Ray F. Carroll

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Although ethics has been an issue in the accounting profession for years (as evidenced by the development by professional organizations' codes of conduct), it has currently become a widely discussed and debated topic. Recently the Business and Professional Ethics Journal devoted an entire issue to accounting ethics (Vol. 13, Nos. 1 & 2, Jan. 1995). This has been due partly to the wide media publication of events involving a host of misdeeds such as insider trading, tax evasion, opinion shopping, audit failure, fraud, and the selling of defective merchandise affecting the life or health of users.1 There is a heightened awareness that business and accounting students are entering the work force with little background on how to deal with ethical issues. An article in the Globe and Mail (Nov. 11, 1991, p. B4) reported that Decima Research found that 45 percent of Canadians consider business leaders unprincipled, compared with 20 percent ten years earlier. In the United States a 1987 study of 2,000 National Association of Accountants members, 52 percent of the respondents in lower level positions, 47 percent in middle level positions, and 32 percent in senior accounting positions reported that they had felt pressured to alter financial results (Mihalek, Rich, and Smith, 1987). Another United States study, a 1988 Touche Ross survey of 17082 business school deans, business executives, and corporate directors, 94 percent of respondents said that the business community was plagued with ethical problems. Sixty-eight percent said that these problems were not overblown by the media. Indeed the moral climate of business itself has been described as a game which is devoid of ethical values:

It's all a game, but a game with very strict rules. You have to stay meticulously within the law, the least misstep, if caught, involves an instant penalty. But there is no particular moral opprobrium in incurring a penalty, any more than there is (in) being offside in football. A man who is found to have bought or sold stock on inside information, or misrepresented his assets in a loan application, or put his girl friend on the company payroll, is not "looked down on," except by sentimentalists. He's simply been caught, that's all. Even the public understands that. Watergate showed it. You break the rules, pay the penalty and go back to the game (Auchincloss, 1986, pp. 27-28).
As watchdogs of commerce there is tremendous pressure on accountants to ensure full and open disclosure by business. An organizing principle, however, is needed to guide both accounting education and accounting practice. The argument made in this paper is that integrity can serve as this organizing principle. Literally, integrity means a wholeness, possessing a set of principles and acting consistently with these principles. In referring to the wholeness of human life, integrity has a moral quality and is an ideal which can never be fully achieved by everyone one hundred percent of the time. Taylor ( 1981) has argued that wholeness of character cannot be achieved without the individual possessing a firm grounding of moral values. This would include values such as tolerance, altruism, trust, respect, empathy, fairness and justice. It is argued in this paper that integrity is much more than conformity to the rules. It may even mean not following the rules when rules conflict with the moral point of view. Integrity is more than being able to reason according to well established ethical frameworks and integrity is much more than just being clear about one's values.

One characteristic of the educated person that occurs in nearly every formulation ofthe educational ideal is the concept that the educated person is a moral person. This wasthe chief concern in education for Kant, for example, who argued that, "Education...must see to the moralization of man. He is to acquire not merely the skills needed for all sorts of ends, but also the disposition to choose only good ends," (see Education, p. 20. Implicit in any discussion of educational ideals is that the human personality is fundamentally malleable and that a central role of education is to help initiate students into time‚honoured ways of knowing and attitudes toward scholarly discourse.

As gatekeepers universities are in an excellent position to cultivate a sense of social responsibility among professionals by striking a balance between the intellectual distance of the ivory tower and the teaching of practical professional courses. Universities are well positioned to contribute to the articulation of moral standards of professional life by offering a supporting environment conducive to rational debate and open criticism. Fostering in students the ability to think carefully and critically about important political and professional problems along with the articulation and defence of one's views is a form of moral education for which a university is well adapted. Universities can foster integrity by developing academic programs which deal directly with ethical issues and aiming to both criticize practice and also improve practice.

