Ethics and Governance

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
Ethics and Governance

At a recent event entitled, ‘Navigating a Successful Career as a Non-Executive Director’, an expert panel of experienced NEDs and corporate governance advisors answered questions such as: What role do NEDs play in organisations today? How can Chartered Accountants prepare to become a NED and how do interested Chartered Accountants find non-executive directorships?  Launching the event, David W. Duffy, author of A Practical Guide for Company Directors, warned the 200+ audience that “no board is risk-free”. Emphasising the need to carry out due diligence before accepting a non-executive directorship, he advised the audience to consider what ratio of risk to reward they would be prepared to take. Listing important questions to ask before becoming a NED, David recommended that prospective directors should query the organisation’s structure and budgeting practices in particular.  Sean Casey, NED and Risk Committee Chair at Allianz Ireland, advised attendees on how to find a directorship that best suits them, and recommended that they update their professional profiles with relevant experience, skills and governance qualifications, such as a diploma in corporate governance. Urging the audience to build a strong network of people whom they have assisted and supported in the past, he reminded them that they will “get repaid many times over if you have a good network”. Marie O’Connor, former PwC audit partner and experienced NED, explained that boards are looking for people with genuine interest in their business and who think strategically. NEDs should have good, sound judgement and some previous board expertise. Energy, curiosity and confidence are also important to becoming a NED, Marie said. Finally, Anne McFarland, corporate governance advisor, stressed the need for, and importance of, independent NEDs on boards to improve the accountability of organisations, despite recent negative press. NEDs, Anne advised, should look at the strategy of an organisation, and should make sure that appropriate goals have been set for management and that the board is being properly evaluated. It is imperative for NEDs to understand the financials of the company, to assess all risks, and to consider whether the remuneration of the executive and management is proportionate and appropriate. “I do not believe the time is up for non-executive directors,” Anne added. 

