Corporate ethics


If written properly, corporate ethics
codes demand business-related decisions that are socially acceptable, reasonable, morally responsible and beneficial to the corporation in the long run.

Unfortunately, history shows that not
every company possesses strong ethical
standards.

“Ethical problems have always been
around,” says Amy Troutman, assistant
director of the Accounting and Information
Management programs at the University of
Texas at Dallas (UTD). “Before the recent
high-profile scandals, it wasn’t something
that was focused on. But everybody today
has a heightened sense of awareness
regarding corporate ethics.”

Charles Solcher, graduate tax director of
UTD’s Accounting and Information
Management programs, agrees.

“In recent years,” he says, “the scandals
have been much more serious. Maybe it
has to do with the magnitude of the funds
that are involved. Some of it may be that
the media is just much more aware; as a
result, ethical lapses are much more serious because the probability of exposure is
much greater.”

Smart Business recently spoke to
Troutman and Solcher about the benefits
of taking educational classes in ethics.

Why is it in a CEO’s best interest to ensure
that his or her employees are acting ethically?

Solcher: Ethical standards are not the
same as honesty and integrity. If someone
has integrity and is basically honest, that
means there are times he or she can be dishonest. With ethics, you are either ethical
or you are not ethical.

For instance, CEOs need to understand
that if their accounting staff has ethical
lapses, large or small, the integrity of the
financial statements will come into question by coworkers, shareholders, the financial community, legal officials, suppliers
and other concerned parties — even if the
statements are correct. This will have a
negative impact on the organization’s reputation, and the CEO’s compensation and
tenure is tied to that. Therefore, it is critical that CEOs have an absolute standard.

Troutman: The same holds true for
relationships with external accountants.
Much of the accounting profession is
based on trust. If you are an external
accountant assigned to provide reassurance on a company’s workings, that company must be able to completely trust you.
For a corporation, the costs in terms of
negative press and trying to gain back
trust once financial statements are in
question are enormous.

Why are exercises in fundamental ethics and
general business ethics important?

Solcher: Fundamental and business
ethics are intermeshed. Ethics courses try
to accomplish two things: (1) to sensitize
the individual to the ethical dilemma; (2) to
give the individual some framework in
which to make a choice — and we hope
that choice is an ethical choice.

Troutman: Most of the things we discuss
in the coursework are about general business ethics. One module talks about fundamental ethics, including philosophies from
Aristotle and Nietzsche and Kant — all of
whom laid the groundwork for modern
ethical thinking — while another part of
the course specifically addresses accounting ethics.

Why an emphasis on accounting ethics?

Solcher: In other professions, there are
counterbalances. For instance, for every
doctor there is a patient. In accounting,
there is somewhat of a third-party ‘disconnect,’ so there must be trust based on
whether the CPA is absolutely ethical.

In order to take the Uniform CPA Exam
in Texas, you must first complete a three-hour accounting ethics class. UT Dallas
recently began offering its accounting
ethics course online. The online option
provides student flexibility and is also an
attractive option for accounting professionals who are moving to Texas and need
to take the course.

Troutman: These kinds of courses help
students recognize ‘situational’ ethics and
analyze different ways to apply accounting
‘rules.’ During the semester, a great deal of
discussion takes place. Students keep an
ethics journal with weekly entries focusing
on situations that arise in their personal
lives. The goal is to sensitize them to ethics
and enable them to at least confront the
issues. Importantly, we emphasize that
there are choices.

How are ethics enforced? What types of
sanctions are there?

Troutman: It depends on the situation.
For external accountants, sanctions are
imposed based on the severity of a complaint filed. Following an investigation,
additional education might be mandated, a
certain privilege might be taken away, or a
license might even be suspended or
revoked. Most corporations today have
confidential whistleblower hotlines that
should be a minimum standard.

CHARLES SOLCHER, JD, CPA, is graduate tax director of the
Accounting and Information Management programs at the
University of Texas at Dallas. Reach him at (972) 883-6347 or
[email protected].

AMY TROUTMAN is assistant director of the Accounting and
Information Management programs at the University of Texas at
Dallas. Reach her at [email protected] or (972) 883-6719.