Today, the need for management accountants to uphold and promote ethical practices is greater than ever. The nature of work is changing dramatically. Technological advances, such as the implementation of blockchain, robotic process automation, AI, and machine-learning algorithms, have impacted how information technology systems and employees capture, analyze, and report financial and nonfinancial data. The question we now face in this new age of digitization is, “How can organizations build in-house technology and create a sustainable corporate governance program to reduce their employees’ unethical behavior?” Is there a bot for that? If only it were that easy. The side effects of the changing work environment due to AI and machine learning must be closely monitored by accounting and finance professionals. Algorithms don’t have a conscience, but management accountants certainly do.
The impact of advanced technologies heightens the risk of negative consequences for workers and the companies we work for. Examples include skills obsolescence and the increased pressure on employees working in jobs being downsized or completely replaced through automation. As employees’ circumstances change, the assessment of their value to the organization changes. Further, when individuals’ needs aren’t met at work, the result is worsening internal conflict. This situation should be identified as a red flag, as an employee’s rationalization of misconduct is a critical component of the fraud triangle, along with opportunity and incentive, explaining why individuals make unethical decisions. Fortunately, management accountants have the IMA Statement of Ethical Professional Practice to guide them and are uniquely positioned with the technical knowledge and experience to increase awareness of this increasing fraud risk.
A CULTURE OF ETHICS
As recent history has demonstrated, egregious frauds continue to occur. Cautionary tales from Lehman Brothers, WorldCom, and Enron to Wells Fargo, Bernie Madoff, and Volkswagen highlight the elements of human behavior that companies must proactively manage to mitigate the negative influence of bad actors and unethical social environments. The path ahead won’t be easy, as a change management process involving technology and ethics is typically full of obstacles. To prepare for the future, a financially sustainable company must focus on how changing workplaces impact its employees and in-house tech. Imagine a future where a company can achieve operational and financial excellence after implementing a focused training program to cultivate a culture of ethics using the latest available technology.
Companies are now identifying innovation programs that utilize AI or data analytics to increase their sales and better understand their customer. Why can’t this same technology be used to promote an ethical work environment?
To meet this challenge head-on, organizations should first focus on improving the employee experience through increased engagement. This includes shifting away from formal bureaucracies to providing lower-ranking employees with more authority. Employees who are engaged and committed to their organization are more likely to behave ethically and speak up when they see questionable behaviors or decisions that put their team and organization at risk.
To fully support a culture of ethics, leaders need to personalize ethical leadership training to help employees overcome the fear of speaking up against colleagues and management who commit violations such as circumventing internal controls, misappropriating assets, and misleading investors through inappropriate management discussion and analysis disclosures.
Do organizations invest enough to reduce the high levels of stress and office politics that are negatively impacting employees’ emotional well-being? The ideal work environment is free from excessive conflict and dysfunction, but every organization is at risk of situations where communication breaks down between employees, team leaders, and department heads. Miscommunication and a breakdown in internal controls are factors that put a company at a higher risk of employees behaving unethically.
If professionals aren’t speaking up to enforce ethical behavior or, even worse, are reprimanded or penalized for reporting unethical conduct, then the likelihood of any employee speaking up again becomes remote. When employees no longer feel psychologically safe to speak up when ethical violations occur, the risk of fraud running rampant increases. When employees feel unsupported and lose confidence in management, their commitment to the organization takes a toll.
DON'T RISK INACTION
The window to make cultural improvements before the next fraud occurs is closing. How can we help our company better prevent fraud and detect employees that engage in unethical behavior? Leveraging AI to enhance internal controls and corporate compliance while revamping training and policies is likely to improve employee experiences. Companies that choose to invest in promoting an ethical culture should focus their training resources on honesty, fairness, objectivity, and responsibility, principles that make up an important part of the IMA Statement.
Global companies facing an increasingly complex ethical business environment with varying cultural norms and technology investment must prioritize the well-being of their employees and invest in improving ethics to best position their business for long-term sustainable success. With a focus on creating more intelligent, globalized enterprises through improved skills and diversity, organizations need to innovate and create ongoing ethical leadership training for all employees.
Best-in-class organizations will strengthen their corporate governance practices by reskilling their entire workforce from mailroom to boardroom. Further, new roles within organizations could be established to effectively manage technology advancements in corporate governance.
Our commitment to ethical professional practice mustn’t waver during challenging times and controversies. As the nature of work continues to dramatically change, we must lead by example and inspire our organization to create a sustainable culture of ethics.
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.
April 2020