Aug 01, 2018
Ethics and Governance

Would you, as a person in a position of responsibility, know what to do if you received a protected disclosure?   As a senior financial officer, an external auditor, internal auditor, chair of an audit committee or in the myriad of roles that Chartered Accountants fill, it is possible that you will be asked to act as a screener,  investigator or advisor in a case of protected disclosure. Your training and experience are likely to have given you many of the competencies necessary to act in an independent and skilled manner, which should make you a trusted professional in this area. Before you undertake such a task, however, there are several things you should ask yourself. Do I understand the fundamental principles of protected disclosure? The three principles of effective protected disclosure are as follows: Disclosures of wrongdoing in the workplace should be screened and/or investigated; The identity of the person disclosing should be adequately protected; and The discloser, if disclosing based on a reasonable belief, should not be penalised for disclosing. If all these elements were in place, there would not be a need for detailed procedures and policies. Sadly, experience has shown that there have been failings on all three essentials, so you should be familiar with the law, policy and procedures which have proved necessary. Am I familiar with the 2014 Act and the organisation’s policy? Most organisations now have a policy, among its suite of governance policies, dealing with protected disclosures. This policy should derive from the board’s commitment to its culture, which should drive its strategic plan, which in turn gives rise to a business plan that is supported by its policies and procedures. Many organisations have had precursor policies such as, a whistleblowing or speaking-up policy. The 2014 Act refers to “protected disclosures” and so that is now the common nomenclature. The Department of Public Expenditure and Reform and the Workplace Relations Commission have issued guidelines as to what should be included in protected disclosure policies for public and private entities respectively. So, the first thing you need to do is to read the Protected Disclosures Act 2014 and the organisation’s policy. What major provisions do I need to understand? As you read the documentation, it should become clear that the main requirements you need to appreciate are as follows: An entity cannot prohibit or restrict the making of protected disclosures; The 2014 Act applies to all workers – employees, contractors, agency workers and people on work experience schemes. It includes workers in the public and private sectors (including members of An Garda Siochána). Although volunteers are not specifically mentioned, it is recommended that they be included; A worker, having a reasonable belief of wrongdoing in the workplace, can make a protected disclosure to the employer. A designated recipient will normally be mentioned in the policy and there will usually be provision for reporting further up the line if the belief of wrongdoing extends to the designated recipient; Wrongdoing in this context means information that comes to a complainant during his or her employment about a criminal act, failure to comply with a legal obligation, miscarriage of justice, endangerment of any individual’s health and safety, the endangerment of the environment, improper use of public funds, an act of a public body that is oppressive, discriminatory or gross negligence or mismanagement, and destruction of information regarding the above; It is not a protected disclosure if the disclosure concerns personal complaints such as personal employment complaints or allegations of bullying or normal day-to-day operational reporting; The worker must provide information tending to show wrongdoing. The complaint must not be based on a suspicion without tangible foundation. However, the complainant is not expected or entitled to investigate and find proof. The complainant should frame the complaint in terms of information giving rise to reasonable belief of wrongdoing and should not seek to draw conclusions about particular individuals or specific offences; The principles of natural justice and fair procedure must apply to a person against whom a disclosure is made. Any disclosure made in the absence of a reasonable belief will not attract the protection of the 2014 Act and may involve a disciplinary action against the discloser. However, if there is reasonable belief, a discloser cannot normally be sued for defamation; The motivation of the discloser is not relevant. So, even if the discloser will benefit in some way from the disclosure of the information, it does not matter. All that matters is that there is prima facie information about wrongdoing; Anonymous disclosures should be investigated as far as possible, but it can be difficult in the absence of the ability to seek out further details; The wrongdoing does not have to have happened in the State; There is an obligation to protect the complainant’s identity except in circumstances where the recipient shows that all reasonable steps were taken to protect identity, the investigator believes the discloser does not object, disclosure is necessary to effect a complete investigation, or to prevent a serious risk to the State, public health, public safety and so forth; and The complainant must not suffer any penalty for disclosing, such as any suspension, lay-off, demotion, loss of promotion opportunity, transfer of duties, unfair treatment, harassment, etc. What might I be asked to do? You might be asked to do any one of four tasks. First, you might be asked to receive a protected disclosure and conduct an initial screening. This would involve receiving the protected disclosure from the complainant, either in writing or orally. You should take careful notes where the complaint is oral only and ensure that the complainant agrees with your record. You will need to listen carefully and satisfy yourself that the complainant has a reasonable belief of wrongdoing, as defined. You may need to separate out elements of what is being said between personal complaints and protected disclosure. This screening process simply determines whether the matter is a protected disclosure or, in the case of a combination, which issues need to be investigated as a protected disclosure and which issues should be referred back to the complainant to pursue under the dignity at work or other HR policies. You should recommend the form an investigation should take – an informal approach if reasonably straightforward; a detailed and extensive investigation if the wrongdoing is of a serious nature; an external investigation if the matters are so grave; or a report to An Garda Siochána if the matters indicate a contravention of the law. You should set out the terms of reference for the investigation based on your findings of the matters to be investigated. Second, you might be asked to conduct an investigation – for example, as a member of senior management, of the board, chair of the audit committee or an independent external professional. This will necessitate setting up a framework appropriate to the screener’s recommendations and terms of reference. It may involve an informal establishment of facts, or a more formal process to take evidence from the complainant and such other persons as can provide information concerning the matters under investigation. During the course of your investigation, you should give appropriate feedback to the complainant and you should advise him or her when you have completed your consideration, although there is no need to give a complete account or to inform the discloser of any disciplinary action to be taken. Third, you may be asked to undertake a hearing into an allegation of penalisation by the complainant arising from, and attributable to, the protected disclosure. Since such a penalisation is specifically provided for in the 2014 Act, it is possible that the complainant may seek recourse to the courts. And fourth, following the screening and the investigation, the complainant may seek a review of the decision to disclose his or her identity, or of the outcome of the investigation of the complaint, or of the outcome of the investigation into any penalisation complaint. This review must be conducted by a person not involved in the initial screening, investigation or decision and would entail an independent, unbiased review of the policies, procedures followed and outcomes. You may be asked to conduct this review. There is no entitlement to two reviews of the same issues. What skills do I need to deal with a protected disclosure? To handle a case of protected disclosure, the skills and competencies that you should have, in addition to your professional competence, include: Technical skills such as knowledge of procurement policy, payroll legislation, accounting principles, taxation law and so on, depending on the nature of the disclosure; Good emotional intelligence; Listening skills. Often, people who make protected disclosures have been trying for some time to be heard and feel frustrated by the way they perceive they have been treated. They are often very independent and persistent people, but may be disengaged from the organisation and feeling stressed. They need to be heard actively and respectfully; Clear analytical skills. This involves an ability to extract the key details from what can be a lengthy and complex narrative; Good personal ethical values including independence, confidentiality and trustworthiness; An ability to read law and regulation, and apply it to different situations; A deep understanding of the organisation’s essence – its culture and ‘how things are really done around here’; and Patience. Who carries out the work of screening, investigation and review? This work is currently carried out by a range of internal disclosure recipients, supported by legal and accounting professionals. Entities may be nervous of internalising the process and some favour outsourcing it, seeking to protect themselves by putting the investigations into independent, outside hands. For example, the Office of Government Procurement has a list of firms approved for such work. However, although experience is building in the area of protected disclosure professional consultancy, it is still relatively new and many professionals are being very careful and fastidious in their work in this area as they build expertise. It can therefore be expensive, and organisations sometimes find that the amount budgeted and approved for this cost is inadequate to cover the final cost of screening, investigation and possible reviews. Time to review? The 2014 Act made provision for a review of the working of the legislation. The outcome of that review is due in August 2018 and it will prove interesting to see the outcome of the evaluation. In my own humble opinion, I feel that there is a risk that we have taken a very legal and/or compliance-focused approach to protected disclosures, focusing on defined events without really coming to grips with the communication, emotional and nuanced aspects that often underpin protected disclosures. It would probably be better if entities could take as much of this protected disclosure work as possible in-house, building trust in a process that is founded on a clear culture of real openness and respect. This would require shifting the lens from protecting from harm people who speak up to rewarding people who speak up if they unearth toxic behaviour that is contrary to the organisation’s culture. The Financial Reporting Council has urged us to spend time reflecting on our culture and examining how it should be embedded into our organisations. This area of protected disclosure is one festering vesicle that provides evidence of a culture which, while it may look great on paper, is not systemically flushing through the body corporate. An open environment with a strong and deeply embedded culture of doing the right thing should lead to fewer protected disclosures if people are listened to. Where someone spots a need to speak up, the culture should be one of naming and rewarding the early identification of potential wrongdoing. This approach is profoundly to be preferred to one of engaging an overly adversarial, legalistic and compliance-focused approach after the event, hiding the complainant and cushioning him or her from an expected backlash. It would be healthy for us, as a profession that has had some exposure to these protected disclosure cases, to share our experiences (on a no-name basis) with each other and engage with Government in reviewing the whole area. I commend such a debate and a contribution to the statutory review. Prof. Patricia Barker FCA is Adjunct Professor of Accounting at DCU and a former member of Council at Chartered Accountants Ireland.

