Speeches & Presentations
by Graham Ward, CBE, IFAC President (November 2004 to November 2006)
Oct 18, 2006
at Institute of Certified Public Accountants in Ireland President’s Annual Dinner
Ethics in Business
Thank you, Eamonn, for inviting me to make a few remarks this evening. It is a privilege to be here with you and your President, Pádraig Ó Feinneadha, to speak before such a distinguished group of professionals. Indeed, I truly appreciate this opportunity discuss a topic that increasingly has made its way into boardrooms, classrooms, lunchrooms, and even to our dinner table: that is the topic of Ethics in Business. Ethics, as we know from the lessons we learned from Enron, WorldCom, Tyco and other companies around the world, is a driver both of business stability and business success. Without a strong ethical foundation, companies and their management are more likely now, than ever before, to find their customer base eroded and their profit margins narrowed.
What is to prevent ethical lapses on the part of company management and those that support management, such as lawyers, investment managers and professional accountants: both in public practice and those who work as CFOs or internal auditors? I think there are three fundamental ways to prevent it: Company management must:
- Establish realistic business objectives;
- Develop a transparent business culture; and
- Promote and enforce a corporate code of ethics among their employees and require their service providers to do the same.
Let me comment briefly on these areas, beginning with the need to establish realistic business objectives, before I turn to the accounting profession’s ethical roles and responsibilities.
Last year, a study entitled, The Ethical Enterprise, A Global Study of Business Ethics, reported that the number one factor likely to cause people to compromise ethical standards was pressure to meet unrealistic business objectives and deadlines. Recognizing this, management must strive to balance business objectives with the reality of their resources and, along the way, they must continually remind employees that ethics is sacrosanct. An Ethics Department or resource center should be available to assist employees when they are confronted with ethical dilemmas. We are quick to provide technical resources to our employees, to assist them in expeditiously and correctly carrying out their work; we must apply the same strategy to ethics.
Secondly, we must develop a transparent business culture. Again, this is an area where there is no room for compromise. An open and transparent corporate culture breeds honesty and respect on the part of employees. Corporate secrets, on the other hand, arouse suspicions and create unhealthy corporate cultures. Without transparency, the credibility of the organization can also be compromised.
Thirdly, it is vital that every company, no matter how large or small, no matter what the industry or area of practice, develop and promote a corporate code of ethics. The value of that code will be significantly enhanced if the code is consistently enforced. In fact, this was exactly the recommendation made in the 2003 report of the Task Force on Rebuilding Public Confidence in Financial Reporting, chaired by John Crow: a former Chairman of the Central Bank Governors of the Group of Ten countries. The Task Force emphasized the need for management to develop an ethical “tone at the top” and to reinforce this tone with an ethical code of conduct that is widely promoted throughout the company and regularly enforced. Those recommendations, supported by regulators, standard setters and others, are now resulting in significant changes in corporate culture. Ethics and values are, I believe, finally getting the attention that is necessary.
What then is the role of the International Federation of Accountants in promoting strong ethics? First, IFAC’s values of integrity, transparency and expertise, are embraced in all the work carried out by IFAC and by our four independent standard-setting boards. Our board and committee members, for example, all sign declarations indicating their commitment to these values and to act in the best interests of the public.
IFAC’s International Ethics Standards Board for Accountants develops the international Code of Ethics for Professional Accountants, which is applicable to all accountants, including those in business and industry, public practice, the public sector and academia. In June 2005, the Ethics Standards Board released an updated Code of Ethics, which establishes a conceptual framework for all professional accountants to ensure compliance with the five fundamental principles of professional ethics. These principles are integrity, objectivity, professional competence and due care, confidentiality and professional behavior. Under the framework, professional accountants are required to identify threats to these fundamental principles and, if there are threats, to apply safeguards to ensure that the principles are not compromised. The framework applies to all professional accountants: to those in public practice, as well as to those in business and government.
And by the way, the title ‘accountant’ should only apply to members of recognised institutes, to protect and reassure the public that all those known as accountants are bound to follow the IFAC ethics code.
In July 2006, the Ethics Standards Board issued a revision to the Code of Ethics to update the definition of a network firm. This update provides important guidance to firms in the area of independence and includes information on the application of the definition. The Ethics Standards Board is also currently addressing issues such as audit independence and whistle-blowing and is in the process of developing new guidance for professional accountants in government and in business.
Additionally, IFAC’s International Accounting Education Standards Board has released new guidance on ethics. Last month, it proposed a new International Education Practice Statement (IEPS), Approaches to Developing and Maintaining Professional Values, Ethics and Attitudes, designed to assist IFAC member bodies, such as CPA Ireland, in developing ethics education and continuing professional development programs for their members. There is no doubt that ethics education programs enhance professional accountants’ ethical judgment and decision making. The guidance proposed by the Education Standards Board will help member bodies to develop these skills in current and future professional accountants.
The Education Standards Board is now in the process of finalizing an Ethics Education Toolkit to assist member bodies, academic institutions and others in instilling a strong ethical foundation in the accountants of tomorrow. The toolkit will include sample course outlines, teaching notes, case studies, video clips of ethical dilemmas, and a database of ethics education resource materials. It will be available for download from the IFAC website free-of-charge, like all IFAC publications, by the end of the year.
My personal belief is that probity and profitability go hand in hand. Ethical conduct lies at the core of all business. We do business with those we trust; we get business from those who trust us. Ethics, therefore, are a driver of business growth which demands attention from boards and investors alike. Similarly, society accepts those it trusts and ethics are a driver of the social and political acceptability of doing business in corporate form.
The IFAC Professional Accountants in Business (PAIB) Committee is, therefore, expanding the guidance it develops, with a focus on supporting professional accountants in business in providing high quality information and in acting ethically. Earlier this year, the committee issued an exposure draft, Guidance for the Development of a Code of Corporate Conduct, proposing guidance to assist professional accountants and others in establishing and implementing codes of conduct in their organizations. The goal of this proposed new guidance is to support sound corporate governance policies worldwide. The proposed guidance highlights the benefits of an effective code of conduct and identifies professional accountants’ roles in the development, monitoring, reinforcement, and reporting of such codes in their organizations. To assist in the creation of codes of conduct, the guidance includes information on presentation and content, organizational and management challenges, and implementing a code of conduct in a global organization.
Guidance is helpful, but it is important for all of us to keep in mind that it is best to lead by example. Good governance and sound ethics have to be embedded within companies, to grow from within, not be force fed from without. That means leaders, such as yourselves, need to be role models as well as active promoters of sound ethics.
The French Mathematician and philosopher Blaise Pascal said: “The virtue of man ought to be measured not by his extraordinary exertions, but by his everyday conduct.” I believe that these words hold true for every professional accountant worldwide, as well as for all of us in this room tonight. By dedicating ourselves to doing what is right, we will enhance our professional reputation, win public and client trust, and contribute to economic prosperity.
I know that the CPA Institute shares these values, together with the IFAC values of integrity, transparency and expertise. Your participation in the IFAC Member Body Compliance Program, in which you indicate your commitment to and promotion of international auditing, ethics, and accounting standards, makes a very clear statement about the strength of your organization. I am proud to work with you, both institutionally and personally, in our profession’s drive to generate economic growth and stability in every country of the world.
Thank you very much for your attention.