Human Resource Management at Deloitte - Essay Example

?Log Entry December 20, Late this evening, I’ve d an article published in Reuter’s website. The article referred to the problems identified in regard to the audits that the multinational accounting firm, Deloitte, developed in 2010. Public Company Accounting Oversight Board (PCAOB) had reviewed the audits of the Deloitte for 2010 and it found that 26 out of the 58 audits developed by the firm during that year had problems (Lynch and Byrnes 2011). Moreover, the rate of the firm’s problematic audits had been increased; in 2009, the firm’s problematic audits were just 15 out of 73 (Lynch and Byrnes 2011). I decided to search the firm’s performance in regard to business ethics. I found another article, published in 2010, where reference was made to a scandal related to Deloitte: the firm had sued its own vice chairman, Thomas Flanagan, accusing him for violations of corporate ethics in regard to trading (Sommer 2010). Flanagan was the firm’s vice chairman in the corporate offices of Chicago (Blitstein 2008). According to the article, Flanagan, ‘repeatedly lied about his trading in annual written certifications’ (Blitstein 2008). I’ve made a research on the literature related to business ethics and came to the conclusion that employees in all firms need to follow the ethical rules set by their organization, as these rules are aligned with the laws regulating trade and commerce. In the specific case, Deloitte had failed in identifying early the violation of business ethics by its vice president; moreover, it seems that this failure has been a common phenomenon for the specific organization, meaning especially the problems in the firm’s audits in 2009 and 2010, as identified by the Public Company Accounting Oversight Board (PCAOB) (Lynch and Byrnes 2011). In accordance with Tittle (2000, p.67) ‘employees need to be loyal to their company’; however, this loyalty has limits. According to the above researcher, loyalty cannot justify the efforts of an employee to increase the profits of his employer by using methods, which are in opposition to existing laws (Tittle 2000). At the next level, Miller and Jentz (2009) note that within all organizations ‘lawful behavior is a moral minimum’ (Miller and Jentz 2009, p.76). It is implied that the activities of employees within organizations need to be lawful and that no violation of law in the context of business activity is permitted. In accordance with a survey developed in 1990, a high percentage of organizations, about 90%, tend to develop a corporate code of ethics (Trevino and Weaver 2003). In this context it would be expected that the phenomena of corporate fraud would be limited worldwide. The case of Deloitte, as of other well-known firms, such as Enron, revealed that the rules of corporate code of ethics are often ignored within modern organizations. I decided to explore all aspects of the Deloitte’s case, meaning its problems related to business ethics, in order to identify the failure of the organization to promote business ethics among its employees: was these failure related to specific employees or to the organization’s strategic framework? Log Entry 2 February 15, 2012 At a first point, Deloitte’s practices in regard to the control of fraud in the internal organizational environment can be considered as quite ineffective. In accordance with the firm’s website, the Board has a key role in ‘overseeing the organization and ensuring that it operates in the best interests of its shareholders’ (Deloitte, The role of the board, 2012). It is further explained, that the Board has the power to develop a regular control on the firm’s value drivers and set the firm’s targets, including the systems required for ‘monitoring managers’ accountability’ (Deloitte, The role of the board, 2012); the above powers are part of the Board’s responsibility to check the level at which the corporate governance rule are applied (Deloitte, The role of the board, 2012). In other words, the firm’s Board is primarily responsible for the promotion of business ethics across the organization. Therefore, the audit failures of the organization, as described in the article of Lynch and Byrnes (2011) and the phenomena of violation of business ethics, as reflected in the fraud developed by the firm’s vice chairman in Chicago (Mintz 2011, Sommer 2010, Blitstein 2008) can be considered as related to the inability of the firm’s Board to monitor employees’ accountability or have they been exceptional cases, reflecting the need for update of the firm’s existing corporate governance framework? In other words, at what level is the organization exclusively responsible for the violation of business ethics in its internal environment? In 2011, Deloitte was sued for a loss of $7.6 billion, because of its failure to identify fraud in its audit regarding a major mortgage bank, Taylor, Bean & Whitaker Mortgage Corp, which has been involved in the housing crisis of 2008 (Mintz 2011, Gray 2011). However, Deloitte has not been the only firm that failed in identify fraud during its audits; major accounting firms, such as ‘Pricewaterhouse Coopers, KPMG and Ernst & Young faced lawsuits in regard to their accounting standards’ (Mintz 2011). It is made clear that failures related to business ethics and corporate governance have been developed in most accounting organizations worldwide; in case of major accounting firms, such as Deloitte the problem seems to be more expanded, mostly because of the level of activation of these organizations in the international market. In other words, the failures of Deloitte in regard to the application of corporate governance rules and the promotion of business ethics can be considered as partially justified, taking into consideration the volume of transactions monitored by the organization daily but also the similar behavior of other major accounting firms, which also suffer from similar problems. In accordance with Todd Bluedorn, the CEO of Lennox International Inc, an organization needs to have structures that ‘enforce employees to meet commitments’ (Nicastro 2009). On the other hand, Sharon Allen, Chairman of Deloitte, notes that it is rather easy to say that ‘ethics are ethics’ (Nicastro 2009), meaning that the potentials of employees to fully align their activities with business ethics are, under certain terms, limited, as for example in emergent transactions or when audit is based on figures which incorporate estimations on the firm’s expected performance in the near future. The statistics showing the performance of employees in regard to business ethics, are rather disappointing; about 41% of employees are likely to disregard business ethics ‘under the pressure to meet goals’ (Nicastro 2009). On the other hand, many employees, about 80%, of those violating business ethics are expected to act in this way because of ‘lack of personal integration’ (Nicastro 2009), while the low level of employees’ financial rewards is another factor that may lead to violation of business ethics, as revealed by the 44% of the employees who were involved in such activities (Nicastro 2009). In accordance with the above, the violation of business ethics in the workplace can be related to employees personally, as independent units and not as members of the organization. In this case, the potentials of an organization to control the application of corporate governance