ETHICAL BAHAVIOUR

Ethical behavior is a subset of human behavior. Human behaviour

means the attitudes, disposition and actions, exhibited by a person in

a particular circumstance. Ethical behaviour is human conduct that is

guided by the moral principles of what is good or bad in a particular

circumstance,

Accountants are normally expected to behave ethically in the

conduct of their professional works. Behaving ethically means that

accountants are expected to comply with fundamental principles,

standards, guidelines, rules and regulations stipulated by the

professional institute (ICAN) as well as complying with the legal

framework within their business environment. More importantly, the

accountants are expected to desist from any misconduct that will

bring the names of their institute and other members into disrepute.

Generally, it is however important to note that, ethical behaviour of a

person depends on the individual/personal influences and situational

influences:

INFLUENCES ON ETHICAL BEHAVIOUR/FACTORS

AFFECTING BEHAVIOURS

A. PERSONAL INFLUENCES

There are various influences that shape individual ethical decision

and behaviours, namely

1. The Age and Gender: The age and gender of person are

factors that may influence his/her ethical decision also

studies have shown that women are more emotional on

moral issues than men. However we must note that Kohlberg

has shown in his ethical moral development theory that age

has low correlation with ascendance on ethical

development level

2. Family Influence: This defines what is right or wrong for

an individual at early age in life.

3. Educational Institution: As person passes through

primary, secondary and tertiary institutions, he learned a lot

and his ethical perception varied. This consequently has that

has direct effect on his ethical decisions and behaviours.

4. Religious Organs: Institution like church, churches, shrines

attended by person influence their ethical behaviours

through various religious indoctrinations and acceptance of

their faiths.

5. Peer Group : This includes the age mate, school mates,

colleagues etc. that can influence a person’s ethical behavior

through acceptable norms; failure to abide, he/she faces peer

sanctions.

6. Institution/Organization Affiliation:

Organization/Institution to which are of affiliated define the

acceptable and unacceptable behaviours and values. Some

employing organizations have ethical codes for their

employees.

7. Culture and Tradition: The norms and values of the society

indicate what is right and acceptable for people in the

community. Otherwise, he/she faces social sanctions

8. LAW: This defines what is legally right and wrong within a

particular business environment which a person is under a

duty to comply with; otherwise he/she faces legal sanctions.

B.SITUATIONAL INFLUENCES

The situational influences explain why an individual manifest

different ethical selfs in different situations. An individual ethical

decision and behaviors changes with situations, this observation

can be explained by

a. Issues -related factors

b. Context-related factors

A.Issues related factors

These are issues on the moral considerations and moral

framing, such as:

i. Magnitude of Consequences : The degree of harms or

benefits that will result from a particular ethical decision. If

either of the consequences is high, the ethical decision is

significant and if low, it is not.

ii. Social consequences The degree at which the society

with accept or reject the ethical decision of a particular

person(s). If either of the consequences is high, the ethical

decision is significant and if low, it is not.

iii. Proximity to those affected The closer or nearer the

decision maker is close/related to those affected, the more

significant the issues involved are.

iv. Depthness/Degree of effect: Whether more people will

be affected by the ethical decision it is significant;

otherwise it insignificant.

v. Temporal Factor effect: If the effect of the ethical

decision on the issue is immediate, it is significant but if

such effect will be in future it is insignificant.

i. Also –Moral Framing

In work place, moral considerations of issues are usually

based on corporate interest. Managers of business

organizations usually avoid issues of morals while taking

decision that promote corporate objectives.

However, where the approach to moral dilemmas tends to

the ‘principles-based’ (i.e ethical words like integrity,

honesty, fairness, etc are mentioned) then reframing moral

decisions is inappropriate. There are no rules to follow,

therefore ethics must be discussed and actions justified

based on sound ethical judgment.

B. Context related factor

This explains how particular issues will be viewed within

certain context. The context-related factors are:

1. System or Reward

Where rewards are based oh achievement (e.g. number

of sales made) then ethical decision making may be

affected. Unethical decision may also increase where

unethical behaviour is unpunished or even supported by

the organization.

2. Authority

Junior managers tend to follow instructions from senior

managers. Where senior managers make unethical

decisions these are likely to be followed by juniors.

Senior management may also provoke a climate where

unethical decision making is accepted.

