IntroductionFor this essay, I will further build on the ethicaldilemma discussed in the pre-assignment. At its core, this ethical dilemmarevolved around whether or not to voice a superior’s instruction, whereas thoseinstructions could be perceived as unethical in nature. Possible factors thatinfluenced my superior’s reasoning for those instructions were, although notexplicitly discussed with my superior, the potential for impairment of firmreputation, client expectations, time pressure, and, possibly, personal scrutinyfor the superior.
In this situation, I did not question my superior’sinstructions, primarily as I did not want to question my superior’s expertise. To put the matter above into a broader context; I amemployed for an audit firm in The Netherlands. Our firm was approached by themanagement of a real estate fund, which was seeking to acquire 100% of theshareholding in one of its joint ventures. Management requested us to supporttheir position that the price it should pay for the partner’s 50% shareholdingshould be less than the joint venture’s net equity value – i.e. a discount to netasset value should apply.
Throughout the engagement period, my superior hadalready partly confirmed the client’s position. Later in the process, it wasagreed that we would gather evidence on comparable transactions and interviewexperts, and prepare a report on this subject as independent experts. While performingthose procedures, I soon realized that our client’s position may not be asstrong as we initially anticipated.
While the obtained evidence indeed mostly pointedtowards being in favor of our client’s position, it was not fully conclusivesince it was dependent on many variables, and not all those variables wererepresentative for the matter at hand. Nonetheless, I was instructed to preparethe final report, such that it concluded more in favor of our client’s position,and to include any contrary evidence less prominently in the report. While ourfinal report still captured the results of our research in full, the way it waspresented would give our client a stronger tool in his favor. Further development ofthe situation – is this a more common ethical dilemma in our firm?Priorto further analyzing the ethical dilemma introduced above, it is appropriate toconsider whether this is an issue that stands on its own.
Especially whenmaking recommendations for improvements, it would not be appropriate if thematter described above has no broader significance. Obviously, it would bepreferable to collect data from a representative sample using, for example,questionnaires, but such procedures are beyond the scope of this essay.Nonetheless, to add some further substance to the analysis, I have held short discussionsabout this matter with a few colleagues from different hierarchical levels inthe audit practice within my own office location. Three colleagues confirmed tohave experienced similar situations; their superior gave them instructionswhich were at least questionable as it could potentially harm the quality oftheir deliverables. Although the firm has a code of conduct and guidelines onhow to act in such situations, as will be further discussed later, when thesituation presented itself, the appropriate course of action per the guidelineswas not followed. At the time, deadlines, time pressure, and clientexpectations played an important role in the employees’ behavior, but alsotrust in the supervisor’s abilities and experience, and not wanting to voiceagainst a superior in light of possible retaliation, let to neglectthe potential ethical issue at hand. These explanations, as well as thosepresented in the main ethical dilemma, show similarities with rationalizationtactics1discussed by Anand et al(2004): denial of responsibility (my superior is ultimately responsiblefor the deliverables, it’s his decision), and appeal to higher loyalties (donot voice your superior).
Furthermore, by discussing this matter with differentfunctional levels, it seems that there is at least some relationship between (eitherrecognizing or experiencing) the ethical dilemma and job experience, functionallevel and employment years, which may provide insight into the intricacies ofthe ethical-decision making process. The colleagues that experienced similarethical dilemmas were all from higher hierarchical levels. These (individual)factors are discussed further in thisessay. Although it may be obvious that these observations are by no means constructedusing empirically gathered data, and it may not have any internal nor externalvalidity, for the purpose of this essay I argue that there is sufficientsubstance to subject this ethical dilemma to further analysis using theory.Inaddition to the matters outlined above, the Dutch financial markets regulator(Autoriteit Financiële Markten, AFM) is continuously pressing that (audit)quality is falling short at most top audit firms, including the firm for whichI am employed. In their most recent study (AFM, 2017), the regulator concludes that qualityimprovement initiatives at audit firms are moving forward too slow.
