Ethical leadership in the current South African landscape
The business ideals of profit and shareholder wealth maximisation cannot be sustainable if ethics are not engrained in the DNA of the business operations. Kwena Maseko sees the dominance of ethics in current leadership discourses as an appreciation of ethics as the cornerstone of organisational leadership. But what is the role of CAs(SA) in all of this?
In the early days of my career, it was not common to see the word ‘ethical’ before ‘leadership’. Rather, the latter was commonly preceded by words such as ‘visionary’, ‘strategic’, etc. These days, however, it is very rare for leadership discussions not to factor in the ethical dimension.
In the university environment, we see our mission as educators who are ‘launching’ ethical influencers who reimagine and co-create the future. If we go with John C Maxwell’s conception of leadership as influence, we are effectively aspiring to groom future ethical leaders.1 A recent academic paper has identified ethical behaviour as part of the soft skills and disposition associated with critical thinking required of accounting students.2 SAICA itself defines a CA as a responsible leader who behaves ethically and creates sustainable value for a wide range of stakeholders within an organisation.3 Ethics and the concept of leadership have become inextricably intertwined.
The extent to which ethics has dominated the leadership discourse is symptomatic of the current South African landscape. This landscape played out at the Zondo Commission, where tragic episodes of greed and unethical behaviour by those entrusted with leadership kept us on the edge of our seats.
What was even more tragic was the accounting profession’s alleged complicity in state capture activities. Financial reporting scandals in the private sector and the associated failures of the audit profession further eroded the moral authority of the accounting profession. However, great difficulties often offer great opportunities, and thus this difficult South African landscape presents CAs with an immense opportunity to steer the country in the right direction.
Importance of personal ethics
The extension of the concept of ethics from mere professional ethics to include personal and business ethics as well as citizenship in SAICA’s new Competency Framework is significant, as it recognises that ethical leadership does not begin and end with the Code of Professional Conduct but is significantly broader.4 Many of us have observed how leadership contests play out in politics and organisations. For example, campaigns embark on a search for any evidence of the personal moral failure of an opponent whose leadership campaign is gaining traction. In some cases, when the evidence of personal moral failure is incontrovertible, supporters and financiers of the campaign quit, and the promising candidate ultimately drops out of the race as the prospects of success dwindle.
The moral of the story is that personal governance precedes corporate governance. Personal ethics give leaders moral authority to confront ethical issues within their organisations. CAs who want to make a significant ethical impact in their organisations must recognise that failure to give attention to personal ethics has the potential to erode their moral authority.
It is therefore critical for every CA to have a set of personal values to guide his or her conduct and decision-making and to ensure that ethics become part of his or her personal brand. These values become a critical guide when choosing which organisations to work for − about who to partner with in business. These choices are no longer solely premised on the vision, products, services and achievements of an organisation, but also on the alignment of moral ethos.
Business ethics are defined as values upheld by a business across all its activities. The tone set by the top leadership is the most effective way to embed business values throughout the business operations. For example, the Remgro CEO said this about the ethical culture set by Rupert: ‘If he uses the company jet for personal purposes, he immediately pays for it … and if his family fly on the plane he pays for them too, including the dogs. That’s the Remgro culture.’5 If CAs(SA) who assume top leadership roles can model such exemplary ethical behaviour, such conduct will likely reverberate throughout their organisations. Not all CAs will be CEOs, but CAs can still set the ethical leadership tone in their spheres of influence as managers, heads of department, etc.
It is also important for ethics to be recognised as a business sustainability issue. When people focus their energies on money (revenue and profits) they tend to lose sight of the ethical dimension of an activity and its potential impact on others.6 Using King IV Report terminology, this implies that when a business has a pure capitalist orientation, it abandons its corporate citizenship. Corporate citizenship is defined as the recognition that the organisation is an integral part of the broader society in which it operates, affording an organisation standing as a juristic person with rights in that society but also with responsibilities and obligations.
South Africa has recently experienced a number of business scandals that exposed the ramifications of a short-term profit maximisation focus. The fall of these businesses from glory must serve as a cautionary tale and a reminder that business ethics constitute a business imperative. CAs can play a role by ensuring that the pursuit of profit maximisation is juxtaposed with considerations about ethics and the impact business decisions have on people and the planet.
South Africa is a land of enormous potential weighed down by economic inequality and rampant corruption that threaten its social fabric. Our nation is crying out for ethical leadership, and CAs possess a myriad of skills to solve many of the country’s complex problems. However, technical abilities on their own do not suffice − they must be anchored in ethics to make a lasting impact on society. A strong ethical base in the professional, personal and business sense will catapult CAs to the upper echelons of leadership across society allowing them to alter the moral landscape of South Africa and put it on a trajectory to achieve its fullest potential. To borrow from the CA definition, it will allow CAs to ‘create sustainable value for a wide range of stakeholders’.
1 J C Maxwell, The 360˚ leader, Thomas Nelson, 2011.
2 EAJ Terblanche and B de Clercq, A critical thinking competency framework for accounting students, Accounting Education, 1−30, 2021.
5 P du Toit, The Stellenbosch Mafia, Jonathan Ball, 2021.
6 Muller as cited by L W Nkuhlu, Enable or victim? KPMG and state capture, KMM Review Publishing, 2020.
Kwena Maseko, Senior Lecturer, University of Pretoria
Threats to ethical behaviour in transformation initiatives
Transformation in many − if not all − sectors of the South African economy has been a strategic priority since the dawn of the democratic dispensation. The accounting profession has been on the transformation journey for the same period of time, and great gains have been made.
In the CA(SA) qualification, we have seen the demographics of the membership growing closer and closer to being more reflective of South Africa’s demographics. But notwithstanding the progress made thus far, there is a general consensus that there is a long way to go before the desired levels of transformation can be reached.
