Banking on sustainable development - core issues

By GIFT

Chief financial officers have the potential to play a much greater role in their companies that involves ethical guardianship, but this will require a significant shift in their powers and their training to achieve.

These ideas were expressed by Chandran Nair, founder and chief executive of the Global Institute For Tomorrow, at an international forum on ethics and CFOs held by the Association of Chartered Certified Accountants and the magazine, CFO Asia.

The forum on corporate governance and ethics was held in Singapore on 19 July. It ran in conjunction with the launch of “Corporate Governance, Business Ethics and the CFO”, a research report prepared by CFO Asia in collaboration with the ACCA.

Allen Blewitt, chief executive of ACCA, delivered the forum address, “Facing the Ethical Challenge”. Mr Nair was on a discussion panel together with Philip Chu, CFO of Datacraft, and Mr Blewitt. Tom Leander, editor-in-chief of CFO Asia, was moderator.

Mr Nair made several striking, well-received observations. They are listed below:

  • Businesses need to move away from the typical attitude that there only a few “bad apples”: there are many more than they would like to think.
  • The reason for this problem being more widespread than they would like to admit is in their core principle of distilling everything down to competition. This has now worsened corporate behaviour in Asia as Asian companies seek to compete for their place in the global economy. While they may distil everything down to competition, they must also recognise that this brings out the worst as well as the best in people.
  • Negative behaviours are accentuated when incentives are linked to that which is totally out of proportion to what individuals contribute: competition becomes unhealthy in turning to gain ever higher rewards. To have many average people earning vast sums of money by any means possible and thereby deemed to be successes does not create the conditions for an ethical culture.
  • It is too simplistic – and almost an admission of defeat – to fall in with the much-repeated consensus of “that is the way the world is”.
  • CFOs have huge potential to influence the ethical demeanor of companies, but far too often have neither the power nor the authority when it comes to challenging more subtle variations of ethical misbehaviour, especially that of their CEOs or peers. “Coded” business-speak is a case in point. CFOs carry little weight in such issues, and usually act timidly in an Asian business environment. There are only a few exceptions. To this end, it is naïve to appeal to the morality of people in strong positions and assume such exhortations will create the right culture or diminish ethical misbehaviour, not least because moral judgement differs with every person.
  • The solution lies in tough regulations and enforcement to further support the abilities of good business leaders to instil legally required systems, and less reliance on business to regulate itself – especially when perverse incentives are in play. Clearly hiring the right people is a good start but too often the core skills and attributes sought for these roles do not sit comfortably with those in a well-rounded person.
  • One important issue to address is this: to make CFOs who “own the books” the ethical guardians of their companies, their financial rewards should be kept separate and distinct from the companies’ financial performance.
  • Companies and their leaders need to work relentlessly to demolish old-fashioned tyrannies that still exist in-house: an open culture is preferred, one in which honest and open dialogue are not stymied because of fear of hierarchies. But many CEOs especially in Asia, are very uncomfortable with these changing structures and do not see the need.
  • CFOs and the accounting profession must understand that when it comes to ethics they face some difficulty and need to take a hard look at themselves, in particular the global accounting profession represented by the “big four”, which essentially make a cartel. These four have not set good examples, having argued for years against regulations to curb issues like conflicts of interests: this is a quandary.

 

Mr Nair said CFOs needed to “move beyond being bean-counters and financial architects”. They needed to “own the books”. But to become ethical guardians their professional education must change to include ethical training, business decision-making skills, environment and social issues, and other more relevant skill-sets.