A change inbehavior, culture and governance is required to improve audit quality accordingto the regulator. The findings of the AFM add to the observation that ethicaldilemmas are present, but not only the issue discussed here. Moreover, firmculture seems to be nurturing an environment in which unethical decisions arebeing made, all pointing towards a need for change as this could potentiallyharm not only individual employees within the firm, but moreover the firm’sreputation and its relationship with its stakeholders.Havingargued that the phenomenon discussed here may have broader significance, I nowturn to theory to further analyze the ethical dilemma. Analysis of the ethicaldilemma from a theoretical perspectiveNormativeethical theories provide us with rules and principles that can be applied inany given situation, i.
e. they prescribe the morally correct way of thinking (Crane and Matten, 2010). Crane and Matten (2010)provide the useful insight of pluralism in relation to normative ethicaltheories; that is, accepting that moral principles are context-dependent asclaimed by ethical relativism theories, while also recognizing that basicprinciples should be reached from an absolutism point of view. Since it isbeyond the scope of this essay to elaborate on all normative ethical theoriesin relation to the ethical dilemma, I will discuss two theories which representopposing, yet complementary, perspectives on the ethical dilemma. Theabsolutist perspective of ethics of duties as developed by Immanuel Kant (1724 – 1804) anddiscussed by Crane andMatten (2010) may shed further light on an individual’s decision ofright and wrong, taking into account the consequences of their decisions. PerKant’s categorical imperative framework, individual and rational human actorsshould apply a test of three maxim’s to each situation, and conclude that anaction is morally right if it ‘survives’ all three tests (Crane and Matten, 2010). Thecourse of action for the dilemma in this essay would be, put simply, that theemployee does not bluntly follow the instructions of the superior, but contemplateson an alternative course of action.
At the first maxim however, this is alreadyproblematic; it is safe to conclude that this is certainly not the universallaw to be applied in all situations in which a superior provides instructions.As it is not universal law, it would be deemed immoral due to inconsistency. Inreality, it may sometimes be appropriate for (less experienced) employees tosimply do as they are told, rather than to question everything. Moreover, fromthe perspective of egoism, as largely developed by Adam Smith (1723 – 1790),one may argue that this latter course of action is in fact the moral route; simplydoing as you’re being told may support an employee in pursuing short-termdesires (likability by superior, job security, etc.). This inconsistencybetween the theoretical perspectives of ethics of duties and egoism merelyshows that an absolutist approach regarding which course of action needs to betaken, or, what the moral route should be, falls short. Questioning thejustification of a superior’s instructions (in whatever form) may or may not bethe appropriate course of action, but the appropriateness of the decision to doso is more context-dependent than is suggested by absolutist theory.Discourse ethics, having a more relativisticperspective, may already provide some further guidance in working towardspossible solutions of the ethical dilemma.
Discourse ethics, per (Crane and Matten, 2010)revolves around settling ethical disputes through dialogue with allparticipants of the dispute, which provides a process for generating norms.This perspective may be useful when assuming that the appropriate course ofaction for an employee, is to engage in discussion with its superior. Moreover,this is what discourse ethics encourages to do. As such, while this approachmay be useful, the theory does not truly capture the essence of the ethicaldilemma faced by employees; it only provides a possible solution in case ofconflicts, while such conflicts do not necessarily need to occur. Whether ornot conflicts arise at all, is likely to be affected by the specific individualand situational factors that determine the context of the ethical dilemma (forexample, employee experience, education, personality traits, authority power,firm culture; factors which are further discussed below).Whilethe above discussion of normative ethical theories certainly adds to theanalysis of the ethical dilemma in this essay, most of the normative ethicaltheories are still rather abstract and do not yet yield very useful insights orprinciples which provide a basis to further develop guidance for employees onhow to act or behave in situations similar to that discussed in this essay. Itmerely points out that, and confirms, indeed the situation is subject to moralconsiderations, and that the appropriate course of action is context-dependent.
Nonetheless, in line with Craneand Matten’s (2010) pluralistic perspective on ethics, the need todevelop more advanced principles for employees does exist when considering thebroader cultural concerns raised by the Dutch regulator; consequently, furtheranalysis is required. Hence, I turn to descriptive ethical theories to providefurther insights in the ethical decision-making process. Incontrast to the normative ethical theories discussed above, ‘descriptive ethical theories seek todescribe how ethics decisions are actually made in business, and whatinfluences (…) those decisions’ (Crane and Matten, 2010). As such, descriptive ethical theoriescan be useful in analyzing why individuals behave in particular ways, which isthe core question when aiming to develop effective guidelines that encourageethical decision-making. As discussed by Crane and Matten (2010), Loe et al. (2000) suggest that the modelfor ethical decision-making proposed by Jones (1991) ‘providesthe most comprehensive synthesis model of ethical decision-making’. Jones (1991) proposedthat individuals move through a process when making ethical decisions, whichstarts at (the ability to) recognize moral issues, making moral judgments,establishing moral intent to also act upon that judgment, and finally actuallyacting upon that intention.
