Can we influence human behavior for the better? I tend to think we can and we must. And so I am honored to be invited to talk at various events and conferences on ethics to professionals who are in the business of assuring their clients are doing the right thing.
One such group recently was the Young Professionals Group of the Dallas CPA Society, a chapter of the Texas Society of CPA’s. I pointed out that as research has shown, much of the fraud and mismanagement that occurred during the 2008 and subsequent financial crises could have been caught if the companies’ auditors and accounting professionals had spoken up and asked more questions; witness Enron and the former Arthur Andersen. In 2002, Andersen voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm’s auditing of Enron, an energy corporation based in Texas. Enron subsequently filed bankruptcy.
When there is a fraud of this magnitude, it is seen by others in the firm. However, they may not always speak up for many reasons. It’s understandable, I told this group of young professionals. There are consequences to speaking out.
I urged them to call out what they see that doesn’t make sense. As Dr. Dan Ariely, a behavioral scientist at Duke University says, that even if employees are trained in the company’s codes of ethics, if they are not truly expected by their employers to act ethically, then they well may not.
People naturally act in their own best interests. And as he and other ethicists say, when there is a conflict of interest, where you have a personal interest in one of the possible outcomes, we have a natural tendency to choose the outcome which personally benefits us, either because of how we’re compensated or by wanting a more favorable performance evaluation or just keeping our job.
As my Citigroup colleague, Sherry Hunt said, ”If you have to change something, you just have to start and you can’t be afraid.” Sometimes though we are afraid, or were unsure about what we saw, or concerned about whether we’ll be let go.
Well no surprise, however even with a natural inclination to act in our own self-interest, if there has been an exposure to a code of ethics in the past and an individual is reminded that there is an accepted code of ethics, then there is significantly less demonstrated self-interest.
Setting expectations for ethical behavior leads to better choices. I talked about the massive breakdown of ethics I experienced at Citigroup and the resulting mortgage fraud which precipitated the 2008 financial crisis. They had a code which leaders did not follow; instead, they blatantly followed their own self-interest.
This led to a discussion on accounting control fraud which was prevalent in many banks during the last financial crisis and was not effectively dealt with by regulators and accounting teams; Wells Fargo being a current prime example of accounting control fraud with an entire culture incented to make the numbers regardless of the cost– to customers, employees and the economy.
Yes, human nature prompts us to choose what is in our own best interest, yet reminders help, models of the right behavior help, standards of expectations are critical. And as accountants they needed to be alert and on guard for a company’s tendency to ignore codes of behavior.
As accountants, continuing to set personal ethical standards for ourselves and our own behavior is a start.
It’s our job to call out what we perceive as lapses and gray areas. It’s our job to stand up and speak out when we see breaches in codes of conduct. Would Enron have had such a massive breakdown if their employees and Arthur Anderson accounting consultants had done the right thing when they started seeing suspicious behavior?
If they had spoken often and loudly, probably not. Ethics breakdowns cost us all, personally, professionally, in our pocketbook, This Young Professionals Group of CPA’s are poised to catch what companies are doing well and what they are not. I reminded them of their mission and that they could change the future… for the better.
I was honored to have been part of their journey.