Ethics and Governance

Ethics and Governance

Chartered Accountants can bring a host of skills to their organisation’s CSR efforts. And as good business partners, they should. Chartered Accountants can use their unique skill set to help drive their organisation’s corporate social responsibility (CSR) agenda. Now, I know you are probably saying: “Does this guy not know how much work I have already?” Well, I can guess, but on the other hand, you know that you are already doing more than you have to; that you can do even more; and that you will get much satisfaction in making your organisation – and the world – a better place. How much you can help depends on your position in the finance hierarchy, but that’s the thing about being a good business partner: anyone can do it. I won’t go into the issues covered by CSR (for a comprehensive understanding, I recommend ISO 26000 Guidance on Social Responsibility). Instead, I will focus on the scenarios you are likely to encounter in business when dealing with your CSR department, which will typically comprise environment, safety, labour practices and business ethics. Earning legitimacy Your organisation’s CSR department may be chaotic. The subject is still relatively new, even though the Brundtland Commission’s report on sustainable development was published over 30 years ago. The department may struggle to establish legitimacy in the eyes of a management team that lies somewhere on the scale between sceptical and hostile. It may be trying to stay afloat despite being destabilised by the latest CSR issue, which it is likely ill-equipped to tackle. Such topics could include water extraction, tax payments, community involvement, plastic bottles, lobbying and so on. The department will probably feature environmentalists, human rights practitioners, labour rights specialists or business ethics aficionados – this will depend on what management sees as the “key CSR issue” – but will lack those with “pure” management or business skills. Because so many issues fall under the CSR umbrella, there will probably be insufficient coordination among these elements. In that context, Chartered Accountants may wish to consider the following: Get involved and make friends with CSR. They will be delighted that someone wants to help them; Comment on the suggested policies and procedures covering internal control, collection of information, budgets and so on. Chartered Accountants can write policies and procedures in their sleep, so consider how your organisation’s CSR policies can be made more robust; Challenge the CSR department on the appropriateness and objectivity of its chosen indicators. They shouldn’t merely be indicators that are easily achievable or collected out of habit; Critically review how the team sets CSR targets. Are they stretching yet achievable? Do they link to the business strategy? Has the organisation budgeted for the investments necessary to achieve the objectives?; Guide the CSR team on how to cost projects realistically. You will bring a dose of realism to the table and help your colleagues remove their rose-tinted glasses. You will do this not to scupper a project, but rather to ensure that, if approved, there is a fair chance of success; and Design appropriate graphs to help your colleagues visualise the organisation’s actual CSR performance. Encourage the team to move away from the useless-but-ubiquitous pie charts (at best, they add some colour to a report) and toward trend charts that show actual progress over time compared to the target. Working towards meaningful action Often, management’s commitment to CSR is shaky at best. The business is only “doing” CSR because an influential stakeholder has demanded it, which may result in lip service without any real commitment. Management will want to see “progress” – winning an award (any award) every year, reducing the number of non-compliances, or increasing the volume of CSR-related content in the annual report or on the organisation’s website – provided it doesn’t cost much or do anything to rock the corporate boat. If this paints a familiar picture, you may wish to consider the following: Challenge management by illustrating any lack of commitment and remind them of the risks associated with the weakest links in their approach. One example is the business that emphasises excellent progress in one area of CSR (gender diversity, for example) while remaining silent on another aspect it would prefer not to talk about (the absence of a whistle-blowing policy, for example); Push for a robust and objective CSR strategy that integrates into the overall business strategy. Ensure that it is real and motivates staff and other stakeholders, and is not just a convenient communications-friendly bolt-on; Develop and argue the business case for CSR with opponents who refuse to accept that there is one; Push for the inclusion of CSR targets in the strategy, budgeting and forecast cycles so that the business has a benchmark for actual performance; Challenge the mix of indicators used so that there is a reasonable balance between the following: Compliance (those for which there is no choice, such as the number of penalties for environmental transgressions); Capacity (measures indicating how the business is preparing for CSR, such as board attendance performance or implementing that whistle-blowing policy); and Commitment (realising a reduction over time in water use, CO2 emissions or the ratio of CEO remuneration to average employee pay). The reporting dilemma It is possible that reporting will also be chaotic, partly as a result of the department’s disorganisation but also because guidance rules on CSR are still imprecise – very much so compared to what you will be used to in accounting. You may, therefore, wish to consider the following: Help the department choose appropriate and objective norms and standards to use. There is a proliferation of these, usually set by profit-making organisations. The risk is that these standards may be too focused on one aspect of CSR or too heavy in specific sectors; Devise calculations in the absence of full information. For example, how much water is recycled? What CO2 emissions are attributed to employees’ travel to work or business travel?; Check that the indicators’ units of measure allow for consolidation at each level in the hierarchy. For example, there is little real benefit in collecting the number of female managers at each location or subsidiary if you don’t also know the total number of managers at each; Help the CSR department adopt reliable variance analyses incorporating volume, price, mix, efficiency and one-off elements. It is misleading to claim an improvement in an indicator by taking the change in the total value. You need to obtain an understanding of the drivers behind the change. It wouldn’t be acceptable for management to take credit for your business becoming greener if, in reality, legislation brought about the change; Push to get a standardised CSR reporting system, including what you would consider as standard input and validation checks (with blocking controls also). Data quality and data management will probably be dreadful: most data will be held in individuals’ Excel spreadsheets. Each element of CSR could well have different reporting routes and cycles that replicate information requirements, often with differing definitions. It would be best if you pushed for the adoption of one reporting system for all non-financial indicators; and Encourage the CSR department to collect information every month rather than in an annual free-for-all after year-end, so you can see trends emerging and do something promptly. Final thoughts Finally, there are some other ways in which Chartered Accountants can help CSR. You may wish to consider the following: Work to develop an annual report that gives a reasonable balance to each of the financial, CSR and other non-financial elements; Be a good citizen and push to ensure that the finance department applies relevant CSR policies; and Talk positively about CSR internally, as you will generally elicit a favourable reaction from staff who are willing to give their views or participate in initiatives. Peter Gillespie FCA is the founder of Meaningful Metrics. He worked in manufacturing and services in several countries for 30 years.

Jun 03, 2019
Ethics and Governance

Chartered Accountants Ireland is a proud supporter of the Trinity Centre for People with Intellectual Disabilities. In this article, we hear from those involved in the programme including Eavan Daly, who completed a very successful internship with the Institute last year. An introduction Shauna Greely, Chair of the Diversity and Inclusion Committee and a Past President of Chartered Accountants Ireland. Diversity has become an area of significant focus in the business world. Businesses recognise that having a diverse workforce with a greater variety of talents and experiences enables them to adapt to dynamic markets and be more innovative. A focus on diversity also allows under-represented groups to get their fair share of opportunity, and opportunity is a critical word in this regard. Chartered Accountants Ireland, through its Diversity and Inclusion Committee, ensures that the Institute focuses on the areas of diversity and inclusion that impact on and are important to its members. One diversity and inclusion initiative the Institute is involved with and which members may not be aware of relates to our involvement as one of the early business partners to a programme run by the Trinity Centre for People with Intellectual Disability (TCPID). Over the past 10 years, the Institute has invited several students with intellectual disabilities to gain work experience in Chartered Accountants Ireland. During my involvement with Chartered Accountants Ireland, I have been privileged to attend many events, meetings, courses and lectures where I have learned of the positive difference the Institute makes on accountancy, business and the wider community.  However, the event that stands out for me was my attendance at a presentation in the lecture hall of Chartered Accountants House given by a TCPID student. Eavan Daly has an intellectual disability and had completed many months of work experience with Chartered Accountants Ireland. Eavan gave a presentation on her experience and I was struck by that fact that, although this was her first job, Eavan was making a professional presentation in a lecture hall to a large group of colleagues. The experience led to many firsts for Eavan, and I was incredibly proud that Chartered Accountants Ireland made this possible. I saw first-hand the benefits that participation in this programme has brought to Chartered Accountants Ireland as an organisation and the positive impact it has had on staff. Equally important are the enormous benefits afforded to Eavan and her family. The experience gave Eavan the independence and confidence to go to work each day with a staff ID card, a desk to sit at, a computer to log-in to, and buddies to have coffee or lunch with – things many of us take for granted. There are many accountancy, financial services, legal and other business organisations already partnering with TCPID to offer internship and work experience. This programme provides such wide-ranging benefits that I would urge other organisations to consider