Different role-players have invested large resources in the transformation of the CA profession, but the return on investment has been below par. A recent trend in the final results of the Initial Test of Competency (ITC) and Assessment of Professional Competence (APC) examinations has seen Black African candidates consistently achieving the lowest pass rates as a cohort in terms of race. This is no doubt very disappointing and a thorn in the flesh of many stakeholders who are actively contributing to the transformation of the profession, including SAICA, accredited universities, government and private sector funders. When the investment does not translate into the desired return, these stakeholders could be pressured to take shortcuts. For chartered accountants and those working under chartered accountants, this risk is essentially a threat to compliance with the fundamental principle of integrity: it is a threat to the ethical behaviour expected from chartered accountants in terms of the Code of Professional Conduct.
There is now added pressure for all those involved in transformation initiatives within the CA profession to do more, try harder and find innovative ways to improve the current low levels of return on investment. Of course, the pressure to produce instant high pass rates increases the threat of breaches of the Code of Conduct. Part of the transformation initiatives, particularly at university level, is the provision of access to the CA qualification route and wrap-around support.
There are no predefined limits to the amount and nature of support or assistance that can be provided as part of the transformation initiatives. This creates the potential for providing too much support in pursuit of the desired levels of return on investment. All the good work and gains achieved until now could be eroded through choosing short-term gains at the expense of long-term and sustainable transformation.
Drawing from classical ethical theories, the justice and fairness principle comes to mind. There can be no argument against transformation, in the South African context, being a just initiative. The fairness of the transformation initiatives from the perspective of those who were not previously disadvantaged, or who are not directly benefiting from the initiatives, is always highly debatable and contentious. However, with the overall slow progress and the probable impatience of stakeholders, the fairness of the initiatives to those for whom the initiatives are intended is becoming an issue – especially from an ethical point of view. If the support provided becomes excessive, is it fair to the recipients? Does it help or harm them in the long run? What type of foundation are their careers being built upon? Could inappropriate support at university level and during articles be a contributing factor to the low pass rates of African candidates at ITC and APC?
We need to bear in mind that it is also unethical to provide too little support to these candidates if there is objective evidence that the injustices of South Africa’s political past are negatively affecting their chances of success.
So, it is really a balancing act: when supporting previously disadvantaged aspiring CAs(SA), it is a matter of finding the right balance. The nature and amount of support have to be balanced and ethical. Government, funders, professional bodies and society at large should be careful not to put undue pressure on universities and training offices to produce a high return on investment for transformation initiatives. Undue pressure creates a threat to ethical behaviour and compliance with the Code of Professional Conduct. The fundamental principle of integrity is particularly at risk when undue influence − whether perceived or real − is exerted.
Proactive steps need to be taken to address this issue, for example open and honest conversations about the subject need to be happening at all levels.
Ethics are a cornerstone of the profession and therefore any matter affecting ethics needs to be a priority. In addition to open and honest conversations, ethics need to form part of the risk registers of all stakeholder organisations.
It is also important that academics conduct more investigative research on transformation in the CA profession. Much of the discourse has been based on personal views and there is a lack of scientific findings and recommendations for transformation initiatives. Factual information could be extremely useful to SAICA, university management, and training offices. Grey areas are never a good thing in the realm of ethics, as it creates room for unethical conduct – whether intentional or unintentional. Frameworks within which behaviours can be regulated and evaluated are far more useful when dealing with ethics than grey areas filled with subjectivity.
Rudolf Mbanjwa CA(SA), RA, MAcc (UKZN), Lecturer: Auditing (UKZN)
Ethical leaders in the new normal
The challenges imposed by the COVID-19 pandemic on chartered accountants will shake up all CAs ethical principles.
The COVID-19 pandemic has brought about many challenges for businesses across the country. For example, many businesses were forced to scale down operations and increase their loans to initiate business recovery. Employees working on a rotational basis or working from home to ensure social distancing resulted in plummeting productivity and sales for companies that are dependent on an on-site labour force.
The varying changes in the business environment have invoked a ‘new normal’ and thus chartered accountants (CAs) must ensure adherence to the ethical values enshrined in the Code of Ethics to be able to contend with the challenges that will be faced. Adherence to ethical values can only be demonstrated through ethical leadership. The characteristics of ethical leadership very much resemble the values demanded by the SAICA Code of Professional Conduct, with which all CAs are familiar.
IMPACT OF THE PANDEMIC ON ETHICAL LEADERS
Ethical leaders are defined as leaders that are competent, responsible, accountable, transparent, have integrity and are fair in their dealings. The impact of the pandemic on these characteristics is discussed below.
Ethical leaders are competent
The characteristic of competence in the usage and understanding of technology and information systems is threatened as organisations increase their investment in digital solutions because of the regulations around social distancing and remote working. The good news for the profession is that its members had already begun taking strides in embracing digitisation/4IR, but the strides will have to increase in leaps and bounds as South Africa is one of the countries experiencing the highest number of cyber-attacks on the continent.
CAs must lead in their space by obtaining skills required to function in a digital environment. The CA can take measures such as recruitment of specialists or advanced training in data analytics, all the while being alert to the risks invoked by cybercrimes. In addition, CAs must be alert to new facts or a change in circumstances: for example, auditors can expect to find a breakdown in internal controls due to employee absence in the workplace during COVID-19. CAs outside public practice may be confronted by complex assessments of revenue impairment and assets or by determining the detailed disclosures that are required because of the unpredictable nature of the impact of the pandemic on sales, production or distribution.
Ethical leaders are responsible and accountable
Members of the profession should remain responsible and accountable in their decision-making. Our clients will exert pressure on us to provide advice, opinions or recommendations, which can blur the lines between our responsibility and that of the client’s management. This will threaten our independence as we battle our choices between servicing our clients and protecting the interests of the greater public. The latter will be of paramount importance, as the government uses taxpayer money to fund packages supporting business rescue.
