Dealing With ACCA Exams bravely!

Ethics is a branch of philosophy that studies the difference between right and wrong. As professional accountants, you will have many opportunities to choose between right and wrong. And as you have seen in the business press, making the wrong choice can lead to serious consequences including corporate failure, loss of reputation, fines, and even jail sentences.

The objective of this unit is to introduce you to different branches of ethics, in order to help you understand that people approach the topic with different points of view. You will learn about different ways of thinking through an ethical question. This will help you identify the way that you make decisions so that you can recognise your own personal ethics in any professional ethical problem that you may be faced with. In this way, you can mitigate any detrimental impact of your own personal ethics, with a view to a more objective approach.

Ethics has been applied to different fields like biology, for example, resulting in new fields of study like bioethics and environmental ethics; to social sciences, resulting in fields of study like feminism; to war, for pacifism; to criminology, for criminal justice; and to business and the field of business ethics. What you will be studying in this module generally falls into the area of professional ethics.

In very broad terms, there are three ways of looking at ethics that have developed over time: rules conformance, good intentions, and competence.

One way of thinking about ethics is in terms of conformity to rules. From this perspective, ethics is understood as a list of things to do and to not do. Sometimes the list gets very long and complicated and needs to be interpreted by a whole institution of people. The ethical person, from this perspective, is the one who conforms to the rules.

A second way of thinking about ethics is in terms of good intentions. From this perspective, a behaviour is considered ethical if it is based on good intentions. Good behaviour then follows from good thinking.

The third perspective thinks of ethics in terms of competence. From this perspective, the ethical person is one who can make decisions based on principles and then act on them. This perspective is thought of as looking at competence, because ethics is thought of in terms of an ability rather than an attitude. 

As a subject of scholarly study, ethics sits among other branches of philosophy like metaphysics (the study of the nature of reality), epistemology (the study of what can be known and how we know about it), aesthetics (the study of concepts like art, music and beauty) and logic (the study of reasoning and methods of arguing).

Over centuries of philosophical debate, ethics has developed several schools of thought. In other words, philosophers and others have developed different ethical theories, different ways of thinking about ‘doing the right thing.’ These theories reflect scholarly differences between professional philosophers, but they also reflect differences in style of moral reasoning that can be observed in everyday moral reflection. As a professional accountant working with people, it will be important for you to become aware of your own ethical way of thinking, and to understand that other people may think about doing the right thing in a different way from you. Some of the better known ways of thinking about ethics follow, in no particular order.

The accounting examples included here are only used to illustrate new concepts for you using familiar terms. When making any decision as a professional accountant, you must be sure that you are following the laws of your country, the particular rules that govern you, and the ACCA fundamental principles. 

One way to think about ethics is to acknowledge that there are things that someone just does not do, as part of a duty to others. A limitation of this principle is that you have to decide what those things are that someone should not do.

At least one philosopher (Immanuel Kant) has defined those duties by saying ‘act according to principles that everyone could follow.’ For example, if you disobey traffic lights, you should consider what would happen if everyone did so. The point is that we should recognise everyone as equals, and not assume that the rules are any different for ourselves than they are for other people.

As an accounting example, a professional accountant would not deliberately issue false or inaccurate financial statements. If everyone did so, no statements could be trusted and as a consequence not only would the profession be brought into disrepute, but all financial statements would have no value to their users. Ultimately the need for accountants and for financial reports would be called into question.

Another way of thinking about ethics is based on thinking about the consequences to different people. Briefly, consequentialism encourages you to make decisions based on the consequences — both positive and negative — for those involved.

This category of thinking is the branch of ethics known as utilitarianism. This states that an action is right if it leads to the most good outcomes and the least bad outcomes for the greatest number of people. 

One limitation of thinking about ethics in terms of consequences is that you have to agree on what sorts of consequences matter: for example, should you be trying to promote pleasure and avoid causing pain, or should you instead focus on promoting people’s actual well-being, regardless of whether doing so makes them happy? 

A modern application of this point of view is the cost-benefit analysis, which involves assigning monetary values to the costs and benefits of an action and seeing how they add up. This practice is often used in evaluating new projects.

As an accounting example, an accountant thinking in terms of consequences would prepare ‘true and fair’ financial statements because doing so would bring the most benefit to the greatest number of people. In other words, stakeholders inside and outside the organisation would be able to make more informed decisions as a result.