Ethical Frameworks

There are well-established frameworks of ethical behaviour that can be used to direct human action and to assist in resolving ethical dilemmas. Ethical frameworks such as the Utilitarianism of Jeremy Bentham (1748-1832) or John Stuart Mill, the deontologism of Kant (1724-1804) or the more flexible approach of W. D. Ross (1930) and frameworks of justice such as those of John Rawls (1971) are well known in the literature.

The deontological dimension of education is respect for autonomy. This suggests that the curriculum be designed to help individuals develop critical thinking skills. Concentration should be on those dispositions which are essential to morality. This would be met by a curriculum which fosters a sense of individuality and independence. In educating for autonomy, however, there is a hidden conflict. There may be a social price to pay for encouraging students to think critically. These educated people may very well challenge social values and social institutions. Rather than merely being trained to take their place in society, autonomous individuals may become critical of the values and institutions which compose society and may even seek major change. Most well-recognized accounting education programs encourage critical thinking in analysing and solving technical accounting problems. Very little, if any time, is actually spent encouraging students to examine the underlying values of the business environment which accounting helps to support. There are currently, for example, no accounting textbooks on the market which challenge students to examine the political and economic foundations upon which much of accounting is based.

Ethical frameworks can be a useful vehicle for sensitizing accounting students to ethical issues and giving them the tools to support what may be their intuitive positions or, at least, reasoned out positions. Ethical frameworks are helpful in determining the basic ethical principles at work in business and in applying ethical principles to ethical problems. Frameworks are beneficial when controversial moral judgements can be supported by alternative basic moral principles but are not very helpful when these principles produce different moral judgements. Controversial problems in business such as whistle blowing and affirmative action are very difficult to solve by applying normative ethical frameworks. The strength of frameworks is that they help determine the basic reasons supporting ethical judgements.

If a chief goal of higher education is the developing character and promoting the moral point of view one must go beyond discovering and clarifying the basic reasons for moral judgements. A very prominent study by Raymond Baumbart (1961) revealed that questions of right, wrong, and what one ought or ought not do are determined by prevailing ideals. This is consistent with the thinking of the early Greek philosophers . Socrates, Plato and Aristotle believed that human character is shaped by basic ideals and that basic judgements and behaviour depend on this foundation. While recognizing the merits of ethical frameworks and of ethical reasoning ability, in this paper, it is argued that virtue is a critical component to carrying out business and professional responsibilities according to social contract. The organizing principle upon which virtue depends is integrity. Without integrity ethical frameworks can be manipulated to prop up arguments to support particular positions or points of view. One may revert back and forth from one competing theory to another, depending on which one best supports one's situation. There is a potential loss of sincerity. The moral point of view, however, demands sincerity. It demands that individuals act in good conscience and that they take responsibility for their hehaviour and become committed to doinz the riaht thing while respecting others. This is integrity, a character trait which encompasses all of the natural virtues, that is, justice,prudence, temperance, and fortitude. It is an ideal which is particularly relevant foraccountants to pursue and for accounting educators to cultivate since the work ofaccountants touches the lives of so many people.

The Professional view of Integrity

In late 1987, the National Commission of Fraudulent Financial Reporting in the United States (the Treadway Commission) and the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants addressed the issue of fraudulent financial reporting practices. Their work is characterized by the shift ofthe auditor's attention from reliability to reliability plus integrity of the financial statements. New responsibilities assigned to the internal auditor by the ASB statements include:

  1. identifying fraudulent financial reporting
  2. auditing the reasonableness of uncertainties such as accounting estimates and the company's future as a going concern
  3. applying analytical procedures and examinations of internal control structure risk
  4. communicating responsibly in matters relating to the nature and scope of the audit, and its findings.
The work of the Treadway Commission and the ASB also encourages the auditor's involvement in quarterly and annual financial statements. While this can be interpreted as progress it is a very narrow rules oriented conception of integrity. This conception of integrity falls short of challenging the social role of accounting itself, or the business system which it serves, and leaves the impression of integrity as mere conformity to rules of reporting. To give integrity its proper accord attention must be given to the concept of moral responsibility. This includes coming to agreement on the nature of the corporation itself and on the nature of individual responsibility.