Ethical leaders’ actions are transparent
The reputation of the profession is perceived by the actions of its members and therefore our actions must be triggered by the need to foster public trust. A CA must display ethical leadership by behaving in a manner that exemplifies professionalism. Living by example achieves transparency and CAs must be conscious in performing actions that are defendable and above board. CAs, as financial leaders, must be grounded in their commitment to challenge decision-making and stand up for what is right. An inappropriate decision may destroy a career and can also harm the profession’s reputation, which was already brought into question by pre-COVID-19 corporate scandals.
Ethical leaders have integrity
Being an ethical leader requires that a leader shows empathy and care in difficult situations. However, this should not encourage members to turn a blind eye to client matters. The integrity of professional accountants will be challenged, as the risk of companies being unable to continue as going concerns has rapidly increased and thus professional accountants must maintain professional judgement and scepticism in going concern evaluations. CAs should be aware of the guidance available to assist in such judgements.
Ethical leaders are fair in their dealings
Many organisations will put pressure on accountants to reduce fees or arrange payment plans. This creates a threat to the professional accountants’ integrity and independence as they weigh options of keeping clients at reduced rates and increased billable hours versus losing clients because of their inability to pay. Professional accountants have a personal interest in these situations and must show fair dealings through being honest and clear with the client on the work involved and the resources required.
It is not only CAs that are members of SAICA that should demonstrate ethical leadership: it should be demonstrated by all current and potential members and associates (such as trainee accountants). Ethical leadership and adhering to the characteristics it represents should be a way of life. Our behaviour must show consideration for all stakeholders involved.
1 F Jaffer, E Odendaal and H J Theron, 2019, Auditors’ evaluation of ethical leadership as part of management integrity, Southern African Journal of Accountability and Auditing Research, 21:99–109.
Faeeza Jaffer (CA)(SA), MPhil (Accounting Sciences), Senior Lecturer, Unisa
Ethical dilemma in the university environment
’If you are guided by a spirit of transparency, it forces you to operate with a spirit of ethics. Success comes from simplifying complex issues, addressing problems head-on, being truthful and transparent. If you open yourself up to scrutiny, it forces you to a higher standard. I believe you should deliver on your promise. Promise responsibly’
− Rodney Davis
This quote captures some thoughts about ethics and my role in facilitating an ethics module at university.
I offer an ethics course to second-year students, mainly in accountancy, introducing the business ethics principles. The fundamentals of this course, in short, are defining ethics, providing methods for ethical decision-making, describing the role of ethics in business and addressing common dilemmas in a specific context.
The objective is to introduce students to ethics concepts which they will carry to their senior years as part of learning to identify issues they are likely to face in the workplace and grow confidence in their ability to make ethical decisions when required to do so. Also, when they start with their articles or internship, they would understand their role as honest professionals in the workplace, which would help them embrace their ethical responsibilities as future business leaders.
When teaching ethics for the first time, the biggest challenge is understanding that we are not preaching moral values, philosophical principles, perfection and producing the ‘holy’. However, we prepare students to be comfortable facing ethical issues. This challenge initially makes it difficult for students to make sense of the module . The module only becomes more transparent after a few more sessions of content interaction. In the beginning, students do not understand what ethics is about and why they are studying it. They want to pass and move on to more ‘important technical’ modules; they have an attitude of ‘I just want to pass and move on’.
Moreover, one notices the standard of assessment attempts received. The first few are very light in content and demonstrate no effort. One may assume there is thinking that the ethics module has a guaranteed pass rate and passing does not require a meaningful effort.
Another issue that makes it challenging to present this course is that most students assume that they already are ‘ethical’ and therefore do not need training. We all usually have a specific understanding of the term ‘ethics’, but they usually differ significantly from each other because of the different backgrounds and exposures we have. As Criss Jami says, ‘How easy it is for so many of us today to be undoubtedly full of information yet fully deprived of accurate information.’
The typical interpretations observed at the beginning of the semester include ‘To be ethical is to be perfect’; ‘To be an obedient child at home’; ‘To be law-abiding is enough to be ethical’; and ‘Being religious means being ethical’. Challenging these views, which are common in society, takes time.
The other critical challenging factor is setting assessments to determine competency levels in ethical reasoning in the university context. The assessments approach I use is based on a continuous assessment model (weekly). These assessments include application case studies (current affairs) and online quizzes. Before the COVID-19 pandemic, a big group assignment was used to get the students to see the big picture. They needed to face weekly scenarios to practise their ethical reasoning capacity, with highlights of well-founded theories.
This approach avoided the typical student approach to passing, which is studying and pouring it all out in the test or exam yet not remembering what they have learned.
There are no fixed solutions for these assessments, and we make use of a marking rubric or comprehensive solution that accommodate alternative views. To help improve reasoning capacity and critical thinking, the suggested solution is discussed for the case study and shared weekly.
As mentioned earlier, the objective is to introduce students to ethics concepts and improve their ability to make ethical decisions. This objective is not easy to achieve because various factors can influence moral reasoning in a particular scenario and have multiple views that may be valid. In the same light, in the beginning students struggle to understand that even though there may be alternative views, not every response will be correct. Students will ‘dump’ all their thoughts, even copying articles from the Internet. They provide generic solutions and expect full marks for their attempt. The initial poor performance can be frustrating as they fail while assuming they have worked hard. However, for many of them the learning process can improve this skill of expressing their decision-making process.
There are some limitations to teaching business ethics in the university context, including limited work experience (if any), limited exposure to the business environment and board room experience, etc. However, an adjusted content approach can compensate for these limitations. For instance, other business ethics-related topics require minor adjustments to facilitate. For example, professional ethics may not be detailed in the module (as there may be a separate module covering that). Therefore, the students would think they cannot relate to the professional ethics code of conduct. It can be described from a student’s perspective, as one may expect a code of conduct from the university. There is a code of conduct expected from a student and how they should behave.
Another consideration would be the type of example provided to students. It may be helpful to start with an initial open discussion and relate it to the students’ level. It could be by giving examples in the family setup, siblings, friendships, and general scenarios that are easy to connect. As a result, the students can better relate to the ‘ethics’ concept in their lives and become better equipped to express how they have experienced it.