getting involved. My work placement with Chartered Accountants Ireland By Eavan Daly Eavan Daly is my name, and I completed an 18-week work placement with Chartered Accountants Ireland in September 2017. I travelled alone by train from Drogheda to Dublin on Tuesdays and Wednesdays. I worked from 10am to 12.30pm on both days. I loved the whole experience of making new friends, learning new skills and facing new challenges. Most of all, I loved feeling included and being part of the workforce. In Chartered Accountants Ireland, I worked in reception as a member of the Conference and Facilities Team. It was my duty to meet and greet all visitors to the building. I showed them where to go or contacted the person they were looking for to let them know they were there. I received and signed for all deliveries and registered post. I emailed or rang the person whose delivery it was to let them know it had arrived. I visited the Publishing Department and sat in on a meeting, and I was invited to the President’s Dinner where I learned about networking. This was one of my highlights. At the end of my work experience,  I gave a presentation. My work colleagues, guests from the broader working community and my mentors from Trinity came to see me. Eavan has completed work placements in Chartered Accountants Ireland, Orix Aviation and Bank of Ireland. An employer’s perspective Bernard Delaney, Director of Human Resources at Chartered Accountants Ireland Chartered Accountants Ireland is proud to be an enabler of the TCPID programme – not just because of the benefits for the students and our staff, but because it is the right thing to do. Our proximity to Trinity College Dublin allows us to offer a safe environment where students have a familiarity with the locality while providing just enough challenge as they join a new workplace – a stressful event for most people. Our employees gain hugely by working alongside people with a different perspective and life experience. It informs and enriches our work experience by being inclusive rather than just diverse, and helps us challenge our ingrained views and work habits. We are a member organisation that values the contribution of every individual; this programme is a win-win for us, and we are privileged to be involved. A coordinator’s perspective Marie Devitt, Pathways Coordinator at the Trinity Centre for People with Intellectual Disabilities The Trinity Centre for People with Intellectual Disabilities is an established not-for-profit organisation, operating a pioneering education programme for students with intellectual disabilities. We are part of the School of Education at Trinity College Dublin. Our Level 5 Certificate in Arts, Science and Inclusive Applied Practice covers a wide range of modules over two years. Our goal is to equip students with the requisite education and training for future employment or further education, allowing them to lead more independent lives. We have established a robust network of business partners, including Chartered Accountants Ireland, who work with us to provide student work placements, mentoring, paid internships and, in some cases, permanent employment for our graduates. Our business partners have allowed us to offer insight into potential career paths for our students and graduates. In the past, these young people were marginalised with few opportunities for meaningful paid employment. With the help of our partners, this is now changing. Not only are we able to offer supported career pathways for our students as they move on from Trinity College Dublin, but thanks to the range of the business partners, we can now offer them real choice and allow them to look at specific industries that might suit their particular interests and skills. We developed the TCPID Graduate Internship Programme with the support of our partners. Since launching this programme on a pilot basis in January 2017, we have had over 23 paid graduate internships, five of which converted into permanent roles. In addition to these permanent roles, a number of our graduates have been in paid internships with our business partners for more than six months with their contracts renewed. Our ultimate goal is to find permanent roles for those who want them and transition pathways into further education for those who may wish to explore other options.  Our business partners are a core part of our programme and have supported us in many ways. We are looking to expand our network of partners to help increase the options available to our students and graduates. Together with our TCPID business partners, we can make a real difference and build true inclusion within the workplace and within society. A parent’s perspective Olwen Daly, Eavan’s mother Eavan’s family, friends and her local community are proud of her achievements and are grateful for, and appreciative of, those enlightened employers who choose to give her a chance. To those who have no experience of anyone with intellectual disability, we believe that to become fully literate, as Eavan has, and to travel alone from Co. Louth to Dublin is a magnificent achievement. It is the accumulation of thousands of tiny steps, often supported by extraordinary individuals and organisations. Marie Devitt along with the TCPID Graduate Placement Programme and supporting business partners fall firmly into this category. Eavan’s goal is a job, and we know she will get there. Please continue to support her and other students in their endeavours. For further information about how your company can become a part of the TCPID Business Partners Programme, contact Marie Devitt, TCPID Pathways Coordinator at devittma@tcd.ie or (01) 896 3885.