The Business Corporation

Many business and accounting students eventually become employed by or work with corporations after graduation. Corporations account for 90 percent of all sales in Canada. A corporation is a separate legal entity and in law it is treated as an artificial person in that it can enter contracts and it can sue and be sued. But can it possess integrity? There is disagreement among philosophers regarding the ethical status of corporations. On one extreme is the position of John Ladd (1970) who argues that corporations are analogous to machines and its sole standard of evaluation is its effectiveness in meeting corporate goals. Corporate managers make decisions impersonally. Rational behaviour, under this view, is to do whatever is necessary to reach corporate objectives.

Thus, for logical reasons it is improper to expect organisational conduct to conform to the ordinary principles of morality. We cannot and must not expect formal organisations, or their representatives acting in their official capacities, to be honest, courageous, considerate, sympathetic, or to have any kind of moral integrity (Ladd, l970).
Drawing on the concept of language-game advanced by Wittenstein, Ladd argues that morality is excluded as irrelevant in organizational decision-making by the rules of the game. It is corporate objectives which dictate moral principles and these may be very different from ordinary standards of morality. People may behave quite differently in business than in their private lives. This inconsistent behaviour, however, is in complete contradiction to integrity. Integrity does not tolerate such double standards. Ladd's position is that moral concepts such as honesty are not in the vocabulary ofthe "organizational language-game." For Ladd the way to bring corporate behaviour into conformity with the demands of morality is through external sanctions. An accounting curriculum with a heavy legal emphasis would be consistent with this position.

At the other extreme is the position of philosophers such as Peter French (1986, 1990) and Kenneth Goodpaster and John Matthews (1988). French, for example, argues that corporations have corporate internal decision structures which can synthesise the actions of human beings. His position is that corporations function like persons and are morally responsible for their actions. Goodpaster and Matthews support French's position and go even further. They argue that a person is morally responsible if that person is trustworthy or reliable and that corporations too meet this test. Taking the human analogy to the extreme, they maintain that a corporation has a conscience and even a heart. Not only can a corporation be rational, in that it can act without impulse and carefully weigh alternatives, but it can act also with respect. That is, it can take into consideration the needs and interest of others. Not only is there an internal decision structure, as French says, but there is also a built in managerial system which deals with respect for those affected by corporate decisions. Goodpaster and Matthews, however, believe that their position is not yet part of the conventional wisdom and therefore, they too, would be in favour of external sanctions.

It seems that neither of these extreme positions has confidence in the free market with control over non-economic values. However, both positions are incompatible are unacceptable because they are not in accord with integrity. Ladd's position is that the corporation is an amoral machine in which the end justifies the means. By grounding morality on rationality alone, and implying that amorality in business is a matter of necessity, he has given no role to personal integrity. He supports pressuring the corporation through legal means or through public opinion so that these pressures would be impounded into the rational decision-making process. While there is some validity to the analogy of the corporation to a machine, there are too many dissimilarities. It is people who run corporations. There may be pressures to avoid responsibility but people, after all, are moral agents capable of exercising empathy and caring. As ends in themselves, people have moral obligations which extend beyond a corporation which is just an instrument created by people. Ladd's position is overly pessimistic and fails to consider what role education may play in cultivating autonomy and integrity which individuals can take to the workplace.

Similarly, the positions of French, Goodpaster and Matthews that a corporation is the equivalent of a moral person is difficult to defend. The moral corporation depends on the character and virtue of those who comprise the organization. Therefore the education of those who will build their careers in business and those who report on business performance must have the development of moral character as a primary aim.

