Business Codes of Ethics - Essay Example

Business s of Ethics: The of Ethics adopted by a business organization reflects its approach to business. These sets of self-imposed rules originate from the corporate social responsibility of business corporations. It also defines the values and standards by which the company conducts its business. It provides all stakeholders with a clear understanding of the procedures and processes at various levels of the organization. In other words it acts as the road map or set of guidelines to help the firm in acting and conducting itself in a socially and commercially acceptable manner. A well designed code of ethics will help highlight the resources available to achieve various goals set at the personal and corporate levels. A good code of ethics document will inspire confidence in all business associates – like suppliers, clients and employees. The rest of the essay will critically analyze the codes of ethics of two accounting firms and evaluate their merits in the process. The two firms chosen for the exercise are KPMG and Grant Thornton (Budd, 2007). The following is a passage from the KPMG ethics code: “At KPMG, our promise of professionalism to each other, our clients, and the capital markets we serve, compels us to align our culture of integrity with our values, words, and actions. By setting high standards for ourselves, and our clients, our commitment to upholding KPMG’s values is clear: There is never a situation when compromising our standards is either expected or acceptable. To support our culture of integrity, KPMG has further developed a robust ethics program that includes our Code of Conduct, as well as the Ethics and Compliance Hotline”. (Budd, 2007) The above passage captures the essence of what KPMG stands for as an organization. The language is unambiguous and the sentences are well structured – two essential qualities for business writing. It also makes it clear how imperative ethics are to the firm – not compromising their standards in any situation. Keeping pace with the times they have developed a easy to use Ethics and Compliance Hotline, which can be availed by all business associates. So, in this regard, KPMG adheres to international standards of maintaining ethical business conduct (Shearer, 2002). Grant Thornton, the other accounting firm being considered for this discussion has a similar approach to business ethics. For example, their business ethics document starts with the following words, “Being at the cutting edge of professional development is vital for an accounting and advisory organization operating in a dynamic business and regulatory environment. By taking an active role in entities that liaise with regulators, promoting high-quality professional standards and insisting upon high standards of ethical behavior, senior member firm partners can influence the development of their profession, equipping themselves in the process with up-to-date information to enable them to participate in the development of standards in the public interest.” (Shearer, 2002) Here, the importance of “liaising with regulators” is made note of, which is an often overlooked aspect of business conduct. It is understood that a regulatory atmosphere conducive to fair and competitive business can help raise ethical standards of all businesses involved. The drafters of the Grant Thornton code of ethics exhibit a keen awareness of this reality and their allusion to the same in the above passage is a testimony to the foresight and visionary thinking of its business planners. It is also interesting to note that the KPMG code of ethics does not touch upon this important aspect of running businesses. Nevertheless, KPMG has to be credited for adopting the concept of Ethics and Compliance Hotlines, which have become standard features of major businesses these days. Being one of the early implementers of such a feature, the accounting firm ensures an “anonymous reporting mechanism that facilitates reporting of possible illegal, unethical, or improper conduct when the normal channels of communication have proven ineffective, or are impractical under the circumstances”. With ever-changing technologies, the procedures of reporting inaccuracies and inconsistencies are also required to evolve and adapt. The Ethics and Compliance Hotlines do just that, circumventing the flaws inherent in traditional channels of communication (Shearer, 2002). All stakeholders in the welfare of the firm can avail of this hotline. According to the ethics code of KPMG, such discrepancies and violations as the following warrant a hotline report: Accounting, auditing and professional practice issues Accuracy of firm records, including time and expense Compliance concerns Confidentiality, privacy, and intellectual property Conflict of interest Discrimination, harassment, threats and other work environment issues External activities Gifts, meals and entertainment Illegal or suspected illegal acts Independence Marketing and competition practices, including client, vendor, or third-party services Nepotism Retaliation Security Theft or misuse of firm assets and resources In addition to implementing a similar hotline facility, Grant Thornton undertakes efforts to increase awareness about individual responsibility in contributing to the overall standards of the firm. For example, much too often, when some “potentially illegal or unethical business conduct” (Dressendofer, 2003) does not affect an individual directly, then it is likely to go unreported and unaddressed. Keeping this in mind, the drafters of the code of ethics have included strict policies so that associates and employees can freely report their concerns about suspected breaches in the ethical code without fear of negative consequences. By making it a violation of employment agreement to not report such breaches and violations, the firm gives a clear message to its employees as to how important business standards are. Those who violate the company’s ethical standards, irrespective of designation or tenure, may be subject to legal