Jun 03, 2019
Ethics and Governance

Board leadership requires decisiveness and emotional intelligence, particularly when the company in question is in the eye of a storm. There has never been a greater focus on boards and the critical role the board plays in the stewardship of an organisation and ensuring a sustainable future for its shareholders and stakeholders. The launch in the UK in December 2018 of The Wates Corporate Governance Principles for Large Private Companies is a seminal moment for corporate governance in the UK and Ireland, as it represents the first major step in raising the bar for corporate governance and board effectiveness in private companies. A key focus of these new guidelines is the leadership role of the board chair, which can be summarised as follows: “the chair leads the board and is responsible for its overall effectiveness, promoting open debate and facilitating constructive discussion. The chair should ensure a balanced, diverse board where all directors have appropriate information and sufficient time is made available for meaningful discussion”. Key responsibilities In working with boards across Ireland and the UK, I strongly believe that the board chair’s leadership has the biggest impact on the board’s effectiveness and performance. The expectations of a modern board chair have increased significantly over the years and in particular, a progressive board chair needs exceptional levels of emotional intelligence, leadership skills and business judgement to discharge their key responsibilities, which include: Overall leadership of the board team; Creating the conditions for overall board and individual director effectiveness; Demonstrating the highest standards of integrity and probity; Setting clear expectations concerning the organisation’s culture, values and behaviours; Setting clear expectations concerning the style and tone of board discussions; Managing board dynamics, engagement and conflicts; Leading the composition of the board, ensuring a vibrant and diverse mix of board members across gender, age, professional background, sector expertise and thinking styles; Overall communication to shareholders and stakeholders; Building and maintaining a healthy, constructive and balanced relationship with the CEO; and Assessing the performance of the board, individual directors and the CEO. Make a strong start While serving on boards over the last 20 years as a chair, non-executive director, CEO and executive director, I have seen first-hand the pressure for a board chair to integrate a complex mix of executive and non-executive board members. They are also tasks with creating a cohesive and hard-working team that is comfortable with high levels of robust challenge and debate, with every board member genuinely contributing and bringing their A-game to help the board excel on behalf of its shareholders. The board chair can be a lonely role as you strive to steer the board to arrive at a consensus position and optimise the decision-making of the team, particularly in times of significant stress on the organisation and serious conflict within the board. Serious crises require decisive and courageous leadership by the board chair in driving the board to face up to the challenges, establish viable options to address crises and make key decisions. In many cases, board chairs are promoted from within the board and have served a considerable period of time on the board as a non-executive director. While this has a lot of advantages in terms of understanding the board and the organisation, it can be a little unsettling initially to move into a formal leadership position and take on the significant additional responsibilities that come with it. I would always advocate that a board member who takes on the board chair role makes a strong start in terms of demonstrating to all the board members that while they fully respect the relationships built up over the years, the core responsibility of the board chair is to lead the board in a fair and balanced manner, thus enabling the team to excel on behalf of the shareholders and stakeholders. Performance culture One of the most pronounced changes to the responsibilities of a board chair in recent years is the focus on optimising the “performance culture” of the board. Traditionally, many boards did not have a genuine performance culture and this resulted in ineffective boards with a poor work ethic where board members were happy to show up, drift along and add little to no value to the executive team and the organisation. Board evaluations are one of the primary tools that boards utilise to help understand the current level of board effectiveness and performance. These vary from internal evaluations to independent external board evaluations. When board evaluations were first introduced for stock market-listed companies, they were seen very much as a compliance exercise. Now, board teams are looking at board evaluations in a far more progressive way and using an externally-led evaluation to help the board understand where the team is currently at in terms of its effectiveness and performance while identifying the areas and approaches that will help the board drive a sustainable step-change in performance. The board chair has a critical role in championing the value of either a board evaluation or other initiatives to help the board improve its performance. One of the characteristics of high-performing boards is that they want to continually improve. Average and dysfunctional teams shy away from initiatives that hold a mirror up to the board, challenge the value the board adds, and question whether the board is genuinely excelling on behalf of its shareholders and stakeholders. Times of crisis Another critical area is the leadership of the board chair in times of crisis. Examples of crises include: Liquidity problems; A loss of market share due to increased competition and pricing pressure; An under-performing CEO, which results in a major judgement call for the board in terms of whether to replace the CEO; A dispute with major shareholders and/or the executive team; and A major cybersecurity breach. In crises like these, the company’s board and shareholders look to the board chair to demonstrate strong leadership, a cool head and high-quality judgement to steer the organisation through the crisis. One of the most challenging crises is where you have a major disagreement between shareholders who have nominee directors on the board and, in some cases, a major disagreement with the executive team, which could also have significant shareholders in its ranks. As an independent board chair tasked with the responsibility of focusing the board on what represents the best and most sensible course of action for shareholders as a whole, disputes of this nature can be very complex and fraught with emotion. In many cases, they can also cause severe tensions within the board team. Steer the ship All boards face significant challenges in their respective environments. Company boards face an unrelenting wave of challenges including business model disruption, the impact of technology, a ferociously competitive landscape and geo-political challenges such as Brexit. Charity and not-for-profit boards are dealing with unprecedented funding challenges and a whole new era of corporate governance and transparency requirements. As the captain of the ship, a great responsibility is entrusted to the board chair to steer the board ship through the icebergs and on to the bright blue waters of sustainable success for the organisation. Kieran Moynihan is Managing Partner at Board Excellence.