It is arguable that corporations and persons are not similar enough to attribute moral status to the corporation. It is sometimes argued, however, that corporations are trustees (Davis, 1990), that companies owe society (Sohn, 1982) and that business has a "duty of gratitude" (Bowie, 1987). These authors share the view that corporations exist to serve society and that they benefit from the society in which they operate. They benefit from society because consumers buy their products and services and because they have access to many public goods provided by society. In return corporations act as 'trustees' of society's resources. One can agree with this trustee concept so long as we do not lose sight of the fact that it is individual persons who serve as spokespersons for corporations and who ultimately make decisions for or against society's interest . It is these individuals who are the "moral trustees.

Den Uyl ( 1984) takes the view that businesses exist by social permission. Supporting this position, DeGeorge (1990) says that society can legitimately demand that it engage it certain kinds of activities, even if those running the business prefer otherwise. He also says that corporations can be legitimately restricted, changed or even eliminated if they are found to harm the public good. It is clear that the very nature of the inter-relatedness of business decisions to the social system obligates business to take into account the effect that their actions have on the interests of others. This is a much broader obligation than the currently accepted notion that corporations exists primarily for the interest of shareholders and that the sole objective of business is to maximize profit.

It is individuals who run corporations and direct professional associations. Individuals should not be permitted to hide behind the corporate veil but should be fully accountable for their actions. Lack of personal accountability is a failing of integrity. A corporation is merely a metaphor. It is people who make decisions. It is people who enter contracts. It is people who perform good or bad actions. Corporations are not capable, by themselves, of being honest or dishonest, truthful or untruthful. From this perspective moral responsibility must be attributed to its constituents. Corporations cannot hold ideas, and therefore the concept of revision and open-mindedness in this context is an illusion.

Integrity requires that corporate actions that affect others be justified. Why should corporations act with integrity by being socially responsible? One answer to the question comes from the stakeholder approach, which argues that corporate social responsibility is due to a web of relationships which results from individuals and groups who have a stake in the corporation:

...a stakeholder is any identifiable group who can affect or be affected by organizational performance in terms of its products, policies, and work processes. In this sense, public interest groups, protest groups, local communities, government agencies, and the press are organizational stakeholders (Bruono and Nichols, 1990).
Another justification for socially responsible behaviour, comes from Richard DeGeorge ( 1990), who takes a "legal creator" view of the corporation, arguing that since the corporation is created by the state it must exist for the common good of society. Society can therefore legitimately demand that it do certain kinds of activities, even if the corporation itself, or those running it, do not wish to do those things. DeGeorge argues further that if corporations are found to harm the public good, they can be legitimately restricted, changed, and even eliminated. In this sense corporate social responsibility involves the acting out of integrity.

In summary, when we talk about such things as corporate social responsibility (CSR) or professional responsibility, we should not speak as if these organizations had a mind of their own. The reality is that corporations are run by people, and it is people who make decisions. Corporations can be socially responsible and exercise integrity only to the extent to which individuals acting as agents for the corporation make socially responsible decisions. The same is true of professional responsibility. The accounting profession is made up of individual members. It is by the actions of these individuals that the profession will be judged as ethical or otherwise. This is why the education these people receive is so critical. Because of the pervasive influence which business has on individual lives and on social structure it is vitally important that accountants, as the conscience of business be educated both to exercise integrity and to recognize when others are violating integrity.

Integrity and Open-mindedness

Integrity can be a source of frustration as one compares oneself to the unattainable standard. Integrity is a difficult concept to evaluate. Poor judgement can lead to incorrect evaluations of colleagues and subordinates for failing to measure up. People can over‚conform to rules and procedures without taking the context into consideration. This can lead to communication breakdown and deterioration of organizational morale.

Integrity has been defined as an interactive event, an evolving transformative process, that occurs at exceptional moments in which individuals give special attention to the development of others (Srivastva, 1988). This idea of doing what is best under conditions of adversity is also supported by Halfon ( 1989) who says that integrity is characterized by one who maintains, " a consistent commitment to do what is best--especially under conditions of adversity" (p. 36). One can agree with Halfon that integrity requires that one has the intention to do what is best and takes action consistent with this perceived good intention. This suggests that one can possess integrity but still make incorrect judgements. Integrity would require, however, that one be reflective and willing to change actions when the evidence warrants.

