In 2018, it was reported that 265 of the then 46 000 members of SAICA had been put through disciplinary proceedings. At the time, the public was particularly aware of the role that chartered accountants (CAs(SA)) had played in various scandals such as the spectacular collapses of Steinhoff and VBS, as well as the role of audit firm KPMG in what came to be known as ‘state capture.
While the vast majority of CAs are relied upon in the global market for their integrity, there remains a question regarding the underlying nature of human behaviour and what would drive highly educated custodians of governance and controls to contravene both the SAICA Code of Professional Conduct and the unspoken moral code of society. Research indicates that the answer lies in the examination of culture and the role that it plays in influencing ethical behaviour. Culture, not personal values or organisational systems determines behaviour.
‘Superior persons understand what is righteous, whereas mean persons understand wherein their own utility lies’ − Confucius
It was Confucius who described the virtue in ethical behaviour and indeed the aspiration for righteousness as being the pursuit of superiority while Socrates referred to the happiness that is to be found in virtue as being the highest purpose.
In seeking to assess the impact of individual values shaped independently of the workplace, research has been conducted to assess whether or not ethics are determined by factors such as gender, upbringing and so on. One insightful study entails an analysis of the relationship between ethical judgement (the personal conclusion about the ethicality of an act) and behavioural intention (the probability of behaving in a certain manner).1 What it reveals is that one’s moral orientation as defined by one’s moral framework can determine ethical judgement (and even encourage positive behavioural intention). However, ethical action is not guaranteed, as exogenous factors such as the environment affect the action that one might eventually take.
In the Stanford Prison Experiment conducted by Zimbardo, students at Stanford University entered into a role play where some acted as prisoners and others were assigned the role of prison guards. Within less than a week of the two-week experiment, the guards had begun to develop traits of brutality and prisoners were showing signs of depression and distress. The outcome of the study was that given the opportunity, people would behave unethically in spite of their moral framework.2
Although disconcerting, it is evident that neither personal background nor character explains the phenomenon of declining ethical behaviour within society. Behaviour is determined by the environment.
In The cheating culture, Callahan provides evidence of the pervasive culture in America in which people will do whatever it takes to get ahead.3 Undoubtedly, the socio-economic and political factors that have come to define what is perceived as happiness have long evolved since the time of Socrates. The culture of ‘winning’ prevails globally. In order to shift the dialogue and ultimately encourage ethical conduct, both the ‘formal’ and ‘informal aspects of ethics that influence culture should be revisited.4
Systems, policies and procedures
‘A paddle here, a paddle there − the canoe stays still’ − Sierra Leone proverb
The role of systems in ethics is to filter the diversity in values, beliefs and backgrounds to ensure that there is a common set of values according to which individuals should behave. Through various tools such as codes of conduct and policies, the standards of ethical behaviour that are required become apparent to all.
In a South African context, the formal system is robust. The governance framework is one of the most advanced in the world, with the King Report being widely recognised as a benchmark globally. For CAs(SA), the Code of Professional Conduct provides extensive guidance regarding acceptable behaviour and what is regarded as virtuous. At an organisational level, policies and procedures are often made available.
In 2018, as the decline in confidence in the accounting profession began to occur, the Institute of Internal Auditors South Africa published insights that offer another aspect to consider regarding the formal system.5 While most survey respondents agreed that ethics formed an important part of organisational culture, aspects indicating the shortcomings of the prevailing formal system were identified. These included the growing inequality in South Africa, partially attributable to unfair remuneration practices and a legacy of income inequality that persists.
Other factors that were probed in the report include the extent to which new recruits are evaluated for organisational ethical culture fit, evaluation of the organisational ethical climate and incentives that drive short-termism.
In addressing formal systems, organisations should take a holistic view of how ethical behaviour is encouraged (or discouraged). Considering the complexity and pace of decision-making that is becoming more prevalent, the formal systems should touch every aspect of the organisation including policies, procedures, recruitment, remuneration and performance evaluation. These inherently set the tone within an organisation.
Climate and culture
‘Culture eats strategy for breakfast’ − Peter Drucker
Behavioural norms define the probability of ethics prevailing in an organisation. These would be defined by factors such as the tone from leaders regarding what constitutes ethical conduct, peer-to-peer accountability and the values that are respected and recognised. This is what Professor Sumantra Ghosal attempted to explain as ‘the smell of the place’ at the World Economic Forum in 1995. It is the culture resulting from how people conduct themselves. It is influenced by both the formal systems and how leaders and employees alike show up in the workplace. It is the context in which people operate but also collectively create.
In order to create an environment in which ethical behaviour or the ‘smell’ of virtue is prized, the importance of the tone from the leadership cannot be ignored. At the most senior levels of the organisation, it is the board that is the custodian of setting the tone for ethical behaviour, in particular through incentives and performance evaluation of executives. The question that should be asked at this level of the organisation, bearing in mind the shift in societal values towards normalising winning at all costs, is whether or not the board has allowed for executives to define success beyond the numbers.
Organisations should also invest in ensuring that there is a culture where the diversity in opinions and perspectives is valued. This includes diversity amongst leaders and employees where seniority is not gendered or hued. There should be room for dissent and a climate of safety when going against the dominant culture or views.
What lies beneath the code is a culture that breeds ethical misconduct across the various sectors of society. The prize that is virtue is no longer perceived to be the highest achievement. Personal values and morals cannot withstand the unethical tide. For CAs(SA) to remain the trusted custodians of ethics and governance, a careful examination of organisational cultures needs to occur. This should be accompanied by the reform of both the formal and informal factors that shape behaviours and culture within organisations. Simultaneously, redefining success should be a societal imperative. Without this, as research has shown, even the most well-meaning and noble person can be transformed into a far less virtuous being.
1 NT Nguyen and MD Biderman, Studying ethical judgments and behavioral intentions using structural equations: evidence from the Multidimensional Ethics Scale, Journal of Business Ethics 83:627–640, 2008.
2 F Gino, Understanding ordinary unethical behavior: why people who value morality act immorally, Current Opinion in Behavioral Sciences 3:107–111, 2015, https://www.hbs.edu/faculty/Publication%20Files/Gino%202015%20-%20Understanding%20Ordinary%20Unethical%20Behavior_73a2aae2-8013-46fb-bd35-5c1fb5a75c4b.pdf.
3 D Callahan, The cheating culture, Harvest, 2004.
4 LK Trevino and SA Youngblood, Bad apples in bad barrels: a causal analysis of ethical decision-making behavior, Journal of Applied Psychology 75:378−385.
5 The Institute of Internal Auditors South Africa, Corporate Governance Index 2018, https://cdn.ymaws.com/www.iiasa.org.za/resource/collection/1FD175F0-82CB-40AF-9127-7A91E5C1058C/2018_Corporate_Governance_Index_report.pdf.
Additional sources available on request.