Apr 01, 2019
Ethics and Governance

A new research project has uncovered the extent to which professional accountants are exposed to unethical activity.   The question of ethical or moral awareness of professionals is an important one, given that such awareness opens the door to ethical decision-making. Decisions made by accountants and other professionals are frequently made on a morally blind basis as the decision-maker is not aware that the choice harbours an inherent moral judgement. High standards of integrity are expected of professionals, who are also presumed to apply their specialised knowledge for the public good and to follow a code of ethics. The significance of moral awareness is among the matters that prompted our research into the ethical world of professional accountants in Ireland. In this article, we will discuss the significance and challenges around ethical awareness. We will then describe our research and findings on the subject and conclude with some proposals for optimising ethical awareness, which can subsequently lead to more ethical decisions and actions. What is moral awareness? A morally or ethically aware individual recognises the moral nature of an ethically ambiguous situation, that his/her potential decision or action may conflict with one or more ethical standards or values. An interpretative process by the person to incoming information determines whether they have factored in and recognised the moral values dimension to the dilemma they must address. This is important because moral awareness represents a first step, which ultimately leads to moral action. What leads to ethical awareness? There are various causes of awareness. One is context, the organisational culture in which the individual finds him or herself, with its moral values and reward systems. Another is individual differences. For example, research has found that accountants’ ethical orientation – idealism with a focus on principles, duties, obligations and personal integrity versus relativism, which eschews any absolute moral principles – influences ethical sensitivity in favour of the former. The other factor that promotes ethical awareness is the moral intensity of a given situation. This encompasses the magnitude of consequences from an ethical violation, social consensus on right and wrong, the temporal immediacy of consequences, the probability and proximity of beneficial or especially damaging effects on the public or the victim, and the concentration of effect. Why is moral awareness so difficult to establish? The nature of everyday routine in contemporary business organisations can foster insensitivity to the ethical aspect of decisions. The bureaucratic principle by which modern corporations are organised espouses impersonality in decision-making. It can lead to automaton-like behaviour, devoid of ethical considerations. We have routines of behaviour or scripts to follow in given situations, founded on unquestioned assumptions (for example, a script of how to prepare financial statements so we hardly think about it while doing it). Information inconsistent with the plot of the script may be filtered out (i.e. ethical considerations in the interests of efficiency). Overview of the ethics research Our research was part of a broad project examining ethical awareness, challenges and concerns of professional accountants with a view to creating guiding recommendations in support of ethical practice. Having conducted secondary research as background to steer the primary research, an online survey was completed by 2,137 members of Chartered Accountants Ireland and CPA Ireland in proportion to their membership numbers. This was followed by one-to-one interviews and focus groups to try to understand the thinking behind the survey responses. Online survey In the survey, respondents were asked to evaluate the extent to which they consider the need for ethical conduct in business decisions. Their responses were: 54% stated a “very large extent”; 34% stated a “large extent”; and 12% stated “some or small extent or not at all”. Respondents were asked how frequently, if at all, they observed or encountered particular categories of unethical behaviour (unethical HR practice, undue pressure or influence, dishonesty, bullying and harassment, misrepresentation and/or manipulation of information) in their career. 90% of respondents have “observed or encountered” a range of unethical conduct during their professional career, although this does not mean that they have partaken in such wrongdoing. Rather, it can illustrate circumstances where an individual has clear awareness of what constitutes unethical conduct. Accountants in business generally observe or encounter more unethical conduct than their colleagues in practice. Specifically, accountants in business are twice as likely as accountants in practice to have observed or encountered bullying and harassment. Conversely, 42% of accountants in practice have never observed or encountered bullying/harassment compared with only 23% in business. A partial explanation for this finding may be the fact that almost one third (32%) of respondents within the ‘accountants in practice’ cohort are sole practitioners, 46% of whom have never encountered or observed this behaviour. Further analysis of the online survey shows that at 23%, accountants in business are more likely than accountants in practices with more than 20 partners (11%) to have observed or encountered inappropriate responses to conflicts of interest. An explanation for this difference may be that accountants in practice have a regulatory obligation to formally address conflicts of interests before undertaking audit work with new clients and in reviewing long-standing relationships with existing clients. Accountants in business are more likely to have observed or encountered dishonesty (saying things that are not true). Also, 27% of accountants in practice have never observed or encountered dishonesty, compared with 21% of accountants in business. Again, the explanation may be the greater regulatory oversight over accountants in practice. Accountants in practices with more than 20 partners are one third more likely than accountants in practice generally to have observed or encountered manipulation of information. Such differences may be explained by the fact that accountants in practice, as auditors, are more exposed to clear examples of manipulation – for example, the overstatement of accruals. Furthermore, 