It is arguable, therefore, that integrity depends on another ideal. This ideal is open-mindedness (Hare, 1981, 1985). Open-mindedness is a disposition which is aimed at finding the truth. It requires objectivity and impartiality as essential features for reaching its goal, traits thought to be essential to practising accountants. An open-mindedness about integrity would recognize shortcomings of failing to reach the ideal but would support a continual striving to reach it. This is not self-deception as long as one is willing to admit to these shortcomings and to further pursue the idea.

To possess integrity means that one's actions reflect natural virtues. Aristotle in writing about the vagaries of human conduct wrote that human good turns out to be activity of soul in accordance with virtue (Jones, 1977). Aristotle discussed two types of virtues: the intellectual, consisting of prudence and knowing how to acquire knowledge, and the moral, consisting oftruthfulness, temperance, courage, and friendliness. By emphasizing virtues as desirable dispositions, Aristotle stressed the importance of good conduct. He believed that by habitually acting as one who possesses those desirable virtues one would gradually take on these traits as one's own. Aristotle says that we inquire into virtue, "in order to become good" (1103b 27 in Nicomachean Ethics). To accept this view is to believe that ethics is primarily practical. To behave with integrity, accountants need to know which traits are virtuous, so that standards of achievement can be set. Aristotle's doctrine of the mean, the idea of striking a balance between excess and deficiency, encompasses this concept of integrity.

Integrity strongly implies the virtues of honesty and truthfulness; virtues which are widely regarded as essential to the accountant. Reaching the truth is the goal of open‹mindedness. It is arguable that each requires the other, that is, open-mindedness demands integrity and integrity demands open-mindedness. For the accountant this means being open to the reporting needs of various interest groups and not just the needs of those with economic power. It means much more than just uncovering fraud or the fudging of figures but of finding and reporting true costs and benefits to society as a whole. To accomplish this accountants must acquire a genuine concern for others--the moral point of view. Accounting education can be geared toward reaching this ideal by addressing the issue of values and helping accounting students clarify their values. But is values clarification enough?

Integrity and Values Clarification

Conflicts in values are inevitable in today's diverse and complex society. The values one possesses are a function of many variables, including one's environment, family upbringing, and education. Individuals sometimes feel confused and unclear about what values they actually hold. According to Combs ( 1982), this can lead to apathy, inconsistency, over-conforming, or over-dissenting. A case can be made for accounting students and professionals to attend values clarification seminars to heighten their awareness where doubt exists. Raths, Harmin, and Simon (1978) set out seven steps for values clarification: "choosing freely, choosing from alternatives, choosing after thoughtful consideration, prizing and cherishing, affirming, acting upon choices, and a pattern in life" (pp. 27-28).

On the surface, values clarification sounds attractive. It is a quantum leap from indoctrination and seems to support individual autonomy and appears consistent with the ideal of open-mindedness. On closer examination, however, values clarification is in direct opposition to the goal of open-mindedness. Central to values clarification is the idea that one moral view is as good an another. This relativism encourages false subjectivism and downplays the importance of basing decisions on sound rational thinking. Further, it fails to foster the attitude that revisions to one's views must be changed when the evidence warrants. If it were true that one view is as good as another, the whole idea of belief revision would have no meaning, and there would be no standards by which one's integrity could be expected to conform. Like Protagoras the Sophist at the time of Socrates, values clarification helps the individual articulate and organize his own values, but may leave one relativistic about recognizing that others may have different values. Given its underlying assumptions, values clarification proposes no basis for objection, even in extreme cases such as decisions which are life-threatening to others or result in other forms of serious damage or loss.

Moral understanding based solely on values clarification fails to take the concept of integrity seriously. The tolerance and mutual respect taught under this concept are too loosely held. One must be clear about one's values, but clarity, by itself, is not enough. Open-mindedness demands a tenacious defence of positions taken and is tolerant only of well thought out positions arrived at through reflection and critical thinking.