I am convinced there is no absolute best approach to teach business ethics. However, I do believe that ethics competence can and should be developed. The initial lack of interest during the ethics course is often attributable to the fact that many students do not think a classroom setup can teach ethics.
Only once they get exposed to the module content do they understand how to engage on the topic. The idea of bringing real case studies to apply ethical principles seem to make it more exciting and relevant to learn. Students get to think about pressing matters outside the normal technical rules and standards.
In the end, it is helpful to determine the module impact, asking students to reflect at the end of the course semester and get their thoughts about their experience. Students often reflect that they found it dull initially, but as they progressed, their views have changed at the end of the semester. The majority of my students end up enjoying it thoroughly which hopefully translates into an attitude of life-long learning towards ethics. These reflections include ‘It challenged my inner being as a human, especially on habits I was approving to be right’, ‘I got to interact with people who challenged my values and perspectives when it comes to my values and as well as how the world operates in terms of ethics and ethical dilemmas’, ‘It is an open module, everything that it covers is everything that happens in real life something I can relate to’ and − this one takes the cake − ‘This module is nice and it is the easiest to pass’.
Mojalefa Jeff Mosala
Misuse of opportunities in online learning
When accountancy students who have been taught and have seemingly mastered ethics as part of their curriculum are found cheating, this raises concern for the future of the profession. As these students appear to only comply with ethical principles when they are under supervision, this begs the question as to the decisions these students will take when they are professionals working and there is not someone continuously overlooking them.
The simplified concept of ethics, which is doing good for yourself as well as for others, is a concept that most individuals including university students are familiar with. Ethics in the university context is the coordination of ethics across the moral life of a university and refers to the moral and ethical behaviour of students in the university environment. The moral and ethical behaviour of accountancy students is a particularly important topic given that these students are the future guardians of the economy.
Accountancy students are made aware of the standard of behaviour that is expected of them in different situations that they encounter, be it as students or as professionals. As part of the accountancy curriculum, students are taught the Code of Professional Conduct (CPC), which is examined at an integrated level from the second year up to and including the professional competency examinations en route to qualifying as a CA(SA). As part of the CPC lectures, the fundamental principles contained in the CPC are relayed and emphasised to students. They are also informed about the ethical theories of the values that underpin the code, namely integrity, equity, honesty, dignity and morality, among others.
In a theoretical context, it seems relatively straightforward to teach the code of ethics. Students are taught the theory and are assessed on the application of that theory through a series of practical-based examples and practical projects involving role-playing and presentations. Students generally score high marks in both their formative and summative assessments leading to the conclusion that ethics and the CPC are well understood and would be well applied by students. The reality of the situation is somewhat different.
With a change in circumstances, different opportunities and threats arise which at times leads to individuals taking decisions not always aligned with ethical principles. This was evident during the sudden switch to online learning due to the COVID-19 pandemic, which resulted in online assessments rather than traditional written exams. It has been found that when some students are presented with an opportunity to disregard the ethical values imparted to them, those students are not hesitant to take that opportunity. This is usually in the form of cheating in assessments and represents a challenge to the application of ethics in the university environment.
Cheating in assessments is not a new development in higher education but with the introduction of emergency online assessments, cheating has become a virus itself. Some students appear to ignore the fundamental principles of professional behaviour and integrity which state that professional accountants should avoid conduct that will bring the profession into disrepute and that they should be straightforward and honest in all professional and business relationships.
Although there have been isolated incidents of cheating in face-to-face assessments (using smartwatches, hiding notes in the bathroom and hiding notes in books allowed in the exams), there is a higher chance of students being caught and thus a decreased opportunity resulting in lower incidents. In an online assessment, the opportunity for a student to copy notes or to collude with another student is much greater and easier. As no invigilators are watching, students use this to discuss the exam with friends via instant messaging, emails, or video calls. Students also use the additional time provided by lecturers to factor in connectivity issues due to slow Internet connection and load-shedding to facilitate cheating. As a result of the opportunities, a significantly higher percentage of students are found cheating in online assessments.
The irony of identifying students that have copied their CPC notes in answering an online CPC question is not lost on lecturing staff, but it is very concerning. Online assessments have also resulted in innovative mechanisms for cheating such as outsourcing assessments to third-party service providers who write exam solutions on behalf of the student. In some cases, these providers are in a different country to the student and write exams on behalf of multiple students. Adverts for these providers can be easily found on social media platforms.
As we are already in the second year of emergency online assessments, universities have enhanced their controls through the implementation of webcam online invigilation, students submitting papers with their student card photos, ‘smaller’ online groups which can be monitored more closely, as well as students being required to take an ethics pledge (essentially pledging not to cheat). Despite these control implementations, it is still disappointing that some students continue to cheat in online assessments. Even more disheartening is the fact that accountancy students do not seem to appreciate the gravitas and seriousness of cheating in their assessments. These still represent significant and ongoing challenges in higher education that need to be addressed.
Professional accountants have a responsibility towards the public interest and the wellbeing of the society whom they serve. The reputation of the accountancy profession, in South Africa particularly, has been severely negatively affected over the past few years by scandals such as Steinhoff, Tongaat Hullet and VBS Mutual Bank, as well as accountants being implicated in state capture. The need to restore trust in the accountancy profession is more relevant now than it has ever been in the past. Current accountancy students, as the future professionals and gatekeepers of the economy, should be held to an even higher standard of ethical credibility than previous accountancy students and students of other non-professional disciplines.
The importance of ethics in the profession does not seem to have filtered into the behaviour of some accountancy students who see opportunity and justification (the right to pass) as being sufficient reasons to ignore their ethical responsibility and ethical subject matter. (It must be noted that we are not talking about all accountancy students, but even one unethical future accountant is one too many.)
