Keep Your Organization From Going Down the Road to “Ethical Collapse”!

Accounting - EthicsBy Cynthia Waddell, PhD, CPA, CFE
Full-Time Faculty, Kaplan University
Published July 2016   

The corporate culture of an organization is actually a reflection of the ethics of the people who work there! And where does ethical behavior start? It starts with the executives and management of the organization. 

We have all heard of the “tone at the top”—employees will follow the type of behavior they see modeled by top management.

How does your company or organization rate as an ethical work environment? You can evaluate this using some indicators developed by Marianne Jennings. Look at the employees and conditions at your workplace to see whether you observe any of the following signs.

  • Pressure to maintain the numbers. Management sends the message to meet earnings goals at any cost—the bottom line is more important than an ethical environment. 
  • Fear of reprisals. In this instance, employees are afraid to “rock the boat” or draw attention to themselves. This may be because the employee has seen others demeaned, embarrassed, or treated as an outsider in prior situations. 
  • Loyalty to the boss. Employees may be mesmerized by the boss, or the CEO may be a central, dominating figure in the organization. 
  • Weak board of directors. Here, the board of directors may be apathetic or inexperienced at recognizing inappropriate accounting practices. 
  • Conflicts of interest are ignored. Management is reluctant to take action to address potential or blatant conflicts of interest. 
  • Innovative or cutting-edge practices trump ethics. Employees believe the cutting-edge technological advances of the company outweigh the ethical climate of the firm. 
  •  “Good” in some actions makes up for “evil” in other actions. Because the company performs many good community services, unethical practices in other areas are justified. 

Do you recognize any of these signs in your company or organization? Let’s look at these signs in relation to the Fraud Triangle. As you remember from Cressey’s Fraud Triangle, three components are needed, working together, for fraud to occur. These components are pressure or incentive, opportunity, and rationalization.

We can see that Jennings’ signs fall into place perfectly with the Fraud Triangle. The “pressure/incentive” signs are pressure to maintain the numbers, fear of reprisals, and loyalty to the boss. “Opportunity” signs are weak board of directors and ignoring conflicts of interest. Not dealing directly with unethical situations creates more opportunity for unethical behavior. The last two signs are types of rationalizations—justifying unethical behavior because it is compensated for in other ways—being on the cutting edge or also performing good works.

Any of these signs could indicate your company or organization is at risk for ethical collapse. If any are present, they can not only indicate a decline in ethics, but also can indicate an increase in the risk of fraud. An ethical corporate culture, as we can see from Jennings’ seven signs of ethical collapse, does indeed start at the top!

To learn more about establishing an ethical corporate culture explore these links:

Cynthia Waddell is a faculty member at Kaplan University. The views expressed in this article are solely those of the author and do not represent the view of Kaplan University.


References

Jennings, Marianne M. (2006). The seven signs of ethical collapse: How to spot moral meltdowns in companies before it’s too late. New York: St. Martin’s Press.



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