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Ethics in Business and Accounting: Lessons We Are Learning. Prepared by Dr. L. Murphy Smith Dill Distinguished Professor of Accounting Murray State University For permission to use or adapt this presentation, please contact Dr. Smith, firstname.lastname@example.org. Why are ethics so important?.
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Prepared by Dr. L. Murphy Smith
Dill Distinguished Professor of Accounting
Murray State University
For permission to use or adapt this presentation, please contact Dr. Smith, email@example.com
Business operations require trust. Consider the millions of business transactions that take place daily that require mutual trust. Would you go to a job if you didn’t trust your employer to compensate you? How many people would shop on the Web if they didn’t trust that their financial information would be secure?
In his 1995 book, Trust: The Social Virtues and the Creation of Prosperity, Francis Fukuyama writes: "One of the most important lessons we can learn from an examination of economic life is that a nation’s well being as well as its ability to compete, is conditioned by a single, pervasive cultural characteristic: the level of trust inherent in the society."
When evaluating one’s goals and objectives, a vital question must be asked: What is your highest aspiration?
If integrity is second to any of the alternatives, then it is subject to sacrifice in situations where a choice must be made. Such situations will inevitably occur in every person’s life.
In a recent Wall Street Journal article, Psychology professor Steven Davis says that cheating by high school students has increased from about 20 percent in the 1940’s to 75 percent today.
“Students say cheating in high school is for grades, cheating in college is for a career.”
If students lack ethics in high school and college, then there should be little surprise that they lack ethics in their careers. Greed and over-reaching ambition often end in disastrous personal consequences. Convicted inside trader, Dennis Levine, in a Fortune magazine article wrote:
“I have painful memories of Sarah learning to walk in a prison visiting room, and of Adam pleading with a guard who wouldn’t let him bring in a Mickey Mouse coloring book.”
a. Need for popularity
b. Greed for money
c. Desire for power
d. Ambition to be famous
e. Something else
“Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income.” (Eccl 5:10)
“For what will it profit a man, if he gains the whole world and forfeits his life?” (Matthew 16:26a)
“For the love of money is a root of all kinds of evil.”
(I Timothy 6:10a)
Rembrandt’s Parable of the Rich Man, 1627.
Academic Institutions have established ethics codes for their students, e.g. the U.S. Air Force Academy Honor Code:
“We Will Not Lie, Steal Or Cheat,
Nor Tolerate Among Us Anyone Who Does."
What do you think is the harder part?
a. Line 1
b. Line 2
Founded in 1919, Halliburton is one of the world's largest providers of products and services to the oil and gas industries. Halliburton employs more than 100,000 people in over 120 countries working in five major operating groups:
Source: http://www.halliburton.com/, 1/16/06.
Company policy requires Directors, employees and agents to observe high standards of business and personal ethics in the conduct of their duties and responsibilities.
Directors and employees must practice fair dealing, honesty and integrity in every aspect of dealing with other Company employees, the public, the business community, shareholders, customers, suppliers, competitors and government authorities.
No Director or employee should be misguided by any sense of loyalty to the Company or a desire for profitability that might cause him or her to disobey any applicable law or Company policy. Violation of Company policy will constitute grounds for disciplinary action, including, when appropriate, termination of employment.
Prior research shows that students are affected in a positive manner by classes that include ethics education. Teddy Roosevelt said, “To educate a person in mind and not in morals is to educate a menace to society.”
Ethics: a branch of philosophy which is the systematic study
of reflective choice (decision problems), of the standards of right and wrong (moral principles) by which it is to be guided, and of the good or bad (consequences) toward which it may
ultimately be directed.
An ethical problem occurs when you must make a choice
among alternative actions and the right choice is not
absolutely clear. Often that choice affects the well-being of
Imperative Principle: Do what is right. Act according to absolute
moral rules (e.g. lying is wrong). Ethics is a function of moral
rules and principles and does not involve a situation-specific
calculation of consequences.
Utilitarian Principle: Do what produces the greatest good.
Generalization Argument: This is a combination of the imperative
principle and the utilitarian principle. Make the decision by
considering the consequences if everyone made the same choice
under similar circumstances. That is, what would happen if
everyone acted in this way?
Ethics and corporate governance play key roles in the capital markets. Financial scandals often lead to new regulations.
1930s - Corporate financial scandals led to U.S. securities acts.
1980s - Savings and loan debacles led to FDIC Improvements Act of 1991.
Late 1990s and early 2000s - Corporate financial scandals led to SOX of 2002, creation of PCAOB and more than 20 SEC rules.
2008 - Financial crisis led to Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This law includes reforms of the financial regulatory system and a number of corporate governance provisions affecting public companies.
More than 200 years ago, Professor Alexander Tyler wrote of the Athenian Republic, which had fallen 2,000 years earlier:
“A democracy cannot exist as a permanent form of government… The average age of the world’s greatest civilizations has been 200 years. These nations have progressed through this sequence: From bondage to spiritual faith, to great courage, to abundance, to selfishness, to complacency, to apathy, to dependency, and back again to bondage.”
Ethics is essential to the functioning of a free society: 2nd U.S. President John Adams observed: “We have no government armed with power capable of contending with human passions unbridled by morality and religion. Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”
Upon What Can We Agree?
a. Study of history
b. USAF Honor Code
c. Personal experiences
d. Religious beliefs
e. Something else
Whether we derive a code of ethics from religious beliefs, a study of history and literature, or personal experience and observation: We can all agree upon some basic values.
In an issue of Management Accounting, James Brackner stated: The universities are responding with an increased emphasis on ethical training for decision making. For the most part, however, they ignore the teaching of values. For moral or ethical education to have meaning there must be agreement on the values that are considered “right.”
A nation or a culture cannot endure for long unless it is undergirded by common values such as valor, public spiritedness, respect for others and for the law; It cannot stand unless it is populated by people who will act on the motives superior to their own immediate interest.
Chuck Colson, Against the Night
When the situation needs improvement, Gandhi offers guidance: “You must be the change you wish to see in the world.”
Michael Josephson, in Chapter 1 of Ethical Issues in the Practice of Accounting, describes the “Ten Universal Values: “Honesty, integrity, promise keeping, fidelity, fairness, caring, respect for others, responsible citizenship, pursuit of excellence, and accountability.”
If societal values are deteriorating, maintaining high ethical standards in accounting and business grows increasingly difficult. People will undoubtedly ask, if everyone else is dishonest, then how can an ethical person possibly succeed? Nevertheless, the real question is, how does one measure success?
“To sin by silence when they should protest makes cowards of men.” - Abraham Lincoln
Do you think this relates to line 2 of the USAF Honor Code?
‘The right way is not always the popular and easy way. Standing for right when it is unpopular is a true test of moral character.’
- Margaret Chase Smith, first woman elected to both houses of Congress
‘You cannot make yourself feel something you do not feel, but you can make yourself do right in spite of your feelings’– Pearl S. Buck,author, Nobel Laureate
The reputation of a thousand years may be determined by the conduct of one hour.
At a Congressional Hearing on Accounting and Business Ethics in July 2002, Truett Cathy, the Founder of Chick-Fil-A quoted Proverbs 22:1 – "A good name is more desirable than great riches; to be esteemed is better than silver or gold."
The truth is that fame and fortune are nothing compared to personal honor.