An Active Role for Finance in Business Ethics

Within a company, all employees have some measure of responsibility in making certain their organisation lives up to its ethical values. Finance professionals have a large role to play as safeguards, but research reveals they have yet to take on a more specific role when it comes to managing ethics.


A survey conducted by the UK’s Institute of Business Ethics (IBE) and the Chartered Institute of Management Accountants (CIMA) in 2008 finds that the increasing importance of ethics is already affecting the finance function. Well over half (59%) of the surveyed finance professionals contribute to managing ethical performance in their organisation.
For 55% of the respondents, it is actually a part of their role, and this is expected to rise; almost three quarters (73%) believe it will be an element of their job in two to three years’ time. Although over a third (37%) say their role does not currently involve managing ethical performance, only 14% expect that this will continue to be the case. 
These survey results represent a welcome first step in the process of pushing ethical business issues higher up the agenda.
But while it is heartening to note that management accountants across the world have grasped the bigger picture when it comes to realising the importance of business ethics issues, it is also clear that this area needs to be embedded in organisational strategy and reported on more thoroughly. Responsible, sustainable business is an area that management accountants are well placed to drive forward and continue to influence.
The proportion of finance professionals for whom managing ethical performance forms a major part of their role is also predicted to rise. Increasing numbers of finance professionals will manage ethical performance as part of their role, and for some, it will become a major part of their role.
Businesses will have to equip finance teams with the skills to manage ethical performance. For finance professionals, there will be a need to rethink their position in the company as their role is changing.
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Exhibit 1: How frequently is ethical management information analysed?
While many contribute to managing ethical performance where they work, their skills are not being put to the best use. Surprisingly few (only 15-16%) are involved in the collection, analysis or reporting of ethical management information. On the other hand, almost all (94%) contribute by upholding CIMA’s code of ethics, 90% by ensuring the integrity of management information, and 87% by setting a good example.
These are key elements of being a professional accountant, but they are arguably indirect contributions to the overall ethical performance of the organisation. All employees have some responsibility for ensuring their organisation lives up to its ethical values, and finance professionals are contributing to this. However, they have yet to take on a more specific role in managing ethics.
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Exhibit 2: To what extent is managing your organisation’s ethical performance a part of your role now? To what extent do you predict that managing your organisation’s ethical performance will be a part of your role in two or three years’ time?
Finance professionals contribute to ethical performance in ways that are related to doing their job professionally, but relatively few put their skills to use producing or analysing data on ethical performance. Businesses need to resource their management of non-financial performance more efficiently. 
The survey shows that formal responsibility for ethics is at the top of organisations. Responsibility tends to lie with the board (67%) and/or chief executive (55%). It lies with the finance director in 34% of organisations, about the same number as HR director and the audit committee.
Only one in three (34%) respondents have formal responsibility for ethics themselves. This is another indication that finance professionals are not generally contributing in concrete, direct ways to management of ethical performance. However, it is encouraging that businesses are placing responsibility for ethics at senior levels, even if they are not yet adequately involving the finance function.
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Exhibit 3: In what ways do you contribute to managing the ethical performance of your organisation? Which makes up the greatest part of your contribution?
Experiencing ethical conflict
Finance professionals experience similar pressure to compromise ethical standards as the rest of the population. Overall, 70% report that they ‘never’ feel under pressure to compromise standards of ethical business conduct, while 27% do feel that they ‘sometimes’ are. These are broadly in line with IBE’s results for UK employees in any role in 2005.
Finance professionals are less likely to observe unethical conduct than other employees. Fewer than one in five (16%) have witnessed conduct that goes against the organisation’s ethical standards in the past 12 months. A relatively low number of UK finance professionals (10%) have witnessed wrongdoing in the past 12 months, compared with 20% of employees in the IBE’s 2005 national employee survey.
This is particularly surprising given that the IBE found that managers and supervisors were even more likely to have witnessed wrongdoing at work.