32% of accountants in business and 27% of accountants in practice report that they have never encountered or experienced manipulation of information. This phenomenon of never having encountered this type of unethical conduct could be a factor of length of career, given that 51% of respondents’ with five years or less experience report having never experienced or encountered manipulation of information. The survey shows that 32% of accountants in business and 26% of accountants in practice report that they encountered or experienced misrepresentation of information either often or occasionally. Conversely, accountants in business at 29%, and those in practice at 32%, report that they have never encountered this type of misconduct. Again, this could be a factor of length of career as 50% of respondents with five years or less experience report having never experienced or encountered misrepresentation of information. Likewise, accountants in business (43%) are twice as likely as accountants in practice (22%) to have observed or encountered unethical human resources (HR) practice. Of the accountants in practice, 47% have never observed or encountered unethical HR practice, compared with only 23% of accountants in business. Accountants in business are likelier to have observed or encountered unethical HR practice (such as lack of transparency in selection and promotions), since their career and promotional paths may be less formalised or structured when compared with their colleagues in practice.  Interviews and focus groups Focus group participants suggested that there is greater awareness of ethical issues in the accounting profession, perhaps as a reaction to reported high-profile wrongdoing by professional bodies and regulators in the media. However, this is as yet insufficient to guarantee ethical behaviour. One interviewee in practice emphasised that ethics is fundamental, inherently doing the right thing – not just in response to professional regulations. Behaviour should be based on the correct values. This view was echoed in focus groups where there was a belief that behaviour should be based on principles rather than compliance. The concept of culture came up again and again, that ethics needs to be part-and-parcel of the everyday life of an organisation. This is consistent with culture as an antecedent of awareness in the ethics literature. The focus groups stressed that there should be an awareness of the accountant’s obligation to society, especially in larger firms which are involved with public interest entities and many stakeholders. There was general agreement that ethics should be an intrinsic part of organisational culture in both business and practice. In particular, partners in practice have a huge responsibility to do the right thing and lead by example. One interviewee made the point that being a qualified accountant is a very privileged position, as it is difficult to achieve and the examinations are not easy. So, why would you want to jeopardise that with misbehaviour? In similar vein, personal pride and safeguarding one’s own reputation was emphasised in the recently qualified accountants’ focus group. The difference between regulatory compliance and ethics, meaning ‘doing the right thing’, was discussed in focus groups. A particular issue in this regard is tax planning, where participants voiced their unease about highly sophisticated tax avoidance schemes. Accountants in business are more isolated with respect to their professional obligations and ethics than those in practice, where professional duties as an accountant are foremost in their jobs. This is even more apparent in smaller organisations, as larger organisations usually have guidelines or code of ethics. Overall, when questioned in person about the notion of acting in the public interest as part of being a professional, the study participants found it a nebulous concept. When it comes to decision-making, “you act for your client”. The recently qualified accountants we interviewed were of the view that more recently qualified accountants may be more ‘switched on’ about ethics compared to those who have been in the profession longer. They took the view that more experienced professional accountants are more influenced by loyalty and familiarity to the client and this may take precedence in decision-making. They believe that recently qualified accountants are more conscious of accountability for their actions and the consequences of wrongdoing. Enhancing ethical awareness Among the study’s participants, there was a high level of awareness about ethical issues and challenges in business and practice alike. Moreover, conducting this research in itself engaged professional accountants with the essential and relevant subject matter of professional and business ethics. Interview and focus group participants expressed an appetite for more such activity. This suggests that ethics education and training based on real-life issues and dilemmas and in-depth discussions should form a key part of both initial formation and continuing professional development (CPD) of professional accountants to create and advance ethical awareness, embracing principles. Where this is not practical, online discussion groups should be considered. The professional bodies are well-placed to play a significant role in making available such practical supports, training and CPD to their members. Cognisance of moral intensity factors such as magnitude of consequences for society of wrongdoing should form part of the discussion. A more principled ethical orientation of individuals who are relativists can itself be cultivated through such discussions. The challenge for us all is to create more ethically aware organisations. There is an opportunity for professional accountants in business and in practice to take a leadership role in fostering a positive ethical culture in their organisations. Such an approach could produce a virtuous process between culture, awareness and ethical action. Full details of the recent ethics research, which was carried out with the support of Chartered Accountants Ireland Education Trust, is available online from Chartered Accountants Ireland Ethics Resource Centre. To view the report, visit CharteredAccountants.ie/ethics. Dr Eleanor O'Higgins is Adjunct Associate Professor at UCD Smurfit Graduate Business School. Matt Kavanagh is a human resources consultant and part-time lecturer at the Centre for Corporate Governance in UCD.