Fordand Richardson (1994), through a review of the empirical literature onethical decision-making, provide an analysis of the empirical evidence forvariables that, to a certain extent, influence multiple stages in the ethicaldecision-making process. Those variables are broadly divided into individualand situational factors, which I will further discuss below insofar those factors resemble the ethicaldilemma. Individualfactors of education and employment, moral imagination, and personal integrityare perceived to be most relevant inthis situation. The first two individual factors are closely related to thefirst two steps in the ethical-decision making process by Jones (1991); anindividuals’ ability to recognize moral issues and making moral judgments. Thethird individual factor is more closely related to the next two steps in thisprocess; establishing moral intent and acting upon that intent.Education and employment –although the relationship between education, employment experience and ethicaldecision-making remains ambiguous (Ford and Richardson, 1994; Loe et al., 2000), it is notunreasonable to assume that this is an important individual factor in beingable to recognize the potential ethical problems which may be imposed by asuperior’s instruction, let alone voice against such instructions.
This couldalso be an explanation why only more experienced colleagues confirmed to me tohave experienced similar ethical dilemmas; less experienced employees may verywell not have sufficient experience to recognize such moral issues due to alack of professional and technical knowhow.Moral imagination – possibly closely related to the above,moral imagination is argued to be relevant in this ethical dilemma as well. Themost obvious course of action is to follow the superior’s instruction; ifemployees lack moral imagination, they may not consider other possible routesand do not fully understand the outcomes or consequences of their decisions –very much similar to how I dealt in this situation.
I argue that the firm canbe supportive in training employees abilities’ to envisage other routes to dealwith similar ethical dilemmas.Personal integrity – which is defined by Crane & Matten (2010)as an adherence to moral principles or values. Being able to speak-out againsta superior or revert the superior’s instructions to a senior colleague orcompliance desk (i.e. whistleblowing), requires a strong sense of personalintegrity, especially when considering that such actions potentially havenegative consequences for employees (Rothschild and Miethe, 1999): job loss, negative evaluations,closer monitoring by superiors and other forms of retaliation are abound.
Iargue that the environment, such as the firm’s culture, can greatly supportemployees’ in developing a strong sense of personal integrity if norms andvalues communicated to employees nurture such characteristics.The context-related situational factors of authority, bureaucracy,work roles and organizational culture are perceived to be most relevant in thissituation, although existing reward structures may also be of relevance in thiscontext. I elaborate further on these below:Authority, bureaucracyand work roles – due to thenature of the profession, audit firms tend to be highly hierarchical andbureaucratic in terms of functional responsibilities and employee work roles. Assuch, voicing a superior may not be perceived as the norm or desired behaviorby superiors, which allows superiors to instruct employees to their likings andinvokes employees’ loyalty over ethical rationalization.Organizational culture – as discussed by Crane & Matten (2010), there is ‘wide-ranging evidence, as well as strongconceptual support, (…) that culture and ethical decision-making are profoundlyinterwoven’. Schein(2010) has argued that ‘leaders(…) are the main architects of culture’ in his highly influential book Organizational Culture and Leadership.
Boththe role of leadership and nurturing a high quality culture (which is highlyrelated to ethical decision-making within audit firms), is troubling at manyaudit firms according to the AFM(2017): firms have not sufficiently developed a culture that emphasizesquality of work, and employees feel that leadership does not lead by example.Clearly, the regulator is demanding changes in culture at audit firms.Rewards – existing reward systems for promotion,salary increases, and bonuses, are yet poorly defined. Often those that receivepromotions are also known to be hard working, pulling late hours when needed,and, basically, doing whatever the firm requires of them, rather than suchsystems being based on more ethical standards. Especially for audit firms,rather than rewarding such self-interested efforts, incentivizing quality ofwork and technical knowhow is far more likely to yield an environment whichsupports employees in their ethical decision-making processes. Firm guidance and code ofconductThe firm for which I am employed has developed aglobal code of conduct that communicates firm values which employees. Indeed,those values strongly encourage ethical behavior within the firm, which is notunexpected considering the nature of the industry.
