Corporate ethics Featured

8:00pm EDT March 26, 2007
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 solcher@utdallas.edu.

AMY TROUTMAN is assistant director of the Accounting and Information Management programs at the University of Texas at Dallas. Reach her at amy.troutman@utdallas.edu or (972) 883-6719.