Talya Segal CA(SA) MCom(Wits)(cum laude) and Zakiyyah Varachia CA(SA) MCom(Wits) are both senior lecturers in the School of Accountancy at the University of the Witwatersrand
Considerations when outsourcing ethics training
As of 1 April 2021, all SAICA members and associates specifically are required to reflect on the ongoing development of their ethical competence as part of their annual reflective CPD plan. Furthermore, training offices are now also required to demonstrate the development and display of ethical behaviour per the Accreditation Criterion C9 requirements of the SAICA training regulations. The revision of Criterion C9 aligns with SAICA’s ethics agenda to restore the public’s trust in the profession and highlights the role of SAICA’s training offices in developing ethical behaviour.
KEY CONSIDERATIONS WHEN OUTSOURCING
When thinking about outsourcing ethics training or collaborating with specialist service providers to help facilitate ethical awareness, discussions, identifying activities to help meet the development needs and/or offer support in creating and evaluating an ethical culture, some key considerations should be evaluated first:
Taking ownership of the professional development journey
SAICA’s competency framework requires professionals and trainees to embrace the attitude and skill of lifelong learning. It means intentionally choosing the attitude and behaviour to keep learning and growing throughout life, taking experiences and turning them into evaluated experiences that professionals can grow from and grow through. Living to one’s potential requires one to keep
learning and expanding oneself. This responsibility cannot be abdicated nor delegated to a service provider or specialist.
In his book Hiring for attitude, Mark Murphy wrote about a study he conducted tracking twenty thousand newly hired people. Nearly half of them were considered failures in their positions within the first eighteen months. The main reason was not a lack of technical competence. The top reason for their failure was the lack of teachability. They failed to demonstrate ‘the ability to accept and implement feedback from bosses, colleagues, customers, and others’.
The challenge is to develop self and career management skills through self-awareness and organisational awareness. This can be achieved by committing to specific personal growth goals through the development of a career action plan and by creating a balance between our work, life, and education/training.
Appreciating the call to ethical behaviour and responsible leadership
The world as we know it has become leadership ‘sad’. Leadership and transformation start with us: us wanting to get better, us wanting to bring to the world servant, values-based, responsible leaders so that we can help the businesses and societies and the public at large to ‘change the world’ for a better and brighter future. This transformation requires a fundamental shift in the way that ethics and leadership are trained and ethical issues are addressed at home and at work. More importantly, without reflection, transformation is not possible.
To collaborate and contract with a service provider to assist in achieving these outcomes will depend on the answers to the following three very important questions: How can you help? Do you care? Can I trust you?
Considering the current health and strength of the ethical culture in the organisation
For the SAICA designations to remain the trusted custodians of ethics and governance, a careful examination of organisational cultures is required.
Before deciding on training intervention and contracting with a specialist or service provider, it is crucial to understand exactly what the development needs are, what gaps in competence there are, the current levels of proficiencies for different learning and development stages, and matching the content and training deliverables to maximise outcomes and results. In this case, an assessment of the current organisation’s ethical and values culture will be essential to help establish and confirm possible learning gaps and specific training needs. Also consider what is already being done continuously at organisational level which are already value-adding.
Inner circle or outer circle?
In his book The 21 irrefutable laws of leadership, John C Maxwell refers to the Law of the Inner Circle (getting great people around you) which deals with three key questions on who you are inviting into your inner circle, in this case, the choice of specialist or service provider and their value proposition:
- Who are you? What they bring to the table is essential for your team to be successful.
- What are your unique abilities and strengths? Do you have the ability to ‘move’ people and get things done?
- How can you lessen my load? This has to be someone who should be fully invested, someone who can lessen the load, complement weaknesses and follow through with results.
As an alternative, service providers can also join your organisation’s outer circle, in other words they attend to specific training and developmental needs, walking with teams for a specified (short) period of time, bringing focus and a high level of creativity and connection. This has to be someone who will embrace what the team will become. This could take the form of coaching, mentoring and taking on a facilitator’s role during difficult conversations and discussions, for example.
The journey of relationship building, connection and trust
People are the most ‘appreciable asset’ within the organisation, but here’s the caveat: only if the leaders are developing the people and providing a safe environment for people to grow, expand and reach their full potential beyond paycheques and performance incentives. This requires relationship, connection and trust. There should be room for dissent and a climate of safety when going against the dominant culture or views.
It is therefore important to consider whether the specialist or service provider has the ability to connect and establish a trust factor to enhance the learning experience. The following four indicators could help decide whether contracting and bringing on a specialist onto the team would be beneficial:
- Humor – If people will laugh with you, they will change and grow with you.
- Heart – It’s about having a humble attitude, which is not self-seeking – it’s about the commitment to serve others first. The focus is on a win that includes the team.
- Help – It’s about giving people something that will allow them to go to the next level.
- Hope – The ability to have people believe they can accomplish great things. One cannot move people to action unless one first move them with a motion. The heart always comes before the head.
Other key considerations
Other important considerations to take into account before contracting include buy-in from the team, confidentiality agreements, boundaries when it comes to difficult or sensitive matters, documentary evidence that shows the reasoning for the choice of service provider or specialist contracted with, contract maintenance, and re-contracting terms and conditions.
Ultimately it is important to remember that the development of ethics competence remains the responsibility of the individual and no service provider can be held responsible for it. Whether or not contracting with a service provider or specialist, we all need to take ownership of the responsibility to continuously develop our ethical awareness not just as it pertains to ethical compliance, but more broadly to business ethics and personal ethics as well.
The new ethics requirements are an opportunity for creating a culture and atmosphere that will honour the individuality of every team member, allowing individuals to bring themselves to the job in a fulfilling way while supporting SAICA’s ethics agenda to restore the public’s trust.
Lynette Berger CA(SA), MCom, Project Manager Ethics, Leadership, Competency Skills at ProBeta Training and independent consultant YourEmpoweredPotential
Purposeful, ethical professional accountants
The profession has experienced and continues to experience accounting scandals despite the existence of the International Standards Board for Accountants’ (IESBA) International Code of Ethics for Professional Accountants (including International Independence Standards) which has been adopted by many professional accountancy bodies across the globe, including SAICA.