Bureaucracy

Bureaucracies tend to make employees follow rules

rather than think about the ethics of decisions being

made. More bureaucracy may therefore mean a lower

level of ethical decision making — although this

depends on authority — see above.

Work Roles

Managers tend to follow the ‘work role’ expected —

hence an ethical role such as an accountant will

normally find managers behaving ethically — because

that is expected. In other roles where ethics are

believed to be compromised regularly, managers will

usually also behave less ethically.

Organizational group norms and culture

Managers tend to share the norms of the group they are

in, so what may be described as unethical behaviour

overall may be ‘ethical’ for the group. E.g. A group may

decide that copying work-related software at home is

‘ethical’ and therefore all members of the group

participate in this behaviour.

National and cultural context

Different countries or cultures will have different ethics.

Whether a decision is ethically correct or not may

therefore depend on the specific culture.

CONSEQUENCES OF UNETHICAL BEHAVIOURS

Consequences of unethical behaviours fall not only on the individual

but also on the profession and the society at large. Unethical

behaviours include:

a. Any act or behaviour which is not in agreement with

professional conduct

b. Bahaviour outside the moral principles or ethics of a profession

c. Any act which does not follows the norms of a profession.

d. A bahaviour that negates the code of conduct guiding on

operation

e. Any attitude that is not in consonance with the accepted

norms

f. Conduct that is adjudged wrong, unbecoming and below

expectation

g. Behaviour that is not based on moral principles

h. Deviation from standards and known norms

i. Any act that is not normally right.

See enforcement of ethical standards – P.79-80 of ICAN member

book

SANCTIONS FOR UNETHICAL BEHAVIOUR

Sanction that are usually imposed on members for unethical

behaviours are as follows

(a) Reprimand/ Warning

(b) Payment of cost

(c) Fine

(d) Withdrawal of practicing license

(e) Suspension from Member List

(f) Expulsion from Member List

DISADVANTAGE TO THE PROFESSIONAL INSTITUTE AND

SOCIETY

1. Ripple effect of unethical behaviours and sanction of that by

family, business & economy.

2. Negative consequence of the form stakeholders (creditors,

supplier,etc.

3. Economy suffer (loss of tax, income to workers, partnership,

collapse, etc

4. Negative effect on the professional and the institute

5. Society at large suffer to consequences generally

ETHICS IN CORPORATION ENVIRONMENTS

NOTE: A review of company law will be necessary to

understand

better.

Corporation and its Interest

A corporation is an entity established either by enactment of law by

legislature or incorporation/registration by Corporate Affairs

Commission in Nigeria. A corporation once established is

i. A body corporate; therefore has its own district legal personality

ii. It can pursue her objectives; that is corporate objectives,

A List of forms of business – companies , corporation,

partnership etc.

Corporate Objectives

Corporate objectives are relevant for the organization as a whole and

are related to key business success factors, namely:

Profitability

Increase in market share

Expansion and growth

Cash flow

Customer satisfaction

Quality products

Employee welfare & good industrial relation

Social responsibility

Welfare of management, etc.

STAKEHOLDERS OF CORPERATION

These are groups of individuals or other corporate bodies that are

affect by the activities of the firm. These groups can be classified as

follows.

1. IMMEDIATE/INTERNAL

i. Manager/Directors

ii. Employers

iii. Unions

2. CONNECTED

i. Shareholders

ii. Customers

iii. Debt holders

iv. Bank

v. Supplier/creditors

vi. Competitors

3. REMOTE. EXTERNAL

i. Regulatory Institution/Government

ii. Inland Revenue

iii. Professional bodies, where applicable

iv. Local community

v. Researches – academic, business, analysis etc.

OBJECTIVES OF EACH STAKEHOLDER

EMPLOYEES

They strive to maximize their reward in form of pay packages,

career development, job satisfaction and continuation of

employment. Risks with this group are: refusal to relocate, pursue

their selfish interest, etc.

Managers /Directors

To maximize their rewards and continuity of the organization.

Risks with this group are: pursue their selfish interest,

mismanagement, etc.

Union

To promote the welfare of staff and continuation of employment –

Risk are strike and industrial action

SHAREHOLDERS

Ordinary/equity shareholders provide capital and want to

a. Protect their investment

b. Maximize their wealth

c. Continuity of their investment

CUSTOMER & DEBTORS

They want quality goods at affordable prices and continuity of the

organization.