disciplinary action that can lead to termination of employment (for employees) and contract annulment (for other associates) (Dressendofer, 2003) KPMG’s core values reflect their aspiration for achieving the highest standard of business conduct. The core ethical values of KPMG are as follows: We lead by example. We, as a firm and as individuals, act in a manner that exemplifies what we expect of each other and our clients, and what our clients should expect of us. We work together. We team to bring out the best from our combined talents, experiences, knowledge, and cultures, thereby creating strong and successful relationships. We respect the individual. We respect all individuals for their diversity, who they are, and what they bring as individuals and as team members for the benefit of our clients and the firm. We seek the facts and provide insight. We listen to and proactively challenge different points of view in order to arrive at the right judgments. We are open and honest in our communication. We encourage timely, clear, and constructive two-way communication. We are committed to our communities. We, as individuals and teams, use our time and resources to support our local communities. Above all, we act with integrity. We are professional first and foremost; we take pride in being part of KPMG, and we are committed to objectivity, quality, and service of the highest standards.” (Dressendofer, 2003) These core ethical values, in a way, define KPMG’s business culture and its commitment to the “highest principles of personal and professional conduct”. They also stand for how different stakeholders relate with one another and what they expect of their associates and vice versa. Hence, judging by the above list, KPMG’s code of ethics is a balanced and a robust one. Additionally, KPMG provides its employees with a checklist of questions to ask themselves in moments of doubt or hesitation. They are: Does my action comply with the spirit and letter of the law? Is my conduct consistent with KPMG’s core set of ethical and professional standards? Does my decision stand for the correct course of action? Is my decision being driven by responsible professional judgment? Would I feel confident to explain my decision, if it were made public? (Martin, 2004) The KPMG management also encourages its employees to follow these guidelines: Be attentive. Stay informed about the ethical and legal standards that apply to your job activities. Know whom to ask if you are unsure of the right thing to do. Speak up if you have a concern. Get help if you need it. Grant Thornton on the other hand implements a novel enforcement policy that includes a central ethics committee who will make sure that the code of ethics is followed in letter as well as in spirit. Stakeholders involved in violating the code are subject to stringent disciplinary action that could lead to termination of employment contract. Even contributing indirectly to the violation of these rules can have negative consequences to the party. Grant Thornton’s code of ethics also states that “failing to report known violations” (Martin, 2004) as a punishable offence as well. In addition to that, disrupting or undermining the internal ethics committee investigations will amount to the same level of punishable offence. Finally, any retaliatory measures on part of the guilty party will attract even severe punishments. Hence, the accounting firm leaves no loop holes for its employees to digress from its commitment to the highest ethical standards. The fact that the strictest rules are first imposed on their employees rather than suppliers or contractors is an indication of the seriousness with which Grant Thornton approaches its business ethics. The following excerpt from the company’s code of ethics document further reinforces the point: “You should also be mindful that violations of laws or Grant Thornton’s standards could trigger external legal actions against you, your colleagues, and the firm, its affiliates, and clients. Criminal or government enforcement actions can include suspension or revocation of licenses, debarment, sanctions, monetary fines, criminal penalties, and imprisonment”. (Shiner, 1994) KPMG also realizes that the temptation to deviate from ethical norms is at their highest in the context of getting ahead of competition in the highly competitive marketplace of today. Hence, a separate section has been allocated in its code of ethics document on how to go about competing fairly. For example, Antitrust, as a idea, represents maintenance of stringent laws and regulations that are in place to ensure free trade and fair competition. In many countries across the world these complicated legislations discourage business practices that undermine market competition. So, the code of ethics asks the employees not to sign contracts/agreements with potential and existing competitors regarding such things as “pricing, profitability, or billing terms and conditions of the work they perform”, as well as ”sales and marketing plans & supplier terms and contracts” (Shiner, 1994). Hence, by being elaborate in specifying potential pitfalls of a competitive market place, the KPMG code of ethics provides a sound reference guide not only for ethical conduct, but also for sound competitive practices. References: Roger A. Shiner., Accounting ethics: the general part, Business & Professional Ethics Journal 13.n1-2 (Spring-Summer 1994): p.p9(15).  Bill Martin and Philip Rothman., Building a culture of control awareness.(corporate ethics and accounting)., Bank Accounting & Finance 18.1 (Dec 2004): p.7(6).  Jo-Anne Dressendofer., Corporate ethics ... "follow the leader"? (Manage Your Assets).(National Business Ethics survey), Financial Executive 19.2 (March-April 2003): p.72(1). (951 words)  Teri Shearer.,  Ethics and accountability: from the for-itself to the for-the-other., Accounting, Organizations and Society 27.6 (August 2002): p.541(33). Christopher Houghton Budd., Understanding Accounting Ethics.,Review of Social Economy 65.4 (Dec 2007): p.486(4).  Read More