SAICA publishes a disciplinary hearings report on a quarterly basis which summarises the cases heard by the Professional Conduct Committee (PCC) or Disciplinary Committee. Included in this report is a trend analysis of complaints heard by the PPC. The trends include non-compliance with fundamental principles of ethics such as integrity, competence, objectivity, professional behaviour and confidentiality included in the SAICA Code of Professional Conduct.
Much work has been done by the profession and SAICA to create awareness about the importance of ethical behaviour, but some pieces of the puzzle are still missing, such as professional accountants’ sense of purpose and alignment to the profession’s purpose.
I recently completed a course on transformative leadership and corporate culture presented by Lawrence Miller, bestselling instructor, author and leadership coach. In the course he discusses the nine principles upon which transformational leadership are based. I believe three of these principles could help professional accountants live the code and better respond to the threats to fundamental principles of ethics:
Purpose and the spirit of service
According to Greater Good magazine, purpose is an abiding intention to achieve a long-term goal that is both personally meaningful and makes a positive mark on the world. Simply put, purpose is the reason you exist. Your purpose is a common thread in your life, at work and outside work; it leads to behaviours that lead to the attainment of your personal and organisational goals.
SAICA’s purpose statement is: ‘Developing responsible leaders for a changing future’. SAICA is not an organisation, SAICA is its members. It is the responsibility of every member of SAICA to bring this purpose to life by ‘living the code’ and consciously role-modelling ethical behaviour.
Each of the 50 000+ members of SAICA should pause, think about our individual purpose, whether our individual purpose is aligned with that of our professional body and whether this positions us as a profession to make a positive impact on the world and serve in the public interest.
This is one of the most important principles in the Code of Ethics and one that has a high non-compliance rate when looking the past corporate scandals involving professional accountants and the cases heard by the PCC. Lawrence Miller defines integrity as ‘honesty in all things and having high moral principles’. Moral principles are not something that can be taught at school, university or even the workplace. They are often learnt at home or in society at a young age. We know that we cannot change people’s behaviours, but, we can influence their thoughts and beliefs about moral behaviour. We can do this by setting the right tone on integrity by being authentic and vulnerable to those we lead. We can do authentic and vulnerable by acknowledging our errors to clients and colleagues.
I believe the above principles can help restore the public’s confidence in the accountancy profession and also help members navigate the challenging time we are living in with the COVID-19 pandemic which, according to the IESBA, has ‘created a myriad of opportunities for unethical behaviour’.
Sarah Masinamela, Associate Director Assurance and Professional Practice at Ernst & Young, is a member of the Ethics Committee
An ethical divorce?
Is this even possible? It is possible but rare. As accountants, we are exposed to the best and the worst in people.
You might be surprised to find that there are divorces where parties seek assistance from accountants before seeking legal advice. They want to know what the joint estate is worth and how it will be divided. These parties do not want to litigate. They simply want to get divorced and move forward with their lives. Accountants have an ethical duty to assist these couples in trying to settle their divorce. The accountant must remain independent and unbiased and will often need to apply professional judgement to the valuations. It is therefore recommended that accountants do not act in the divorces of their audit, accounting and tax clients.
Unfortunately, this is not the norm. Usually, accountants are approached as the parties find themselves embroiled in litigation and cannot agree on any values. Expert witnesses are then required for each party. Each expert witness will put forward their workings and accrual calculations for consideration. It is important to remember that the expert witness is there to guide the court and for the benefit of the court and not for the benefit of the party that he/she is representing. The expert witnesses will have to justify each number, which can be simple (for example a retirement annuity statement) or complex (such as a business valuation) and will have to concede where they are unable to justify the numbers or calculations used.
It is worth mentioning that most divorces settle not necessarily because the parties and their expert witnesses agree on the amounts, but rather due to litigation fatigue or concerns regarding legal and accounting costs.
Let’s explore some real examples of the behaviour of accountants in divorce matters.
Matter 1 – dissipation of assets and lack of independence
Party X was represented by an accountant as expert witness, while Party Y was an accountant who chose not to employ the services of an independent expert witness.
Party Y presented in his/her assets and liabilities a large liability owing to an offshore trust. This liability had not been included in his/her assets previously, as the trust had been formed shortly before the date set down for trial.
The legal team for Party X argued that this was a dissipation of assets, similar to section 29 of the Insolvency Act, regarding voidable dispositions. The ruling being that the liability (and later payment) was to be excluded and treated as though it still existed in Party Y’s assets and liabilities.
On appeal, the following was included in the judgment:
The establishment of the trust and the subsequent donation to it were all done with the knowledge of the Appellant that it would reduce the Respondent’s accrual claim. The Appellant indeed confirmed this when testifying. The Appellant sought advice on how to reduce the value of his estate and thereby the Respondent’s accrual claim. What is startling, in my view, is that his attorneys of record, who were aware of the Respondent’s accrual claim, assisted the Appellant in drawing up the Deed of Donation to the trust.
The first issue is a dissipation of assets. Whether legal or not, purposely dissipating assets with the resulting reduction in Party X’s accrual claim is unethical. This is not the professional behaviour expected of accountants.
The second issue is that Party Y chose not to use the services of an independent expert witness. Representing himself/herself, he/she could not claim to be independent and he/she was not seen to be independent. This diminished the credibility of Party Y as an expert. Accountants are expected to be objective. How could someone be expected to be objective during his/her own divorce?
Matter 2 – Intimidation threat and lack of independence
In a large divorce that settled out of court each party had accountants acting as expert witnesses.
In a meeting of experts, the accountants representing Party A questioned the fact that one of the accountants representing Party B was also a partner in the firm that audited some of the companies to be included in the assets and liabilities of Party B. The meeting was being recorded.
