Corporate CPAs: A beacon of ethical behavior 

By J. Stephen McNally, CPA, CMA

In all likelihood, I’m guessing your CEO and board usually set financial targets that call for significant sales growth – perhaps even when the core product line has been in decline for years. You and your finance team are expected to deliver this growth while also planning for reduced costs and delivering increased income on the bottom line. If you hit headwinds, you better protect the bottom line at all costs, right? Wall Street and other stakeholders will not be forgiving if you miss the targets you’ve communicated. 

As financial targets grow increasingly ambitious year on year, so too does the possibility of corporate misbehavior by those individuals responsible for reaching those goals. The pressure on those tasked to deliver financial results – and the risks of being motivated to do the wrong thing – has been further amplified by the COVID-19 pandemic, which is likely to lead to lower earnings across the board. 

The finance function may have never been more connected to business ethics than it is today. This period of pandemic and economic turmoil promises heightened scrutiny around financial reporting and organizational culture. As ethical decision-making becomes more important, management accountants and other finance professionals will gain greater influence as a result. 

At the forefront of business ethics 

The finance function is accountable for day-to-day activities, such as customer collections, vendor payments, handling cash, and financial reporting. Fraud is a major category of ethical misconduct, including corruption, billing schemes, check tampering, and other such activities. As such, many types of ethical violations can involve the finance function. 

More importantly, management accountants and finance professionals are intimately involved with business ethics due to the nature of the profession. Traditionally, we are known for integrity and trust. We are expected to ask tough questions, identify and challenge irregularities, and provide the unvarnished truth. Professional ethics is in our DNA. 

Over the past several years, the role of the management accountant has shifted, adopting more strategic competencies and fewer number-crunching responsibilities. Due to this evolution, those working in finance dip their toes into nearly every aspect of the business. We are working closer with cross-functional partners in other departments and we are more involved in day-to-day operations than ever before. 

This, of course, covers various technical domains, including planning, budgeting and forecasting, cost management, performance management, investment decisions, financial statement analysis, external financial reporting decisions, and other such activities, as well as an overall understanding of internal control and risk management. Now, maybe more than ever, our work must also cover the domain of professional ethics and values. 

This extends beyond exhibiting personal ethical behavior. It includes the ability to recognize the ethical lapses of others and the integrity and courage to take appropriate action. It includes having the foresight to integrate ethical principles into your organization’s operations and culture, ensuring your policies, processes, and procedures facilitate employees in making ethical decisions and doing the right thing. 

Role of the CFO 

Successfully integrating ethical principles into your organization’s operations and culture must come with authority. Organizational cultures that value ethics are more likely to form with top-down implementation. Your board of directors and management must demonstrate the importance of integrity and ethical values through their directives, actions, and behavior.1 In other words, tone at the top matters. Leaders have a considerable responsibility to show their employees the ethical practices to which they must adhere, and nowhere is this responsibility more pronounced than in the CFO role. 

As chair-elect of the Institute of Management Accountants (IMA) and former member of IMA’s committee on ethics, I work with practitioners in the field of business ethics to encourage and promote ethical best practices throughout our profession. IMA members serve on this committee because of a shared belief that the finance function is as important to business ethics as ethics are to finance, a principle reinforced by our collective experiences. 

During August 2019, the Business Roundtable, a lobbying organization representing many of America’s largest companies, released a statement redefining the purpose of a corporation. The statement, issued by the chief executives of Apple Inc., Pepsi Co., Walmart, and nearly 200 other companies, argued that “companies should no longer advance only the interests of shareholders. Instead … they must also invest in their employees, protect the environment, and deal fairly and ethically with their suppliers.”2 

My colleagues on IMA’s committee on ethics, including Dr. Lorenzo Patelli, associate professor in the School of Accountancy and interim director of the Institute for Enterprise Ethics in the Daniels College of Business at the University of Denver; Dr. D. Robert Okopny, professor of accounting at Eastern Michigan University; and Frank P. Homburger, CPA, CGMA, former global director of the IMA, found Business Roundtable’s redefined “Purpose of a Corporation” an appreciable shift in philosophy that could have implications for business ethics and the finance field. That said, the CFO has an immense role to play. 