rules in the workplace can be quite limited. The level at which Deloitte could be considered as totally responsible for business ethics violations by its employees should be further discussed using relevant literature. In accordance with Jennings (2010) all organizations are responsible for developing the moral standards on which the activities of its employees for achieving profit for the organization are based. However, when employees at different level of the organizational hierarchy have to cooperate for developing an organizational task, then a violation of ethical rules may occur; reference is made specifically to the case that employees at low levels of the organizational hierarchy have to follow orders, which are in opposition with business ethics (Jennings 2010). In the above case, the violation of business ethics is resulted because of the false perceptions of managers in regard to the necessity and the appropriateness of an organizational task (Jennings 2010). On the other hand, Schuler and Jackson (2007) note that the failure of an organization’ to treat with fairness and dignity its departing employees but also the surviving employees’ (Schuler and Jackson 2007, p.374) can lead to severe inter-organizational conflicts, leading to the limitation of the ability of employees to follow business ethics rules. The establishment of effective ethics programs can help organizations to improve their performance in regard to the promotion of business ethics in the following way: through these programs employees are informed on the ethical aspects of their activities in the workplace (Ferrell and Fraedrich 2012), a fact that would help towards the increase of employees’ commitment to ethics, as set through the organization’s corporate governance rules but also the laws related to the specific field. At this point, reference should be made to the study of Lawson (1998) who supported that behavior modeling can be the best method for enforcing employees to respect business ethics; in the context of this management scheme, employees are motivated to apply business ethics following their superiors. Also, Mandal (2010) notes that the successful development of ethics programs within modern organizations is based on two different factors: that appropriate initiatives are taken by the organization and that employees participate actively. The literature related to business ethics reveals that the promotion of business ethics within organization is not depended only on the relevant organization’s efforts but also on the willingness and the ability of the employees to align their behavior with business ethics. In the case of Deloitte, this means that the potentials of the organization to prevent the violation of business ethics across its departments have been less than initially estimated. Log Entry 3 February 20, 2012 When I began the study I had a different attitude in regard to the causes of moral and ethical problems in Deloitte. After having read the article of Lynch and Byrnes (2011) focusing on the failure of Deloitte in controlling ethical problems in the internal organizational problem, I was, almost, convinced that the firm had, solely, the responsibility for these phenomena. This view was further verified through the articles of Sommer (2010) and Blitstein (2008); through these articles it is made clear that the firm’s employees had access to critical information without appropriate security measures to exist, meaning that employees had the chance to cause severe damages to individuals and organizations, even for a long time. The involvement of the firm’s vice chairman in Chicago in illegal trading activities took a long time to be revealed. Due to the nature of its activities, the development of audit in well-known firms globally, the organization should have developed appropriate measures for securing the safety of his customers’ data. The increase, annually, of the failures related to the firm’s audit, as the problem is described in the article of Lynch and Byrnes (2011), verifies the fact that the promotion of business ethics in Deloitte is problematic. In this context, I had been convinced that the responsibility of the organization for this phenomenon has been significant; Even if efforts are made by the firm’s managers for controlling fraud, as indicated in the organization’s website, it seems that there is no appropriate plan of action. As a result, all these efforts have no chance to succeed, or at least their benefits do not last for long. However, after studying the literature published in the specific field, as presented analytically in the previous log entry, my attitude in regard to the responsibility of Deloitte in the development of fraud across its departments, has changed. I understood that controlling employees can be a challenging task, especially when referring to organizations that operate in the global market, like Deloitte. More specifically, in accordance with the issues discussed in log entry 2, the potentials of organizations to monitor the activities of their employees can be limited by certain factors; the nature of each firm’s activities can prevent the development of certain measures of security in regard to the customers’ data. For example, in auditing firms, as Deloitte, the continuous access to the customers’ data is usually necessary in order to check the financial status of customers, meaning their performance in the short and the long term, as this performance has to be reflected in relevant reports and financial statements. Moreover, the market trends can promote specific management practices, which may not benefit the organization but which they are aligned with the customers’ preferences. For example, customers of Deloitte may ask employees for advice in regard to investment on specific financial products; the firm’s employees may not be able to identify the exact borders of their role. On the other hand, the failures of employees in understanding all aspects of a specific task cannot be ignored; certain failures in the firm’s audits may be related to the inability of the employees involved to evaluate the performance of the clients (organizations). In other words, failures in auditing, or in developing organizational tasks in general, may not be developed on purpose. Under these terms, Deloitte is responsible for the increase of fraud within its departments but up to a point and not fully, as I believed in the beginning of the study. References Deloitte. 2012. About Deloitte. Accessed from Deloitte. 2012. The Role of the Board. Accessed from < http://www.corpgov.deloitte.com/site/sweeng/role-of-the-board/> Ferrell, O., Fraedrich, J. 2012. Business Ethics: Ethical Decision Making & Cases. Belmont: Cengage Learning. Gray, K. 2011. Deloitte sued for $7.6 bn, accused of missing fraud. September 27, 2011. The Wall Street Journal. 22 February 2012. Accessed from Jennings, M. 2010. Business: Its Legal, Ethical, and Global Environment. Belmont: Cengage Learning. Lawson, J. 1998. How to develop an employee handbook. New York: AMACOM Division of American Management Association. Lynch, S., Byrnes, N. 2011. 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Ethical issues in business: inquiries, cases, and readings. Toronto: Broadview Press. Trevino, L., Brown, M. 2004. Managing to be ethical: Debunking five business ethics myths. Academy of Management Executive,Vol. 18, No. 2, pp.69-81 Read More