When reviewing the valuations presented by the accountants for Party B, it was noted that the valuation of one of the entities was significantly lower than the net asset value presented in the most recent financial statements audited by the firm. This was due to the accountants for Part B discounting the goodwill. Given that the goodwill in the financial statements was a material number, the accountants for Party A questioned how the audit team would have missed this. The company was highly profitable and had recently declared and paid dividends. There were no impairment indicators for the goodwill. One of the accountants for Party B requested that the recording be stopped and proceeded to have an unexpected outburst. He/she acknowledged that it was due to pressure from Party B, who was an important client of the firm.
The meeting ended, as it was clear that settlement would not be reached that day.
The accountants for Party B faced an intimidation threat from their client. They should have refused to act.
Matter 3 – Lack of independence and professional competence and due care
Party N has yet to appoint an accountant as expert witness, Party O has appointed his/her own accountant and tax advisor as expert witness.
Each party is the sole member of his/her own close corporation. At a round table meeting to try and settle the matter, the accountant representing Party O put forward financial statements for the close corporation owned by Party O, reflecting a material amount payable to SARS for previous years. When questioned why this was never disclosed in the accounts before, the accountant could not answer. When questioned whether this liability existed, the accountant refused to answer.
The first issue is that the accountant lacks independence from Party O. The accountant is Party O’s accountant and tax advisor. The second issue is the lack of professional competence and due care. If such an amount was owed to SARS, why had Party O not been informed of this earlier? And why had the close corporation not declared and paid this amount to SARS?
Matter 4 – Meeting half-way
Party F was represented by an independent accountant as expert witness. Party G was represented by his/her own business accountant and fellow director. This was an unusual matter as the accountants were not appointed by the attorneys, but by the parties directly.
The matter was almost due in court, when both parties approached the respective accountants and requested that they negotiate a settlement between them, without the attorneys and advocates. Under normal circumstances this would not be ethical, as the accountants are instructed by the attorneys.
However, as the parties had instructed the accountants directly, these meetings took place. A settlement that was fair to both parties, given the known assets and liabilities in the estate was reached.
There are accountants, attorneys and advocates in the field who work hard to ensure that divorce matters are dealt with ethically. For accountants in particular, no matter what work is being performed, we need to remember the fundamental principles and the threats to independence. We need to remain objective, ensure that we have the competence to perform the work, perform the work with due care, behave professionally, maintain our integrity and keep the matter confidential.
On fake news and information hygiene
For individuals to navigate the maze of misinformation and for the countries of the world to address the many threatening global catastrophes – inequality, violent political unrest, pandemics, the climate chaos – we all need to attend to our thinking competence. We all need to learn to ‘think well’. In this endeavour, accountants can play an important role.
A new bankruptcy
In 2021, the world declared information bankruptcy. ‘Trust in all information sources are at record lows’, according to the Edelman Trust Barometer – an annual survey that measures levels of trust around the globe. More than that, a ‘raging infodemic feeds mistrust’.1 Whether traditional media or social media, business communications or the speeches of political leaders – people worry that they are being misled.
And in many cases, they are not wrong. We are bombarded with information – much of it bad; much of it malicious. And we are constantly at risk from Edelman’s ‘infodemic’: whenever someone shares an unverified conspiracy theory on the family WhatsApp group; when a bot targets you on Facebook to nudge you into voting; when the AI that populates your social media feed drops something vague but interesting or unsettling to steal a click or just two minutes of your attention; when the ‘vaccine-hesitant’ share pseudoscientific articles on Twitter.
Against this backdrop, philosopher Susan Stebbing’s warning from 1939 seems ominously relevant: ‘There is an urgent need today for the citizens of a democracy to think well.’2
Accounting vs the infodemic
Amid information bankruptcy, in a situation that has people searching for credible sources of information, one may reasonably proclaim, ‘Now is the time for accountancy and journalism!’ It is, after all, the raison d’être of these skilled and courageous social agents – accountants and journalists – to promote accountability, to challenge wrongdoing, and to assure us of the veracity of information.
Because this is an accounting magazine, I will limit myself to the role of the accountant in a time of information bankruptcy. Accountants are important in the battle against misinformation – and in learning to ‘think well’ – for at least two reasons.
First, the fundamental role of accountants is to be credible sources of information. According to the International Federation of Accountants’ (IFAC) 2012 Position Paper on ‘The public interest’, accountants serve the public interest through, among other things, ‘sound, decision-useful financial and non-financial reporting for stakeholders, investors, and all parties in the marketplace (directly or indirectly) impacted by such reporting’.3 Accountants therefore aid the different groups that make up ‘the public’ in thinking well by providing them with information that is both reliable and useful in guiding decisions. So, for instance, accountants will increasingly help with the decision-making of organisations and regulators through so-called ESG accounting – reporting on the Environmental, Social and Governance performance of organisations, including information on carbon emissions as organisations aim for ‘net zero’. Due to the technical nature of the subject matter, accountants and auditors will be essential in combating misleading reporting and misinformation.
The second reason why accountants are important in the battle against information bankruptcy and mistrust is because accounting provides a way of thinking that citizens would do well to emulate. The conceptual framework meant to be internalised and applied by accountants includes essential and immunity-building skills for life in an infodemic, including ‘an inquiring mind’ and ‘professional scepticism’. These skills merit closer inspection.
Think like an accountant
Because the aim of accounting is to provide (and assure) sound information, the profession is sensitive to conditions and cognitive habits that lead people astray. The Code of Professional Conduct for accountants consequently provides ways of cultivating so-called ‘epistemic virtues’ and to recognise and avoid ‘epistemic vices’. ‘Epistemology’ is the study of knowledge, while epistemic virtues are character traits, habits and attitudes of the mind that assist in gaining reliable knowledge (or in pursuing ‘epistemic goods’ like truth, wisdom and understanding). Epistemic vices, on the other hand, are traits and attitudes of the mind that obstruct our pursuit of reliable knowledge. Epistemic virtues ‘make us effective and responsible inquirers’, while epistemic vices achieve the opposite.4
The assumption here is that we are responsible for our knowledge-related habits and attitudes. How we go about acquiring and sharing knowledge can be praiseworthy or blameworthy. Put succinctly, our participation in the knowledge universe is an ethical matter. If, for instance, through carelessness or gullibility, we share unverified information that might discourage others from getting vaccinated, we are morally blameworthy. If, on the other hand, we are open-minded, willing to consider a view that conflicts with what we believe, and willing to change our minds – for instance on the reality of climate change – we are morally praiseworthy.
