Just because a certain behaviour is legal doesn’t make it ethical.
That was one of the key messages delivered by Michael McMillan, director of ethics education at the CFA Institute in Charlottesville, Virginia, in a workshop called “Ethical Decision Making: How to do the right thing even if no one is watching.”
The interactive workshop, which was attended by a large group of Cayman Islands accountants and financial advisers at the Camana Bay Cinema on Jan. 17, was organised by the CFA Society Cayman in partnership with the Cayman Islands Institute of Professional Accountants. To help support the event, CPA Canada sponsored the entry cost for its Cayman Islands members.
McMillan said business ethics is always a topical issue and that one of the reasons so many professionals are interested in his workshops is because what they learn about the subject in university tends to be more theoretical or philosophical rather than applied and practical, which is what he focuses on in his teaching.
Accountants and financial advisers faced a lot of questions about ethics after the financial crisis that started in 2008, McMillan noted. Although how the majority of financial professionals behaved in their businesses was legal, it wasn’t necessarily ethical. But despite the lessons learned from the financial crisis, questions of ethics remain.
“As much as we hoped that the unethical behaviour we saw would decline post-financial crisis, the methods of compensation haven’t changed very much,” he said. “Most people are still rewarded on outcomes instead of the process they use to get those outcomes.”
Despite the strict compliance regulations that various governments enacted after the financial crisis, some of the ethical problems that led to the crisis still exist, McMillan said.
“That’s because there’s a difference between ethics and compliance.” One piece of advice he gives students is to think long term.
“I tell them that if they want a job in the financial industry, ethics might not be so important,” he said. “However, if they want a career in the industry, then ethics is very important. No one stays in the business for 10 years by being unethical.”
McMillan, who also works as an ethics consultant, said that when working with businesses, he often finds problems of unethical behaviour in the managerial levels below the top executives.
“One of the things I stress to companies is that while the tone at the top can be fine, what is really required is an ethical tone at the middle, at the managerial and supervisory levels.”
During his workshop at the cinema, McMillan asked attendees to participate by choosing the option they thought was the ethical one when given a scenario that actually happened. Often, the difficult scenarios presented options where the best answer wasn’t necessarily evident. Indeed, for one of the questions, the responses were evenly split between two answers. McMillan then asked people to support their decisions with arguments, many of which he accepted as valid. However, he then walked the audience through the potential ramifications of taking various courses of action. Sometimes those ramifications could lead to job termination and sometimes to legal difficulties.
Just because someone behaves unethically, doesn’t mean he or she is an unethical person, McMillan said.
“There is a difference between unethical people and unethical behaviour,” he said. “Good people sometimes do bad things.”
Ethical business professionals can be drawn into unethical behaviour for a variety of reasons, McMillan said, noting that psychological biases, social and organisational factors and situational influences can all play a role.
“Situational influences have more to do with unethical behaviour than character,” he said.
Sometimes people behave unethically because of their obedience to authority or their desire to please when asked by a superior to do something.
Sometimes people behave unethically because of a conformity bias.
“Everyone else is doing this, so why shouldn’t I?” McMillan said as a way of demonstrating the thought process. Often, unethical behaviour progresses through a process called incrementalism.
“That’s the gradual slide down the slippery slope,” he said. Unethical behaviour isn’t always about making money or protecting one’s job, McMillan said.
“People will do unethical things sometimes, not because they want to make money, but because they are afraid they’ll lose money,” he said, citing the well-known case of Martha Stewart as an example.
To protect themselves against acting unethically, McMillan said people should first recognise and acknowledge potential ethical issues. They then should determine who actually owns the problem and act accordingly.
“Don’t make other people’s problem your problem by condoning what they’re doing.”
People faced with an ethics issue should then gather the relevant data, test the wrong versus right parameters and paradigms and then apply resolution principles. Often, the best resolution isn’t through an either-or option, but through a third option that represents a compromise.
In the end, the situation will require people to make a decision and in general, he suggested people remember to keep their clients’ interests first, maintain independence and objectivity, avoid or manage conflicts of interest and practise full and fair disclosure.