In virtue theory, the emphasis is on deciding what sort of person one should try to be, and to define the virtues such a person would embody. You decide what makes a good person, instead of what makes a good action, and act accordingly.

One limitation of this way of thinking is that what constitutes a virtue must be agreed upon, and it can vary by culture and over time. For example, the qualities of good financial reports were once considered to be completeness, historical accuracy, reliability and strict adherence to the legal form in disclosing business transactions. More recently, the qualities of good financial reports have come to be relevance for decision-making, reference to a wider conceptual framework, and presenting the economic substance of business transactions.

As an accounting example of the use of virtue theory, in deciding whether to agree to a client’s request to use a questionable method for valuing inventory, an accountant would ask, ‘What would a conscientious accountant do in such a situation? What would one of my respected mentors do?’ 

The social contract theory of ethics advises you to think about ethics as embodying a set of rules agreed upon by reasonable people to bring order to social living. So when making an ethical decision you ask yourself, ‘What rule would reasonable, unbiased people agree to?’ You then follow such rules, regardless of whether they benefit you in particular situations.

One criticism of this theory points out that the agreement referred to by social contract theory is entirely imaginary. Why consider yourself bound by an agreement that never happened?

An accounting example of social contract thinking might be seen in a situation where an accountant has to decide between loyalty to a client and candid assessment of financial statements. Both of those options involve important social values. Thinking in social contract terms, the accountant might ask, ‘What sort of rule for balancing these values would unbiased people agree to?’

Confucian ethics seeks to provide harmonious relationships within society, the family, and the individual. Looking within yourself and learning from experienced people are seen as the main roads to wisdom and self-harmony. The emphasis on experience leads to respect and reverence for the past, the aged, and for one’s ancestors.

One of the criticisms of this model is that in a society where relationships are considered more important than the laws themselves, corruption and nepotism may be tolerated.

As an accounting example, in deciding whether to agree to a client’s request to use a questionable method for valuing inventory, an accountant thinking in Confucian terms might consider agreeing to it because doing so would cause harmony with the client.

In addition to scholarly branches of philosophy, some other ways of looking at right and wrong have developed.

The golden rule

The classic golden rule is to ‘do unto others as you would have them do unto you.’ In other words, ‘I will not cheat that person because I do not want them to cheat me.’

The golden rule is a simple and useful tool, but it does have some limitations. We don’t really know how babies or animals want to be treated, for example, so the golden rule can’t tell us much about how to treat them. Also, the whole rule is based on your own feelings of how you yourself would want to be treated. But your own needs and preferences might not be typical. For example, the fact that you personally do not value privacy does not mean that you don’t owe others an obligation to respect their privacy.

As an accounting example, this rule of thumb could be applied to mean that you disclose all information that may be relevant in financial reports because, if you were the reader of those financial statements, you would expect to receive all the information, and disregard any that is not relevant to you.

Another rule of thumb is the mirror test. This is a quick way to evaluate a decision that you are about to make, and reinforces the notion that you are responsible for your own actions. Imagine you’re looking in a mirror and ask yourself:

Is it legal?

If it is not legal, don't do it.

What will others think?

Others meaning a friend, a parent, a spouse, a child, a manager, the media, or someone else whose opinion is particularly important to you.

As an accounting example, in deciding whether to agree to a client’s request to use a questionable method for valuing inventory, an accountant thinking in terms of this rule of thumb would consider how a story about this action would look on the front page of the local newspaper.

It is worth noting that two different words – ethics and morality – tend to arise when ethical issues are discussed. Morality, like ethics, is about the principles we use to judge the right and wrong of our actions. The technical difference is that while morality consists of the various principles that guide our decisions, ethics is the careful, methodical, and scholarly study of which principles should guide our actions. For most purposes, the words can be used interchangeably so we can speak of having either ‘ethical obligations’ or ‘moral obligations’.

For some people, religion plays an important role in their moral beliefs and moral reasoning.

If you belong to a faith-based community, you may have learned ethical behaviour from the religious leader in your church, temple, mosque, synagogue, or other place of worship. That experience provides you with another point of view to approach decision-making at work.

Even if you do not belong to a faith-based community, you should be aware that some people do, and may bring their religious beliefs to a business discussion of ethics. 

It is important to remember that secular ethical perspectives such as those discussed in this unit need not always conflict with religious beliefs. Most, if not all, religions contain some direction about treating other people fairly, and that is also the premise of most ethical models. It is also seen as good business practice.