If we bring this to bear on the accountancy profession, we could infer that the good accountant has developed good knowledge practices or epistemic virtues. As mentioned, these include ‘an inquiring mind’ (epistemic curiosity) and ‘professional scepticism’ (or epistemic care). According to IFAC’s Code of Professional Conduct, having an inquiring mind means:5
(a) Considering the source, relevance and sufficiency of information obtained, taking into account the nature, scope and outputs of the professional activity being undertaken; and
(b) Being open and alert to a need for further investigation or other action.
The accountant is therefore attentive to the origins of information, its relevance and also whether such information is ‘enough’ for the judgements or decisions at hand. He or she is also willing to dig deeper if the information is not adequate.
Professional scepticism combines this inquisitiveness with vigilance regarding possible error. To quote the International Standard on Auditing 200, it is ‘an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence’.
Apart from developing these knowledge virtues, the accountant must also recognise and guard against knowledge vices. It has been argued, for instance, that the global financial crisis of 2008 could better be described as a failure of epistemic (knowledge-related) virtue than as a failure of moral virtue. In the words of Boudewijn de Bruin, ‘incompetence is worse than greed’.6 Put differently, knowledge incompetence can cause more harm than financial greed.
Knowledge vices that may have contributed to the crisis include epistemic negligence (a lack of diligence or intellectual curiosity), epistemic arrogance (or lack of humility) and epistemic cowardice (lack of epistemic courage). Institutional investors did not adequately investigate the risk involved in mortgage-backed securities, while those selling these products were overconfident in their own knowledge without adequate cause for such confidence.
Furthermore, those in decision-making positions were too scared to admit that they lacked an understanding of these products.
The accounting profession is all too aware of possible epistemic vices, and in line with this awareness, warns in the IFAC Code of Professional Conduct that ‘conscious and unconscious bias affects the exercise of professional judgement’.7 The Code goes on to list possible biases, including anchoring bias, confirmation bias and overconfidence. Furthermore, the Code warns accountants to ‘avoid undue influence of, or undue reliance on, individuals, organizations or technology’.8
What is the conclusion? First, that accountants must cultivate good cognitive character if they are to fulfil their role as providers of sound, decision-useful information. Second, that in the process of developing and demonstrating knowledge virtue, the accounting profession can act as good exemplars for citizens to emulate in trying to ‘think well’. In the 2021 Edelman Trust Barometer, for instance, 46% of participants believed that an increase in information literacy is now more urgent.9 For these citizens to ‘think well’ and to increase their information literacy, they would do well to start thinking like the exemplary accountant – the accountant who has internalised the profession’s conceptual framework.
A happier and more responsible life for all in 2021 will require more than parliamentary democracy and free institutions. It will require an informationally literate citizenry – people who think well, who have developed epistemic character, or who display what the Edelman Barometer describes as ‘information hygiene’. This means that one has an inquiring mind and that one practises and learns to be open-minded, diligent in the pursuit of knowledge, and responsible in the sharing of information. This is especially important for the accountant, whose credibility is bound up with their epistemic diligence and care. If the accountant is successful, he or she not only becomes a source of useful knowledge for public purposes, but also an exemplar of the responsible mind.
One of the implications of this argument is that an accountant risks their credibility if they do not apply the expected mindset of an accountant to their non-professional communications. The accountant who recklessly disseminates conspiracy theories on Twitter should not expect to have their professional judgement respected.
It should also be noted that accountants and journalists have not escaped the net of mistrust and allegations of bankruptcy. Partly through our own doing. Consider the clear political alignment of news networks in the USA, or the capture of some of our local news outlets. The result is that societies become divided not only politically, but also informationally. (Not to mention the occasional outrageous story about the Guinness World Record-breaking birth of 10 babies – a story that was later exposed as false by local officials and later the BBC.)
On the accounting side, corporate collapses have led to what could be described as a ‘trust deficit’ between society and the profession. As a consequence, steps have been taken to promote reform in the profession. With regard to this reform, the NGO ‘Open Secrets’ warns in their report titled
The auditors that society would do well not to entrust ‘hen house security to foxes’, implying that the reform must come from outside the profession.
The appropriate response to this kind of societal scepticism is the relentless pursuit of epistemic excellence – by individual accountants and by the profession as a whole.
1 Edelman Trust Barometer, 2021, https://www.edelman.com/trust/2021-trust-barometer.
2 Quoted by P West, 2021, Pause. Reflect. Think, https://aeon.co/essays/on-susan-stebbing-and-the-role-of-public-philosophy, 2021.
3 IFAC, 2012, Position Policy Paper 5: A definition of the public interest, PPP 5 (2).pdf (ifac.org).
4 K Cassam, 2016, Vice epistemology, The Monist 99:159–180.
5 IESBA, 2020, Revisions to the Code to promote the role and mindset expected of professional accountants, p 12.
6 Cf B de Bruin, 2015, Ethics and the global financial crisis: why incompetence is worse than greed, Cambridge: Cambridge University Press.
7 IESBA, 2020, Revisions to the Code to promote the role and mindset expected of professional accountants, p 15.
8 Ibid, p 15.
9 Edelman Trust Barometer 2021, https://www.edelman.com/trust/2021-trust-barometer, p 27.
Schalk Engelbrecht is a Research Associate with the Centre for Applied Ethics at Stellenbosch University and an Extraordinary Associate Professor with the School of Accounting Sciences at North-West University
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