The prevailing workplace environment presents complicated ethical dilemmas that management accountants and finance professionals must constantly contend with. According to research from the Ethics & Compliance Initiative (ECI), the number of companies with a strong ethical culture worldwide has stayed flat year over year. And while there’s an increased willingness from employees to speak up when misconduct is uncovered, the rate of retaliation against whistleblowers has increased significantly, and the pressure to disregard ethics guidance has ramped up. Evidence of these issues can be found in a variety of areas.
WHISTLEBLOWING
A recent study by the Association of Certified Fraud Examiners (ACFE), Report to the Nations: 2018 Global Study on Occupational Fraud and Abuse, concludes that tips or whistleblowing continue to be the most productive means of detecting unethical behavior and wrongdoing. Of the cases detected, tips were responsible for 40% of the cases, internal auditing was responsible for 15%, and management review uncovered 12%. Employees provide more than half the detection information, and one-third comes from outside parties. Small businesses with fewer than 100 employees suffered median losses twice as large as businesses having more than 100 employees, with internal control weaknesses responsible for nearly half of all incidents of fraud. In 85% of the cases, the fraudster showed at least one behavioral red flag indicative of fraud in advance, according to the ACFE report.
The practice of whistleblowing received a serious setback in the U.S. Supreme Court ruling on Digital Realty Trust, Inc. v. Somers, which overturned whistleblower protections contained in the Dodd-Frank Act. Now, whistleblowers must report their allegations of potential securities laws violations to the Securities & Exchange Commission (SEC) first to be eligible for protections against retaliation or to receive a bounty payment established by Dodd-Frank. Prior to this ruling, the SEC had interpreted the definition of a protected whistleblower broadly, allowing for protection and payment eligibility for whistleblowers who reported potential violations through internal reporting mechanisms within their company.
INTERRELATIONSHIPS
Societal incivility continues to be a problem, according to the latest survey by public relations firm Weber Shandwick and consultancy Powell Tate. Their report, Civility in America 2018: Civility at Work and in Our Public Squares, shows that virtually everyone (93%) thinks there’s a deficit of civil behavior in the United States, with 69% considering it a major problem. Approximately 84% have personally experienced incivility at various places and times. The average frequency of encounters has significantly increased over the last two years from 6.7 per week to 10.6.
In contrast, civility in the workplace is far better, with 48% of respondents considering their place of employment very civil, 44% rating it somewhat civil, and 27% reporting that this level has improved over the past several years. Only 29% of respondents personally experienced incivility in the workplace in 2018, compared with 43% in 2011. The report says, “Leaders need to lead workforces by example, provide a safe environment for reporting incivility, take corrective action when needed to curb incivility, and provide civility training.” Employers should “commit to a culture of civility. Make civility a measurement of employee engagement and perhaps a job performance metric.”
ETHICAL CULTURE
Workplace challenges aren’t limited to for-profit businesses. Michigan State University (MSU) physician Larry Nassar’s sexual abuse of female gymnasts continues to be in the spotlight, with the announcement of a proposed $500 million settlement for the 332 survivors of the assaults. The university made the offer contingent on the state legislature stopping its efforts to peel back existing protections for taxpayer-supported entities from being held responsible for the actions of their employees.
A report by the Michigan House of Representatives alleges that MSU “demonstrates an office culture more focused on protecting the institution than survivors.” The report states that MSU “failed to properly investigate” a 2014 sexual harassment complaint and only “provided circular justifications” for what Nassar claimed were legitimate medical treatments.
The importance of a strong ethical culture in organizations was discussed in my July 2018 Strategic Finance column, “Survey of Workplace Ethics,” based on research conducted by ECI. In a later interview with Corporate Crime Reporter, Patricia Harned, ECI’s CEO, noted that the real purpose of an organization’s ethics and compliance program is “to help people be aware of what the standards are within an organization, to know where they can report wrongdoing, and to have systems in place to actually receive and respond to reports effectively.” MSU failed to establish a proper ethical culture. It appears to have been more concerned with protecting its immediate interests rather than addressing the problem, and the results show the price to be paid for that approach.
The IMA Statement of Ethical Professional Practice provides guidance for individuals who might find themselves dealing with a range of situations, including a weak ethical culture. While it recommends that each IMA® (Institute of Management Accountants) member should “actively seek resolution” of ethical issues and “follow the established policies of his or her organization, including use of an anonymous reporting system, if available,” it also lists other possible actions to consider if no established policies exist. And if resolution efforts are unsuccessful, then the member may want to consider disassociating from the organization.
IMA ETHICS HELPLINE
For clarification of how the IMA Statement of Ethical Professional Practice applies to your ethical dilemma, contact the IMA Ethics Helpline.
In the U.S. or Canada, dial (800) 245-1383. In other countries, dial the AT&T USA Direct Access Number from www.usa.att.com/traveler/index.jsp, then the above number.
The IMA Helpline is designed to provide clarification of provisions in the IMA Statement of Ethical Professional Practice, which contains suggestions on how to resolve ethical conflicts. The helpline cannot be considered a hotline to report specific suspected ethical violations.
November 2018
