by Glenn Cheney
Camden, Maine - Remember ethics? It was a course you took in college, one credit, required. You studied sleazy scenarios that ended with the question, "What would you do?" You aced the final. You graduated.
Then you went out into the real world. And if you’re like most people, you brought your ethics with you. If you’re like most CPAs, your ethics are a pillar of your self-respect.
Ethics are also a pillar of civilization, according to Dr. Rushworth M. Kidder, president of the Institute for Global Ethics, here. Due to the enormity and complexity of contemporary business and technology, however, a failure of ethics can cause catastrophe. Just as a faulty O-ring brought down the space shuttle Challenger in 1986, a few faulty accountants and corporate officers can bring down an Enron, a WorldCom, an Arthur Andersen, not to mention an equities market or even a government.
Kidder said that the situation is serious. Very serious. He’s talking doom - with a capital D. "This is a fundamental question of the 21st century. If we don’t get a handle on this, it could doom us just as surely as some of the other big issues, like the nuclear threat and environmental collapse. This is becoming a survival issue," he lamented.
Kidder cites the Chernobyl disaster as an illustration of a catastrophe out of proportion with the glitch that caused it. It was an ethical glitch, he said, not technical and not really an accident. The explosion at Chernobyl, he said, was caused by a plant director and a few nuclear engineers who put their professional ethics aside so that they could conduct an unauthorized experiment. The consequences killed (and continues to kill) thousands of people, cost untold billions - and left the world with a clean-up that will take nearly 250,000 years.
The same principle applies to the ethics of business, Kidder said. As business goes global and companies exceed the economic size of countries, a handful of unethical midlevel managers can leverage disasters of a scope unimaginable a century ago. An ethical breakdown in 1900 could cause a train wreck or throw a few hundred people out of work. Today, it can cause a nuclear meltdown or throw 100,000 people out of work.
"As we build an interconnected financial grid around the world, something that takes down part of the grid has the potential to take down a large part of it," Kidder said. "The very technology we are building in the financial realm is becoming more and more complicated, bigger and bigger, with more ramifications and more capacity for a single unethical input to corrupt it."
While acknowledging that the need for ethics is still pervasive and growing in modern society, Kidder said that ethical behavior has not advanced at the pace of business and technology. The gap between the two is widening fast. That gap, he said, is an abyss into which the global economy could well fall if it fails to recognize the critical importance of ethics.
As for Enron, Kidder predicts that it will be relegated to the footnotes of history. It’s the collapse of Arthur Andersen, he said, that history will remember because it represented a collapse of ethics which, in turn, caused a collapse of trust. "As I understand it, up until the point of shredding, Arthur Andersen did nothing illegal," Kidder said. "This is the first time a major corporation - or really a whole profession - went belly-up over nothing but an ethical question."
Kidder compares the event known as "Enron" with the event known as "9-11." In both circumstances, towering icons collapsed into dust, and both events left Americans wondering about the state of business and technology and the nature of right and wrong. Both events radically altered their respective landscapes.
Despite the ability of ethics to destroy a towering corporation, college and university curricula never devote as much attention to the study of ethics as they do to the study of, say, marketing and finance.
But can ethics be taught?
Kidder sees three stages in ethical development. One is to learn what ethics are. The second is to internalize its importance. The third is to live it.
"There have been slimeballs down through the ages," Kidder said. "But in the early part of the 20th century, there was an understanding among the higher levels of business that business was about trust. It was about a handshake, two CEOs looking each other in the eye and saying, ÔWe can do business.’ We’ve moved away from that sense of trust except in one significant way: the way the markets operate. When you invest in the market, there’s a huge amount of trust involved. But over the last few months, trust has been withdrawn form the market. Since money follows trust, the money has been withdrawn, too."
Kidder said that 98 percent of the country’s auditors are surely honest and working hard to hold to the line of honesty. The challenge is to put some kind of system in place to prevent the other 2 percent from bringing the whole system down. "That’s all it takes to leverage the whole thing to ruin," Kidder warned, "2 percent."
Accounting organizations - professional associations and CPA firms - are sensing the depth of the problem. They are reassessing their codes of ethics, convening their ethics committees, trying to understand the difference between the corporate code of ethics in the nice frame on the wall and the law of the jungle written in the dark, Darwinian drive behind capitalism.
In the upcoming installments of this series on ethics, Accounting Today will look at how professional associations and accounting firms are dealing with ethical issues in the wake of the recent accounting improprieties. We will also look at possible solutions.
