This Week's Herman Trend Alert

Leadership in Normal 2.0

  The Herman Trend Alert

June 13, 2012

Pressure to Act Unethically is on the Rise

Though four of five businesses worldwide claim to be committed to ethical performance, their behaviors do not always match their rhetoric. According to a new report from the American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA), in reality, financial professionals---especially in emerging economies---reported feeling more pressure to act unethically.

In the face of these statistics, it is interesting that 80 percent of organizations now provide codes of ethics to guide employees regarding ethical standards in their work, up 8 percentage points from 2008 (72 percent). That increase would reflect that the corporate world is going in the right direction.

However, only 36 percent collect ethics information, like the number of employees attending ethics training and actions taken on hotline reports. There is no accountability! Since the right information is critical to managing ethical performance, this lack of measurement suggests ethical practice falls short of stated policy. The study, titled "Managing Responsible Business" is a global survey of almost 2,000 global management accountants in nearly 80 countries.

Neither senior management nor boards of directors are reviewing, analyzing, and monitoring ethics information even as much as the level recorded four years ago---by a 10 percent and 17.6 percent respectively.

According to AICPA CEO Barry Melancon, though positive steps have been taken to establish ethics codes and policies, the pressure to act unethically persists. Companies around the world need to strengthen ethical culture from the top. Management accountants can play a key role guiding companies to better collect and report ethical information. They are in a position to draw on their training and understanding of professional ethics, as well as capitalize on their skills in obtaining, analyzing, and acting upon management information.

The fading "tone from the top" comes as more than a third of those surveyed (35 percent) said they "sometimes" or "always" feel pressured to compromise their organization's standards of ethical conduct. This over on-third level compares to 28 percent of respondents in 2008---a 25 percent increase. The pressure is most pronounced in developing economies such as Malaysia, 54 percent, and India, 51 percent, and lowest in the United Kingdom and United States, where 18 percent of those surveyed feel pressure.

Geography and company size are key factors in the findings. Larger Organizations in more developed economies generally have more advanced ethics programs. Moreover, according to the report, US companies are most likely to monitor or evaluate ethical standards.

On a more positive note, more than half of companies (57 percent) now provide training on ethical standards, 49 percent provide a hotline for reporting conduct that violates the organization's standards of ethics, and 25 percent provide incentives for staff to uphold the organization's standards of ethical conduct.

The main ways Chartered Global Management Accountants (CGMAs) say they contribute to management of ethical performance are by upholding their professional code of ethics (86 percent), ensuring the integrity of management information (83 percent), and leading by example, 80 percent.

When asked how likely various situations were to result in that pressure to compromise their ethical standards, those surveyed identified the top challenging situations: "working with colleagues from different functional areas within the organization", "meeting reporting deadlines", "compiling management accounts", and "dealing with customers".

When the survey asked about the relevancy of various ethical issues were to their organizations, the top issues mentioned by respondents were "security of information" (91 percent), safety and security (88 percent) bribery (78 percent), discrimination (75 percent), conflicts of interest (74 percent), environmental (73 percent), and supply chain (72 percent).

Our forecast is that organizations with this kind of push-pull pressure on their people will have an increasingly difficult time holding onto their good people. Top talent is attracted to organizations with high integrity where ethics is important. As people have greater numbers of choices, they will gravitate toward the workplaces where they can feel good.

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