Other Threats to Integrity

In the discussion of business morality two underlying myths endure through time which conflict with the moral point of view. One is the over-emphasis on individualism and another is the myth that there is universal opportunity for advancement. These are business value systems which have persisted through the ages manifested, for example, in the puritan ethic and by the robber barons, that clash with integrity. The assumption made here is that business philosophy influences the value system of business decision makers, and moral character is shaped by one's value system. A problem with extreme individualism and the myth of equal opportunity is that success is couched solely in economic terms. Cultural and other non-economic values in this context are viewed as an infringement on one's ability to make money, and are seen an unimportant. Possible consequences are that individuals fail to develop the capacity to enjoy life's broader dimensions, and the social and ethical responsibilities of business get neglected. Business failure, under this value system, is equated as moral failure stemming from defects in will or character. The lack of empathy and compassion for those who do not succeed in business is unacceptable from the moral point of view and is inconsistent with integrity.

Paradigms which restrict or inhibit the development of the whole person thwart the inculcation of integrity. This can be seen by briefly examining depictions of the modern manager by writers such as Whyte (1956) in The Organization Man and Maccoby (1976) in The Gamesman. According to Whyte specialization which has accompanied industrialization has left individuals with feelings of insignificance and has aroused a strong sense of wanting to belong. This has led to what Whyte calls the organization man. On the positive side, the organization man is characterized as trustworthy, loyal and responsible. The negative effects are the excessive concern with security and conformity that leaves one insensitive to individual needs and weakens one's courage to differ from the crowd. Morality is reduced to good manners and to a superficial concern for others. The organization man has no real commitment to self-development and is driven by a concern for rewards and fear of punishment. The moral inadequacy of the organization man is its inability to foster integrity. Integrity demands courage and tenacity and the willingness to stand up for what one believes is right.

In The Gamesman Michael Maccoby maintains that business needed an entrepreneurial type of manager who could overcome the organizational stagnation of the organization man. The result in the late 1 970's was the appearance of a new business ethic which represented the co-operative, group belonging values of the organization man but combined these attributes with a new tough, more aggressive nature that was intolerant of weakness and more robber baron like. Maccoby characterizes the gamesman as lacking compassion and manipulative. As with the organization man this prevailing business ethic is defective because it conflicts with the concept of integrity and the moral point of view.

For integrity to be nurtured and developed in business it is important to understand the moral failings of business ethics that tend to persist. If one can accept the Socratic idea that immorality originates in ignorance then the onus falls on educational institutions to enter the debate on the evaluation of managerial values so that inadequate ethics can be replaced with morally sound ones which promote integrity. If the problems both of extreme individualism and excessive desire for conformity are understood then the way is paved for building a new business ethic with integrity as the organizing principle.

Building Integrity through Discourse

Key to developing integrity throughout the profession is the instillation of practical discourse. This means actually giving voice to all relevant constituents, both internal and external, to the organization with which the accountant deals. This includes clients, employees, customers, shareholders, suppliers, and government. This kind of behaviour is not likely to just happen when graduates enter the work force. The disposition to hear and be concerned for others is something that must be learned and cultivated, preferably throughout one's entire education, but certainly it needs to be encouraged and reinforced in the business and accounting curriculum.

Integrity demands that recognition be given to valuing the ideas which others have to offer. For the accountant it means providing users with the information they need in order to make a fair assessment. It also demands open-mindedness and an intense respect for the truth. Integrity requires not only truth telling, as quite naturally comes to mind, but also truth finding. The very act of participating in a discourse suggests that genuine consensus is possible and that it can be distinguished from a consensus which is false. According to Habermas (1984, and see McCarthy, 1978), rational decisions about truth claims requires a structure which is free from constraints such as neurotic or ideological distortions. His thesis is that the structure is free from constraint only when all participants have an equal opportunity to be heard. This means that each participant has the same chance to command, to oppose, to permit, to forbid, and to express his or her attitudes, feelings, and intentions.