 

There is a theory of moral development which says that people move through six stages. This theory was popularised by Lawrence Kohlberg based on his research studies conducted at Harvard’s Center for Moral Education.

His theory of moral development was dependent on the thinking of the Swiss psychologist Jean Piaget and the American philosopher John Dewey. These men said that human beings develop philosophically and psychologically in a progressive fashion as they grow up. 

In stage one, people are concerned with obedience and punishment and the immediate results to themselves. The question they ask themselves is, ‘Will I be punished if I do this?’.

In stage two, people are still concerned about the consequences, but have moved on to thinking about what else is in it for them. They think, ‘You do a favour for me and I’ll do a favour for you.’

In stage three, people begin thinking about their social relationships. They want to be a good person so that they can seek approval from others.

In stage four, a functioning society is paramount, and people seek to obey laws and social conventions. If one person violates a law, perhaps everyone would, so there is an obligation to uphold the law.

In stage five, people think in terms of inalienable rights and liberties. Laws are seen as embodying social contracts, and such contracts are open to criticism. People at this level are interested not just in what society’s rules are, but in what makes a good society.

The theory says that people rarely reach stage six. If they did, they would show respect for universal principles and the demands of individual conscience, acting because it is right, not because it was legal or expected of them. 

Although this theory of moral development has been criticised for being overly concerned with abstract principles such as justice, and not enough with care, it is still a useful framework for investigating your personal ethics.

Historically, most professions like medicine and law had codes of ethics and members were required to swear an oath to uphold those codes, thereby ‘professing’ to a higher standard of responsibility. 

In modern times, membership of a profession is usually restricted and regulated by one or more professional associations, and rigorous training and additional schooling is required. Professionals typically proclaim an obligation to society beyond their client relationship, and point to a code of ethics that they follow.

So as a professional accountant with a code of ethics, you will form part of a long tradition of people who ‘profess’ to a higher standard of accountability. You will also enjoy a position of trust and responsibility. This is perhaps most obvious in the role accountants play in auditing publicly traded companies. Although the client company pays the bills, your highest obligation is to the public good, and in particular to the investing public that will be relying on the accuracy and integrity of your work.

SUMMARY

Morality is a set of rules concerning right and wrong behaviour. Ethics is the branch of philosophy that attempts to provide clear arguments about which moral rules are best and how those rules ought to be interpreted. 

There are several different ethical theories or frameworks for ethical decision-making, each of which has been advocated by prominent moral philosophers. Some philosophers, for example, advocate thinking about ethics entirely in terms of consequences: what action will produce the best outcomes overall? Others have argued in favour of thinking solely in terms of duties, and absolute principles of behaviour – such as ‘Always tell the truth’ – that could be adhered to by all. Still others have advocated thinking about ethics in terms of hypothetical contracts, asking us to imagine what rules of behaviour reasonable, unbiased people would agree society should live by. And finally, some have argued that we ought not to think about ethics in terms of rules, but rather to think about what kinds of virtues good people embody, and what kinds of people we think it best to emulate.

Many different factors affect ethical reasoning, including age, sex, religion, and professional affiliations. 

It is preferable that your ethical decisions be based on good reasoning and careful consideration of the relevant laws and principles, but it is also necessary to be aware of the various personal factors affecting your own decision-making, and those of other people.

1. 'Do unto others as they do unto you' is often called 'The Golden Rule'.

True

False

2. Social contract theory is a branch of contract law.

True

False

3. Ethics is a branch of science.

True

False

4. In the Confucian model of ethics, the emphasis is on maintaining harmony.

True

False

5. Thinking of ethics in terms of ‘competence’ means thinking about ethics in terms of having the appropriate attitude.

True

False

6. Utilitarianism is a branch of ethics that recommends actions that produce the most pleasure and the least pain for the greatest number.

True

False

7. Virtue theory is concerned with determining the sort of person you should try to be, rather than what rules you should follow.

True

False

8. The data on ethics and gender indicate that men are not capable of thinking about ethics in terms of ‘care’ .

True

False

9. Philosophers agree on what constitutes right and wrong.

True

False

10.                  A cost-benefit analysis is an example of utilitarianism.

True

False

11.                  A professional is free to follow their own personal ethics.

True

False

To check your answers, click here.