Patelli observed that the purpose and mission of an organization is not solely defined by the CEO. “The CFO’s relatively close relationships with both management and shareholders makes the CFO role uniquely positioned to hold leaders accountable to any ‘changes’ that are implemented within an organization,” Patelli said. “If executives employ specific practices as a result of this shift in philosophy, the CFO and the finance team will have the responsibility of monitoring the changes made and ensuring they are made ethically.” 

In keeping with this hypothetical of changes resulting from the Business Roundtable statement, Okopny remarked that the CFO taking on the role of ethics arbiter must also mean that he or she speak up when they are under pressure from the CEO to enact policies that they believe are unethical. “The CEO and board will still be beholden to shareholder interests, and it falls to the CFO to be innovative enough to quantify the value of incorporating the needs of other stakeholders, such as employees,” Okopny said. “Not only will this require ethical leadership from the finance chief but a knack for creative thinking as well.” 

The ethical behavior of an organization can influence its bottom line, a consideration of which CFOs must be acutely aware both as a finance chief and an organizational leader. “Committing to all of a corporation’s stakeholders is not just the ‘right’ thing to do from an ethical standpoint, it is essential to the long-term success and sustainability of the corporation,” Homburger said. 

The threat of the coronavirus to the financial well-being of organizations around the world may tempt finance professionals and other cross-functional leaders to act out of step with accepted ethical standards. The likelihood of lower-than-projected earnings for many companies could lead to deceptions in the reporting process by bad actors, clouding the picture for stakeholders and shareholders. At countless organizations, the drive to meet benchmarks may supersede the motivation to act ethically because certain practices have not been prioritized to foster a culture that values ethics. 

Building up ethics 

Working ethical behavior into the structure of an organization can be accomplished in a host of ways, but it starts with education. Undergraduate and graduate business programs must recognize the importance of maintaining ethical behavior and decision-making in the professional world, and incorporate these principles into their curricula. Business schools have become more adept in recent years at working ethics into their lessons, an encouraging trend given that many individuals also rely on business schools to gain new skills and knowledge. 

Professional associations also share this responsibility. Even as business schools provide more ethics education to students, constant changes in the workplace necessitate current and ongoing instruction. Professional associations offer such training via continuing professional education sessions and pertinent articles, such as the one you are reading. 

Beyond educational services, professional associations have a responsibility to provide ethical guidelines for their members to follow within their respective organizations. Adopting a standard of ethics, such as the IMA Statement of Ethical Professional Practice, is a valuable way to ensure that organizational standards extend beyond regular requirements. For individual members, adherence to the AICPA/PICPA Code of Professional Conduct is required. 
Following these measures is a positive step in securing ethical alignment across professional roles in an organization, though these issues may not be of paramount importance to executives whose main concern is to improve the balance sheet for shareholders. Incorporating ethical measures into performance plans can garner executive buy-in, as this provides incentive for top-down ethical behavior. 

This tracks back to the role of the CFO. The CFO’s role is to hold the CEO and the board accountable. 

Conclusion 

As the finance chief, you can foster accountability with respect to both the CEO and the board, identifying practices that must change to satisfy measures of ethical success and ensure ethics are considered in the decision-making process going forward. 

You are the arbiter of ethics, and this duty trickles down throughout your entire organization. Management accounting and finance professionals must preach the importance of ethics in the workplace and infuse ethics across the entire business. 

This responsibility increases in importance as organizations continue to follow remote work directives. Business leaders must stay aligned with not only the ethical standards to which they subscribe but also on the importance of that subscription. The potential for ethical misconduct grows during periods of uncertainty and turbulence. You and your finance team must be the steady hand that steers the ship forward.   

J. Stephen McNally, CPA, CMA, is CFO of the PTI Family of Companies in Toledo, Ohio, chair-elect of the Institute of Management Accountants’ global board of directors, and a member of the Pennsylvania CPA Journal Editorial Board.

1 COSO Internal Control – Integrated Framework, May 2013, page 33. 
2 David Gelles and David Yaffe-Bellany, “Shareholder Value Is No Longer Everything Top CEOs Say,” The New York Times (Aug. 19, 2019). 

Reprinted with permission from the Pennsylvania Institute of CPAs.