supportive speak up environment to encourage open discussion of ethical dilemmas without a recriminatory, or blame, culture? Is there a whistleblowing/speak up mechanism? If so, do employees feel safe and able to trust in the authenticity of the speak up mechanism? Does the firm listen to its employees when they speak up and then act on what has been heard by investigating the issue?
What will be the impact on the firm’s reputation if it comes to light at a later date that individuals within the firm manipulate the tender process, and have possibly been accepting bribes?
Who are the key parties who can influence, or will be affected by, your decision?
You; the caller; the partners and staff in your firm; the bank; other creditors; and other prospective buyers.
What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?
Can you retain your integrity if you distort the tender process? How do you deal with the caller’s allegations about more senior personnel within your firm?
There is a need to display ethical leadership and moral courage by standing one’s ground and ensuring that a fair bidding process, as stipulated within the terms of the sale, takes place; that any ‘reward’ offered by the caller is not accepted; and by speaking up about the alleged misconduct within the firm in relation to previous tender processes.
The need to consider the interests of all of the other parties involved in the tender process. You cannot let the suggested ‘reward’ from the caller influence your judgement.
Professional competence and due care
How could one justify divulging confidential information to the caller in the interests of maximising the selling price of the land?
You must comply with the law. Accepting a bribe would be illegal.
You also have to handle the client’s allegations sensitively and professionally. You have no knowledge as to the accuracy of the allegations made by the caller.
If you do not challenge the firm, by raising these allegations within the firm, and it is subsequently discovered that you were aware of them and did nothing, you could be viewed as deemed complicit in the activity as well ascondoning unethical behaviour within the firm.
There is a need to avoid any conduct that you know might discredit your own, and your firm’s, reputation, and also that of the profession.
Is there any further information (including legal obligations) or discussion that might be relevant?
All relevant information appears available, however do you need to confirm that all bids have to be received by email by midday and there is absolutely no flexibility with this process?
In addition, given the buyer wants to be anonymous how can that be dealt with as you have no idea on the source of money, their ability to complete transaction, the need for proof of funds, diligence on buyer etc.
Is it worth trying to ask the caller “how did this work in the past” to see if you can find out anything. If the caller does have a contact in the firm who works like this why is he calling you?
Is there a conflict between the guardian and commercial strands of an accountant’s responsibilities?
From the information available, the firm and the bank would appear to be better off commercially if the information is divulged, although this is not certain as a late bid from another prospective buyer may yet be received after 11.55am but prior to the noon deadline. The guardian aspect in this scenario is to ensure that a fair tender process is held which appears to be in conflict with the short-term commercial pressure.
Based on the information available, is there scope for an imaginative solution?
Are there any other comments?
In deciding on a course of action, you should apply the reasonable and informed third party test and consider if a reasonable and informed third party would likely conclude that your actions were appropriate. Conduct that might discredit the profession includes conduct that a reasonable and informed third party would be likely to conclude adversely affects the good reputation of the profession.
Documentation is encouraged so that there is a record of the issue, the details of any discussions, and the matters taken into consideration in reaching your judgement and action.
ICAS Ethics Resources
Find out more about the ethics resources ICAS provides to support its members.