A new discussion paper from CIMA has taken an in-depth look at the role of ethics in building sustainable business strategy and made recommendations for an ethical approach to accounting.
Many corporate failures over the past decade have been caused by fraud--eg, Enron and WorldCom--or by a failure of corporate leaders to create sustainable business models. The latter factor has applied most dramatically in the financial services industry, with the likes of Lehman Brothers and Bear Stearns focusing on short-term gain at the cost of their long-term survival. But ethical problems are not only about financial manipulation or short-termism. Toyota's recent troubles have been an example of a company's failure to understand the ethics of customer relationships. It has found that it is judged as much on its handling of the recall of millions of vehicles with suspected defects as on the specific engineering problems.
When I was recently interviewed by a newspaper in Bahrain, the journalist asked me: "Why can't ethics be regulated?" It's difficult to regulate ethics because there are no hard and fast rules: what one person sees as a gift and a genuine gesture of goodwill, another may see as a bribe. What is perfectly normal in China, for example, may be regarded very differently in the UK. Where do you draw the line and where is the ethical balance?
Regulators do try to govern ethics, of course. But, despite their codes of practice and ever-increasing pressure from the public, many firms still routinely ignore the moral considerations. Some even claim that a business simply needs to abide by the law without concerning itself with these broader issues.
These questions are all at the heart of strategy-setting, which is why I believe that chartered management accountants have a crucial role in helping to steer ethical strategy. They must use this role to question whether their companies are doing the right thing. This also brings a different paradigm into the risk debate, since accountants must ensure that they include ethical risk with the many other types of business risk that they analyse.
The CIMA publication, entitled Incorporating ethics into strategy" (www.snipurl.com/urt3t)...