Management Accounting and Ethical Conduct
Virtually all management accounting practices were developed to assist managers in maximizing profits. Traditionally, the economic performance of the firm has been the overriding concern. Yet managers and management accountants should not become so focused on profits that they develop a belief that the only goal of a business is maximizing its net worth. The objective of profit maximization should be constrained by the requirement that profits be achieved through legal and ethical means. While this has always been an implicit assumption of management accounting, the assumption should be made explicit. To help achieve this objective, many of the problems in this text force explicit consideration of ethical issues.
Ethical Behavior
Ethical behavior involves choosing actions that are “right,” “proper,” and “just.” Our behavior can be right or wrong; it can be proper or improper; and the decisions we make can be just or unjust. Though people often differ in their views of the meaning of the ethical terms cited, a common principle seems to underlie all ethical systems. This principle is expressed by the belief that each member of a group bears some responsibility for the well-being of other members. Willingness to sacrifice one’s self-interest for the well-being of the group is the heart of ethical action This notion of sacrificing one’s self-interest for the well-being of others produces some core values—values that describe what is meant by right and wrong in more concrete terms. James W. Brackner, writing for the “Ethics Column” in Management Accounting, made the following observation:
For moral or ethical education to have meaning, there must be agreement on the values that are considered “right.” Ten of these values are identified and described by Michael Josephson in “Teaching Ethical Decision Making and Principled Reasoning.” The study of history, philosophy, and religion reveals a strong consensus as to certain universal and timeless values essential to the ethical life. These ten core values yield a series of principles that delineate right and wrong in general terms. Therefore, they provide a guide to behavior.
The ten core values referred to in the quotation follow:
1. Honesty
2. Integrity
3. Promise keeping
4. Fidelity
5. Fairness
6. Caring for others
7. Respect for others
8. Responsible citizenship
9. Pursuit of excellence
10. Accountability
Although it may seem contradictory, sacrificing one’s self-interest for the collective good may not only be right and bring a sense of individual worth but may also be good business sense. Companies with a strong code of ethics can create strong customer and employee loyalty. While liars and cheats may win on occasion, their victories are often short term. Companies in business for the long term find that it pays to treat all of their clients honestly and loyally
Company Codes of Conduct and SOX
The Sarbanes-Oxley Act requires that a company’s senior financial officers be subject to a code of ethics or that the company must disclose publicly that they are not. Since no company wants to say publicly that its CEO or CFO is not subject to a code of ethics, companies not only have codes of ethics, those codes do apply to the top corporate officers. In practice, companies have developed codes of ethics, often called codes of conduct, that are applicable to all their employees. The codes can, and do, differ from company to company. Some are lengthy, with ample guidance for particular circumstances. Others are briefer and more general; they expect employees to internalize the ethical guidelines and to apply them in a variety of circumstances. A number of companies, including GlaxoSmithKline, John Deere, Nike, and Pixar, have posted their codes of conduct on their websites. This is now standard practice for public companies.
http://www.gsk.com/responsibility/cr_issues/business_ethics.htm
http://www.deere.com/en_US/investinfo/corpgov/ethics.html
http://www.nike.com/nikebiz/nikebiz.jhtml?page=25&cat=code
http://corporate.pixar.com/downloads/Code_of_Conduct.pdf
Management accountants and all employees are expected to be knowledgeable about their company’s code of ethics. Along with other employees, they may be asked to sign a document stating that they have read and understand the code. They should also be aware of provisions for whistle-blower assistance. SOX gives protection to those who blow the whistle on financial misconduct or fraudulent financial reporting. Companies must establish mechanisms through which employees and other stakeholders can report suspected misconduct. The company is required, then, to follow up on all such reports. Many public companies have outsourced their ethics hotlines to reputable outside companies in order to provide assurance that employee complaints and tips can be made anonymously
Virtually all management accounting practices were developed to assist managers in maximizing profits. Traditionally, the economic performance of the firm has been the overriding concern. Yet managers and management accountants should not become so focused on profits that they develop a belief that the only goal of a business is maximizing its net worth. The objective of profit maximization should be constrained by the requirement that profits be achieved through legal and ethical means. While this has always been an implicit assumption of management accounting, the assumption should be made explicit. To help achieve this objective, many of the problems in this text force explicit consideration of ethical issues.
Ethical Behavior
Ethical behavior involves choosing actions that are “right,” “proper,” and “just.” Our behavior can be right or wrong; it can be proper or improper; and the decisions we make can be just or unjust. Though people often differ in their views of the meaning of the ethical terms cited, a common principle seems to underlie all ethical systems. This principle is expressed by the belief that each member of a group bears some responsibility for the well-being of other members. Willingness to sacrifice one’s self-interest for the well-being of the group is the heart of ethical action This notion of sacrificing one’s self-interest for the well-being of others produces some core values—values that describe what is meant by right and wrong in more concrete terms. James W. Brackner, writing for the “Ethics Column” in Management Accounting, made the following observation:
For moral or ethical education to have meaning, there must be agreement on the values that are considered “right.” Ten of these values are identified and described by Michael Josephson in “Teaching Ethical Decision Making and Principled Reasoning.” The study of history, philosophy, and religion reveals a strong consensus as to certain universal and timeless values essential to the ethical life. These ten core values yield a series of principles that delineate right and wrong in general terms. Therefore, they provide a guide to behavior.
The ten core values referred to in the quotation follow:
1. Honesty
2. Integrity
3. Promise keeping
4. Fidelity
5. Fairness
6. Caring for others
7. Respect for others
8. Responsible citizenship
9. Pursuit of excellence
10. Accountability
Although it may seem contradictory, sacrificing one’s self-interest for the collective good may not only be right and bring a sense of individual worth but may also be good business sense. Companies with a strong code of ethics can create strong customer and employee loyalty. While liars and cheats may win on occasion, their victories are often short term. Companies in business for the long term find that it pays to treat all of their clients honestly and loyally
Company Codes of Conduct and SOX
The Sarbanes-Oxley Act requires that a company’s senior financial officers be subject to a code of ethics or that the company must disclose publicly that they are not. Since no company wants to say publicly that its CEO or CFO is not subject to a code of ethics, companies not only have codes of ethics, those codes do apply to the top corporate officers. In practice, companies have developed codes of ethics, often called codes of conduct, that are applicable to all their employees. The codes can, and do, differ from company to company. Some are lengthy, with ample guidance for particular circumstances. Others are briefer and more general; they expect employees to internalize the ethical guidelines and to apply them in a variety of circumstances. A number of companies, including GlaxoSmithKline, John Deere, Nike, and Pixar, have posted their codes of conduct on their websites. This is now standard practice for public companies.
http://www.gsk.com/responsibility/cr_issues/business_ethics.htm
http://www.deere.com/en_US/investinfo/corpgov/ethics.html
http://www.nike.com/nikebiz/nikebiz.jhtml?page=25&cat=code
http://corporate.pixar.com/downloads/Code_of_Conduct.pdf
Management accountants and all employees are expected to be knowledgeable about their company’s code of ethics. Along with other employees, they may be asked to sign a document stating that they have read and understand the code. They should also be aware of provisions for whistle-blower assistance. SOX gives protection to those who blow the whistle on financial misconduct or fraudulent financial reporting. Companies must establish mechanisms through which employees and other stakeholders can report suspected misconduct. The company is required, then, to follow up on all such reports. Many public companies have outsourced their ethics hotlines to reputable outside companies in order to provide assurance that employee complaints and tips can be made anonymously
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