Integrity, respect, teaming,leadership and building relationships are examples of shared values on whichthe code of conduct is build. The code of conduct further elaborates on whereemployees can find support when addressing situations during the normal courseof business. Moreover, it provides exemplary questions which can be supportivefor (less experienced) employees’ moral imagination, also in relation todefining alternative routes for the ethical dilemma that has served as a basisfor this essay (such as, consult with colleagues, am I compromising personalintegrity, do I feel good about this course of action, etc.). While the code ofconduct itself provides a useful tool in relation to the matter at hand, andmoreover it does indeed establish appropriate norms and values that are (or shouldbe) embedded in the organizational culture, from personal experience I can concludethat the code of conduct is rarely explicitly communicated.
It is publishedonline on an internal website, and discussed upon employment, but this is not repeatedperiodically. The firm does have an internal online platform named ‘Living theCode’ on which examples are discussed on how to deal with certain ethicalissues, but honestly, it was not until I wrote this essay that I ever visitedthis online platform. Next to the code of conduct, an ethics hotline has beenestablished through which employees can report conduct that may be (perceivedas) unethical, illegal, in violation with professional standards, or otherwiseinconsistent with the code of conduct. Controversially, however, at the onlineplatform of the ethics hotline it is communicated that ‘we encourage you to consider whether or not you can directly raise yourconcern with someone at (the firm)’.
I would argue that this is onlyhelpful in raising the bar for employees to use this whistleblower hotline.In sum, while an appropriate ethical framework hasbeen established, clearly there is room for improvement. Concluding observationsand recommendationsRatherthan establishing normative guidelines for individual employees (such asabsolutist ethical theories would suggest), I propose to implement a morecomprehensive framework that not only captures the ethical dilemma discussed atthe beginning of this essay. As found while contemplating about and analyzingthe ethical dilemma, at its core the issue here is more profound than thestand-alone matter which served as a basis for this essay: it is the existingorganizational environment and culture that is troubling, which is also high onthe agenda of the Dutch regulator. I argue that the existing environment,culture, and situational factors inhibit employees’ ability to develop theirethical decision-making process.
As such, culture, procedures and guidelinesshould be enhanced such that it supports those abilities. Taking the frameworkfor ethical decision-making proposed by Jones (1991) as a basis, and includingobservations developed using theory and existing firm guidance, myrecommendations for implementation to management are as follows: Support employees in recognizing moral issues andtheir ability to make moral judgmentAdheringto the discussion of individual factors that shape ethical decision-making(education and employment, moral imagination, and personal integrity), periodicdiscussion panels on each functional level should be formed, enabling thesharing of information and encouraging (ethical) discussions between employeesfrom similar functional levels. Ethical training sessions, aimed at recognizingethical issues in daily business situations, can further improve employees’ability to recognize moral issues, and build moral imagination. As discussed,while an ethical framework has been established largely through the code ofconduct, as communication of the shared values and norms captured therein isnot periodically repeated, this certainly does not add to employees’ buildingtheir personal integrity. Nurture an environment and organizational culture thatinvokes employees to establish an intention to act upon their moral judgements,and engage in moral behaviorManagementshould lead by example, allowing for open and transparent communication, bothinternally and externally, emphasizing employee voice at all functional levelsas the norm, rather than allowing supervisors to use their bureaucraticallyimposed authority which only creates distances and suppresses employee voice,employees’ own morality, and personal integrity. To further invoke a change inorganizational culture, reward systems need to be redefined with a focus onemployees’ abilities to deliver high performance and quality. Expected rolesand technical standards for each functional level should be defined moreclearly, such that employees can work on their skills and know what is expectedin terms of promotions and rewards.
Finally, the frequency of technicaltraining sessions should be increased to support employees in developing thedesired professional standards. Whilethe recommendations above are by no means exhaustive in instigating a culturalchange, these can be perceived as some initial first steps to graduallychanging existing organizational routines, and the ethical decision-makingprocesses captured in those routines.References Anand, V., Ashfort,B.E., Joshi, M. (2004). Business as usual: The acceptance and perpetuation ofcorruption in organizations.
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(2010). Business Ethics:Managing Corporate Citizenship and Sustainability in the Age of Globalization,3rd edition. Oxford, England: Oxford University Press, Chapter 3 and4 Ford, R.C.,Richardson, W.D. (1994). Ethical Decision Making: A Review of the EmpiricalLiterature.
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