DEBTHOLDERS

They want constant returns on their investment and protection of

their investments – to receives interests & capital

BANK/SUPPLIER/CREDITORS

They want protect to loan/credit and continuity of the organization.

COMPETITORS

They want to out perform the organization and ensure its divestment

from the industry

REGULATORY BODIES/GOVERNMENT

To ensure the organization complies with government policy and

standards, raise growth and development of the economy, via

increase in jobs etc

INLAND REVENUE BOARD

To collect the right taxes and continuity of the organisations

PROFESSIONAL BODIES

To ensure members complies with standards and ethical principles

LOCAL COMMUNITY

To ensure the organization is socially responsible to the people and

her environment

RESEARCHER

To gain an increased knowledge and ensure the organization

promotes the interest of her environment; both immediate and

remote.

INFLUENCE OF STAKEHOLDERS

Each stakeholder can exert pressure on corporate objectives,

strategy and operations. The greater the power of a particular

stakeholders, the greater her influence on the corporate actions

STAKEHOLDERS & CONFLICT & AGENCY

Each stakeholder group have different objectives and expectations

and these sometime conflict with one another.

1. SHAREHOLDERS & MANAGEMENT

Shareholders are the owners of the corporate entity but the

management power are given to directors by law. Hence there

exist conflict of interest between

Entity Owners Management

1. Company Stakeholders

Directors

2. Government

Parastatal Public Board appointed

This separation of ownership & management creates agency

problems. This is because directors may use their positions to reward

themselves rather more than increase shareholders’ wealth

AREAS MANIPULATION BY DIRECTORS

1. By making efforts to increase the profit or share price in the

short term in order to increase their rewards at the expense of

long term benefits.

2. By making efforts to increase sales/revenue to show artificial

performance but without profits and there could be many

debtors.

3. By embarking on empire building- creating many offices with

many staffs, this increase overhead & decrease profit

4. By resisting good takeover bid beneficial to shareholders,

because that will threaten their positions or lead to loss of their

offices.

5. By embarking on creative Accounting or window dressing

ENCORAGING GOAL CONCURANCE BETWEEN DIRECTORS

& SHAREHOLDERS

i. By making performance related pay to the directors

ii. By rewarding management with shares especially when a

private company goes public at an attractive offer price

iii.By giving management share option: that to subscribe to no of

company shares at fixed price in future. The vale of the option

goes up if the shares prices of the company goes up

iv.By providing Share qualification scheme for all directors

2. SHAREHOLDER MANAGER & DEBTHOLDERS

When Management raises funds from long term creditors that

will increase the firm’s financial gearing - i.e the risk of its

insolvency increases. The debt financé requires positive cash

flow to meet firm’ s obligations of as they fall due; otherwise the

securities they pledged, the restrictive covenants they signed or

the manager- receivership agreement they signed will be

invoked.

However when there is enough cash flow, the shareholders and

manager gain in form of the increase in dividends, retained

profit and increase in director remunerations.

CONFLICT AREAS BETWEEN

MANAGEMENT/SHAREHOLDERS AND DEBT HOLDERS

- Management may be interested in risky projects, using debt

holders’ funds, where it succeeds they shareholders/directors

gain more. Where otherwise they will all loss their investments.

- Prolong the life of the firm is the wish of the

shareholders/managers, while debtors may wish to liquidate the

firm for their return of their capital and interest. Managers may

seek further loan and increase the company’s gearing and risk

at the expenses of the debtholders and increase the operating

leverage.

- Even through, there are loans restrictions/convenants, the

manager may pay high dividends to shareholders just to

maintain/secure their appointments but at the expense of the

debtholders interest. Whereas the company’s capital

undermined/reduced.

SHAREHOLDER MANAGERS & GOVERNMENDT

Government may not have direct interest in corporate entities, but

have strong interest in the company affairs as follows:

i. Taxation; Tax on profit, VAT and Withholding Tax

ii. Government funds/grants; Government provides

funds/grants and give tax incentives in some priority sectors,

iii. Wider Spread of members through privatizations and

regulations of public companies

iv. Legislation: Government may influence to relationship among

stakeholder via legislation & regulation

v. Economic Policy: Government economic Policy acting affect

corporate interest i.e monetary fiscal policy affect interest rate

inflation economic growth employment etc.