Question 1: 

'Do unto others as they do unto you' is often called 'The Golden Rule'. 

The correct answer is - True

Strictly speaking, this is a rule of thumb and not an ethical school of thought.

You answered: True 

Question 2: 

Social contract theory is a branch of contract law. 

The correct answer is - False

Social contract theory is a branch of philosophical ethical theory. It concerns idealized hypothetical agreements, not the actual agreements with which contract law is concerned.

You answered: False 

Question 3: 

Ethics is a branch of science. 

The correct answer is - False

Ethics is a branch of philosophy. The word philosophy comes from a Greek word which means 'love of wisdom.' Science, on the other hand, is a way of acquiring knowledge through experiments and the body of knowledge that has been acquired in that way. Branches of science include biology, chemistry, and physics.

You answered: False 

Question 4: 

In the Confucian model of ethics, the emphasis is on maintaining harmony.

The correct answer is - True

In the Confucian model of the world, the emphasis is on harmonious relationships, and the different duties arising from one to another. The five main relationships are father and son; ruler and subject; husband and wife; elder and younger brother; and between friends.

You answered: True 

Question 5: 

Thinking of ethics in terms of 'competence' means thinking about ethics in terms of having the appropriate attitude. 

The correct answer is - False

Thinking about ethics in terms of competence involves thinking in terms of the skills and capacities required to understand and act upon ethical principles. From this perspective, we are less concerned about intentions and attitudes, and more concerned with appropriate performance.

You answered: False 

Question 6: 

Utilitarianism is a branch of ethics that recommends actions that produce the most pleasure and the least pain for the greatest number. 

The correct answer is - True

Utilitarianism is a branch of ethics based on thinking about the consequences of your actions on different people. In particular, utilitarianism says that you should seek to promote positive consequences and avoid negative consequences, for all concerned.

You answered: True 

Question 7: 

Virtue theory is concerned with determining the sort of person you should try to be, rather than what rules you should follow. 

The correct answer is - True

Virtue theory reframes ethics in a way that encourages us to think less about rules and principles for decisions, and more about what sorts of personality traits are ethically worthy. Virtue theory suggests that instead of asking 'Is this truthful?' we should ask 'Is this answer consistent with me being the kind of honest person I ought to be?'

You answered: True 

Question 8: 

The data on ethics and gender indicates that men are not capable of thinking about ethics in terms of 'care.' 

The correct answer is - False

The data on ethics and gender does indicate that, on average, in certain countries, men and women think slightly differently about ethics. Men tend to focus more on rules and general principles, and women tend to focus more on care and specific relationships. But the data does not support the idea that either style of ethical thinking is unique to either men or women.

You answered: True 

Question 9: 

Philosophers agree on what constitutes right and wrong. 

The correct answer is - False

Over centuries, ethics has developed several schools of thought about 'doing the right thing.' These theories reflect scholarly differences between professional philosophers, but they also reflect differences in style of moral reasoning that can be observed in everyday moral reflection.

You answered: False 

Question 10: 

A cost-benefit analysis is an example of utilitarianism. 

The correct answer is - True

A cost-benefit analysis considers the consequences to different people.

You answered: True 

Question 11: 

A professional is free to follow their own personal ethics. 

The correct answer is - False

A professional has an obligation to society at large and must follow the code of conduct of their profession.

You answered: False 

 

 

 