We would expect many of the respondents in this study to be at this level of seniority in their organisation. It is possibly an indication that finance professionals are not as aware of ethical issues as the public in general. If this is true businesses will have to target finance professionals to ensure they have a good understanding of the company’s ethical standards.
Alternatively, it might be that professional accountants are less likely to be in workplaces where misconduct is endemic, because being associated with this could prove a risk to their qualification.
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Exhibit 4: Do you ever feel under pressure from your colleagues or manager to compromise your organisation’s standards of ethical business conduct?
Most respondents reported wrongdoing when they had come across it, but many were dissatisfied with the response. Seven out of ten of those that had witnessed an ethical transgression in the past 12 months reported it. Only 56% were satisfied with the way that the concern was handled, leaving 31% dissatisfied and 13% indifferent.
It is encouraging that the majority of finance professionals report wrongdoing when they observe it, but by not handling concerns in a satisfactory way, companies risk losing the confidence of their employees and discouraging them from reporting issues in the future. The most common reason for not reporting wrongdoing was not thinking that it would make a difference (27%). For many others, the issue simply resolved itself (22%).
Exhibit 5: In your current role, have you personally observed conduct that violated organisational ethics standards, policy, or the law in the last 12 months?
An overwhelming majority of finance professionals believe that business has a moral obligation to help address major ethical issues. Responsible business practices can also strengthen the bottom line. By not managing their ethical performance, companies are vulnerable to financial shocks from reputational damage and loss of
public trust.
Many organisations have suffered financially because they did not properly manage ethical risks. It is impossible to know how many more are losing ground to competitors because they are not taking advantage of the opportunities that embedding ethical considerations into strategy can provide.  Our results show that companies still have a long way to go to manage their ethical performance effectively.
CIMA believes that a radical change in approach is needed. Companies must stop seeing business ethics as an add-on or something that is ‘nice to have’ and instead integrate it into core business processes. Companies have adopted codes and have delegated responsibility but they have not yet begun to manage their ethical performance in the same way they manage other parts of the business.
Effective management of ethical performance needs to be recognised as an element of good business practice as well as a moral imperative. Not enough companies are taking concrete action to assess performance against their own ethical standards. This suggests that they still need to be convinced of the value of systematically measuring and monitoring ethical performance.
Organisations must also be prepared to tackle new ethical issues as they become more important. Environmental issues are moving to the fore, driven by the urgency of climate change. In CIMA’s view, companies must respond by moving on from largely superficial efforts to reduce waste and energy consumption.
They must address this strategically and integrate environmental concerns and opportunities into the way they do business if they are to remain competitive and stay ahead of legislation. Work/home balance issues are also set to be more significant in the future.
There are also implications for individuals. As companies begin to embed their ethical goals into the business, the finance function will need to become more involved. Finance professionals must be prepared to contribute directly to managing ethical issues beyond carrying out their day-to-day role in a professional way, and be prepared to gather, analyse and report new kinds of information.
Organisations need to harness the skills of their finance professionals to manage ethical performance, but they also need to equip them for this expanding role. They need to ensure their finance function has the training and support available to be able to step up to the challenge of contributing to ethical performance management.
There is an implied need for training in this area, and professional institutes and other educators must be aware of the function’s changing role. Organisations will also need to think about culture and the perception of ethics internally and change the way this is viewed by employees if they are to get the necessary buy-in from their staff.
These issues must become a part of job roles, and employees must be trained and incentivised to live up to companies’ ethical standards. In order to make these changes, companies and individuals need a clear roadmap of how to effectively manage the ethical performance of an organisation.
It appears that some organisations have begun to embed such standards and issues into their core business decisions but the majority have not. The challenges now are to identify the steps companies must take, and to provide guidance on how to take them.
About the Author
CIMA, the Chartered Institute of Management Accountants, founded in 1919, is the world’s leading and largest professional body for management accountants, with 183,000 members and students operating in 168 countries, working at the heart of business.
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