Aug 01, 2018
Ethics and Governance

There is an oft used, simple, but valid summary that “ethics is about doing the right thing”. However, what action to take in an ethical dilemma is not always so simple. What we consider to be right and wrong is influenced by what we know. What we do is influenced not only by our knowledge, but our instincts and the specific circumstances in which we find ourselves. To help you prepare for the day you encounter a difficult ethical dilemma, Chartered Accountants Ireland has launched an ethics quick reference guide, Five Fundamental Principles, Five Practical Steps. The concept of the guide is simple: it contains a summary of the five fundamental principles contained in the current Chartered Accountants Ireland Code of Ethics and includes a unique five-step ethical thought process to guide you in your decision-making. While the five fundamental principles form only one part of the 182-page Code, they are a core part of the conceptual framework that is embedded throughout the entire Code. Many Chartered Accountants will be familiar with these principles from either their days as a trainee accountant or from their most recent bout of Continuous Professional Development (CPD) referencing ethics in the accounting profession. While many Chartered Accountants will be familiar, we hope the principles summarised in the guide will resonate with all of you. The five practical steps outlined in the guide are designed to get you thinking about how you might behave in response to an ethical dilemma. Well-constructed codes are always useful and should be referenced at some stage in your ethical thought process. However, rather than basing the five steps on any particular code of ethics, they are based upon practical considerations of how one can respond to an ethical dilemma. Dealing with a front-line ethical dilemma is not always simple. The first challenge can often be to recognise that you are experiencing an ethical dilemma. We won’t right all the wrongs with one simple guide but if we succeed in getting professionals and business leaders thinking, we have a chance of righting some wrongs – or at least avoiding others.  The guide can be downloaded from the Ethics Resource Centre on  www.charteredaccountants.ie.

Jun 01, 2018