THE SEVEN DEADLY SINS OF STRATEGY IMPLEMENTATION

by Martin Corboy and Diarmid Corrbui  16 May 2007

CEOs and senior managers are increasingly judged on the success of their companies’ business strategies. Yet, despite the existence of complex strategy formulation processes in many organisations, many corporate strategies fail to actually get implemented. In this brief article, we describe the main pitfalls of successful strategy implementation. Research by Prospectus Strategy Consultants has revealed that up to 70% of business strategies fail to get fully implemented. The strategy planning process in many organisations is treated with groans rather than cheers. It is seen as a chore that must be endured rather than enjoyed. In many cases, the output of the process, the business strategy fails to get implemented or is implemented in a form, which is quite different from the original intent. Because of the weakness of over-centralised planning processes and the poor rate of strategy implementation, strategy planning as a major management tool went into decline in the 1980s and early 1990s. The focus of this period was on cost-reduction, downsizing, process re-engineering and increasing operational effectiveness. However given recent market turbulence and a renewed focus on growth and expansion, strategy and strategic planning are now very definitely back in vogue. If companies are to learn from the inadequacies and failures of strategy planning in the past, organisations need to look at how they formulate their business strategies and, when they are developed, how they go about implementing them. Strategy is of limited value unless it is acted upon. What can be done to improve the effectiveness of turning strategy into action? As often as not, it is usually the result of an organisations not committing one or more of the 'seven deadly sins of strategy implementation'. DEADLY SIN ONE The strategy is not worth implementing In too many cases, what is referred to as business strategy, is deficient in analytical rigor, creative insight, ambition or practicality. If the strategy is going to get the active support of management and staff, it needs to be specific, realistic and give the organisation something to strive for. Strategy making is often considered to be easy. It is easy if the strategy development process limits the scope of discovery, the breadth of involvement and the amount of intellectual effort expended. The strategy should not just be more of the same, incremental or comfortable. It needs to be stretching or innovative. DEADLY SIN TWO People are not clear how the strategy will be implemented When the strategy has been developed and evaluated, it then requires a plan to prepare the organisation for its implementation. There is always a strong desire to get started and make the strategy happen. The time spent on implementation planning is often seen as time wasting. However, there are a number of important issues that need to be addressed including: ·                         priorities for management; ·                         timescale; ·                         lessons learnt from previous strategy implementations; ·                         impact on structure and staff at all levels; ·                         participation; and ·                         risks; DEADLY SIN THREE Customers and staff do not fully understand the strategy There is a tendency for chief executives and senior management to communicate the business strategy on a ‘‘need to know’’ basis. If you don’t put in the effort to sell and explain the strategy, how can you hope to have it implemented? Your front-line supervisory staff must understand what the strategy is about, why it is important and how it will affect them. The strategy implementation plan should include a communications plan, which sets out who needs to be told about the strategy. The plan should not only include senior management but also middle management, supervisors, staff, customers, suppliers and other key stakeholders. DEADLY SIN FOUR Individual responsibilities for implementing the change are not clear It is not sufficient just to develop a very insightful and relevant strategy and hope that the logic behind the strategy will be enough to make it a reality. People should be given clear and specific responsibilities for making strategy work. The more people you directly involve in the implementation process the better. This will create a wider sense of ownership, commitment and responsibility for making the strategy happen. Accountability must go hand in hand with responsibility. If someone has been given an implementation task, make sure they do it. Part of assigning staff responsibility is giving clear, understandable instructions and tasks and reviewing progress at regular intervals. DEADLY SIN FIVE Chief executives and senior managers step out of the picture once implementation begins It is very important that strong leadership is provided during the implementation phase. People will be looking for clues. If staff feel that senior management are not fully committed to the strategy, their commitment and enthusiasm for it will wane. Staff must believe that implementing the strategy is one of the organisation's top priorities. From the time the strategy is developed, senior management must sell and continue to sell the strategy to the organisation and to the other stakeholders. They need to explain the vision and communicate the importance of the strategy for the future of the organisation. DEADLY SIN SIX The 'brick walls' are not recognised Nothing ever goes exactly according to plan. Organisations operate in an ever changing and dynamic environment. It is important that those brick walls, which inevitably will be encountered along the way, are acknowledged and addressed. When those moments of crisis or uncertainty occur, staff should be encouraged to develop creative and innovative solutions to surmount these obstacles. DEADLY SIN SEVEN Forgetting to 'mind the shop' There is a risk that the process of developing and implementing strategy becomes the consuming concern of senior management. They forget that they have a business to run, targets to meet, a service to provide and customers to serve. Both management and staff must believe that implementing the strategy is as important as doing the day job. One is not more important than the other and the strategy, if it is relevant and meaningful, should become an integral part of the day job. Shareholders will not thank senior management for developing and implementing a very well crafted strategy while at the very same time, letting profitability fall significantly or customer service to deteriorate. It is important that strategy is a continuous activity and not a once-off event. Periodic checks are necessary. Check that the assumptions are still valid. Identify and anticipate events or developments, both internal and external, which may require a revision or addition to the strategy. Make the changes quickly and communicate them to all concerned; however make sure that the changes are really required and the strategy is not being adjusted in a frivolous manner. Strategy implementation is always going to be difficult and fraught with danger of being abandoned through inertia or resistance. Change is never easy. However, the task of putting strategy to work can be made much easier and have greater chances of success by avoiding the seven deadly sins outlined above.