Feb 11, 2019
Ethics and Governance

While artificial intelligence will certainly play a part, the fundamentals of board management will be familiar.   It is a brisk October morning in 2025 as Julianna, board chair of Oaktree Limited, calls the board meeting to order. Julianna reminds everyone that at 11am precisely, the meeting will commence and Theodore, the artificial intelligence-powered corporate governance assistant, will begin recording the board meeting. The board members are still getting used to the new corporate governance requirement for a virtual assistant to not only record the board meeting, but to analyse the conversation and pick out key debates, challenges and decisions before producing a draft of the meeting for formal signoff at the end of the board meeting. As Julianna looks around the board team, which consists of five women and four men with an average age of 46, she feels very happy about how quickly the two new independent non-executive directors have settled in. It was a pity to lose Padraig and Lucy, but with a new directive stating that all non-executive directors must step down after two three-year terms, she welcomes the new blood coming into the board team. Julianna reminds everyone about the quarterly board evaluation that is due to happen this week and the importance of delivering on the commitment to shareholders of improving the board’s effectiveness and performance score to 90%. Just after 11am, two of the company’s largest shareholders join the live stream of the board meeting and the meeting begins… The board’s responsibility What will the boardroom of the future look like? And what will fundamentally change from today? There is an unprecedented focus globally on boards and how they can evolve to deliver outstanding performance for shareholders and stakeholders. This is to be achieved by embracing the highest levels of ethics and transparency while balancing exceptional levels of challenge, debate and oversight with the board’s capacity to add significant strategic value. From public limited companies to small- and medium-sized enterprises, boards increasingly recognise their responsibility to guide organisations through turbulent waters. Current challenges include significant market disruption stemming from technological and business model change and increasingly unpredictable macroeconomic and geopolitical risks. Progressive board teams are now positioning themselves to thrive in the years ahead with a particular focus on diversity, independence and culture. True diversity in the board team It has been a long and frustrating journey, but we are edging closer to genuine diversity in board teams in terms of gender, age, ethnic background, professional background and thinking styles. The day will come when board chairs will only think of getting the very best talented and diverse board members with a vibrant mix of skillsets, experience and thinking styles. The days of a traditional male-dominated board, selected because of their association to the CEO or board chair, will seem a distant memory. Boards will, as a rule, look for the very best talent to strengthen the team – irrespective of gender, age and professional background. Genuinely independent non-executive directors Shareholders and institutional investors globally are placing a growing emphasis on the number of diverse and highly skilled independent non-executive directors on board teams. Such members bring a mix of deep sector expertise and overall business experience and judgement. Up to now, many boards paid lip service to the critical value that high-calibre independent non-executive directors bring to the table. This has had a negative impact on boards’ performance. Performance culture of board teams Progressive high-performing board teams focus intently on the board’s effectiveness and performance. Utilising the simple principle that if you can’t measure it, you can’t improve it, the best board teams conduct meaningful annual evaluations to ensure that the board – both individually and collectively – is bringing its A-game with every single board member making a valuable contribution. In the UK, large private companies are being encouraged to adopt the public limited company requirement to conduct external board evaluations every three years followed by two internal board evaluations. This trend will likely extend to all serious boards in the years ahead as a means of ensuring that a genuine performance culture is embedded in board teams – irrespective of scale or sector. Shareholders and stakeholders deserve this level of commitment from their board team. Conclusion Shareholders and stakeholders are entrusting their boards with a fundamental responsibility to oversee, protect and enable their organisation to prosper while embracing the highest levels of accountability, ethics and corporate governance. Excellence is not the default position of a board of directors, irrespective of the stature and CVs of board members around the table. Outstanding boards are forged from a high-calibre chair setting the bar very high for board effectiveness and performance; superb and diverse independent non-executive directors bringing outstanding work ethic, challenge, oversight and strategic thinking to the board; a CEO and executive team engaging in an open and accountable manner; and all integrated into a genuine board team with a passionate commitment to excel on behalf of shareholders and stakeholders. The board teams of the future will focus on ensuring that board teams are enabled to excel on behalf of shareholders by delivering outstanding strategic value, embracing best-in-class risk management and adhering to the highest levels of ethical stewardship. Kieran Moynihan is Managing Partner at Board Excellence, which supports boards in Ireland, the UK and mainland Europe.

Dec 03, 2018
Ethics and Governance

Trustees lend their experience to a new guide on ethics and governance.  BY NÍALL FITZGERALD I have always been involved in sport in some shape or form since a very young age. If I wasn’t playing or coaching, I was standing behind the goalposts playing ball boy. Now I am the club treasurer.” “I fell into it. A tragic accident resulted in serious injury to one of my children. We did everything we could to raise funds for the operation and, thanks to the kindness, empathy and generosity of people, we succeeded. After that, helping others and getting involved in worthwhile causes I believed in came naturally.” These are just two responses we received from the volunteer trustees we spoke to as part of our research for the Concise Guide of Ethics & Governance for the Charity and Not-for-Profit Sector (Concise Guide), published by Chartered Accountants Ireland in September 2018. It was both a humbling and enlightening experience to meet with so many voluntary trustees across the island of Ireland as part of the research. They generously give their time, skills and energy to be involved in the governance of a charity or not-for-profit organisation. In keeping with their passion and nature of giving for the benefit of others, the participants were very forthcoming with insights, tips and sharing what their experience has taught them about being involved on the boards of such organisations.  Opportunities and challenges We explored the views of the research participants, also consisting of valuable input from executive and senior management from the sector, on topics related to ethics and governance. Many of these are reflected in the Concise Guide but there are two open-ended questions that are worthy of further emphasis in this article: What are the greatest opportunities for the sector today? What are the greatest challenges facing the charity/not-for-profit sector today? When we collated responses from all participants, we were able to summarise them into a number of distinct opportunities. Figure 1 illustrates the results of our collation of opportunities. Figure 2 illustrates the results of our collation of challenges.  While it is unnecessary to speak about each highlighted opportunity and challenge, as many speak for themselves, there were a few observations worth noting here: There were no significant differences in the items being discussed between Northern Ireland and the Republic of Ireland, although it should be noted that there were a couple of considerations unique to the sector in Northern Ireland. For example,  funding concerns resulting from loss of access to EU structural funds after Brexit occurs. There was also a sense of greater collaboration between organisations in making joint funding applications and sharing resources to deliver a common purpose in Northern Ireland.  There were concerns about organisations of a certain size and their ability to respond in a timely manner to some regulatory changes.  For example, General Data Protection Regulation (GDPR) is expected to have an impact on the fundraising activities of some charities and not-for-profits. Most research participants agreed on the importance of the regulations but expressed that, without the right skills or the resources to employ them, or right tone on the board, some organisations may struggle to comply.  When it came to regulations and standards in relation to financial reporting, many believed once you have a handle on your requirements, it is just a matter of ensuring your accounting system is set up to capture the required data. For example, those who were transitioning to Charities SORP outlined the difficulties that can be involved in reporting on income and costs by activity and ensuring that required reserves are established, in addition to capturing and recording movements to and from these reserves. All agreed, however, that life was a lot easier once it was set up. It was interesting to observe the non-accountants wishing to be more informed about the finances and keen to have the financial reporting requirements explained to them in a non-technical manner. Interestingly, but unsurprisingly, technology and social media were seen as both an opportunity and a threat. While this is elaborated on in the Concise Guide, it is clear that, regardless of which side of the divide you are on, technology and social media cannot be ignored. The highlighted opportunity to ‘make a difference’ (see Figure 1) in society provided a lot of comfort on what these volunteer trustees were gathered here to do. It is why they are involved in the first place. When you combine this with the highlighted opportunity that involvement in the sector offers for personal development, it recognises the unique intrinsic reward that is only realisable in doing good for others. What other reason do you need to pat a trustee on the back this coming Trustee Week, 12-16 November 2018? Ask them why they do it and maybe their response will inspire you to want to do it, too!   Níall Fitzgerald FCA is Head of Ethics & Governance at Chartered Accountants Ireland.

Oct 01, 2018