Genuine discourse is a socially constructed learned behaviour. This behaviour can be built into the curriculum itself and developed as a skill at the pre-professional level. The business communications course, advanced accounting courses and other courses which use the case method of teaching, can be geared to consciously and sincerely taking into account what others have to say. This is essential to the integration of ethics into accounting education.

These ideas can be carried from the classroom to the business world. As an illustration we can refer to the practice of accounting. In performing audits accountants often focus on economy, efficiency, and effectiveness. The moral point of view is that these objectives be met in harmony with giving full respect to persons. In other words, these economic goals should not be achieved at the expense of the dignity of individuals. This requires listening to the concerns of others and acting fairly. Traditional business organizations are not designed to facilitate discourse. The hierarchical structure, by design, vests more power in positions which are higher on the corporate ladder. When bureaucratic structures emphasize division of labour and specialization, stress is often on rules, regulations, and standard operating procedures, and on impersonal and formal communication. Authority is tied to job positions. With power unequally distributed, those lacking power have more to risk by being open and honest. On the other hand, organic structures (Burns and Stalker, 1961 ) are characterized by co-ordination, control, and communication which is informal and personal, with power and knowledge dispersed throughout the organization, creating multiple centres of authority. With organic structures organizational goals are set with broad participation while obedience and loyalty are de-emphasized.

A consequence of a more participative organizational structure is that individuals develop loyalty and identification with the group. According to social contract theory, feelings of moral obligation tend to grow out of common agreements (Habermas, 1984). As participants make promises and commitments, they hold each other accountable for bringing them to fruition. As a result of openly committing to certain obligations, individuals are also likely to feel a strong will to hold to their pledges. This commitment is central to the meaning of integrity. The importance of making and keeping commitments is an essential part of the hidden curriculum and is fundamental to ensuring that business itself is an ethical activity. In summary, integrity is fostered through an organizational structure that facilitates free and open discourse. Organizational structure should be less hierarchical, with power dispersed throughout.

In the context of accounting education, accounting students in their study of organizational design can be made cognizant of how to design organizational structures which share power and respect the integrity of others.

Educating Future Leaders for Integrity

In the pursuit of the ideal of integrity, special responsibility falls on the shoulders of those who actually lead organizations. These positions are frequently held by people with professional accounting qualifications or by those who rely heavily on information provided by professional accountants. Traditional management theory recognizes the importance of building consensus. Drucker interprets Herbert Simon's concept of optimal "satisficing" as follows:

A manager. . . needs to think through what the constituencies are that can effectively veto and block. . . decision, and what their minimum expectations and needs should be. This is bound to induce a certain schizophrenia. When it comes to the performance of the primary task of an institution . . . the rule is to optimize. . . but in dealing with the constituencies outside and beyond this narrow definition of the primary task, managers have to think politically--in terms of the minimum needed to placate and appease and keep quiet constituent groups that otherwise might use their power of veto. Managers cannot be politicians. They cannot confine themselves to 'satisficing' decisions. But they also cannot be concerned only with optimization in the central area of performance of their institutions. They have to balance both approaches in one continuous decision making process (Drucker, 1980).
The foregoing is an attempt to be value neutral and is not a serious approach to finding truth and building integrity within an organization. It provides no guidance with how to deal with situations which involve ethical conflict. The educated person cannot be value neutral.

Based on the work of Gadamer (1975) and Lawrence (1984) it has been argued by Neilson ( 1990) that integrity can be encouraged though Socratic dialogic leadership. Dialogic leadership offers guidance in dealing with conflict situations which help ensure integrity of leadership and opens the possibly of ethical belief revision. Dialogic leadership is based on serving the needs of the larger community and not just the needs of a particular leader or his immediate peers and subordinates. This requires an intense mutual searching for truth through dialogue.

A dialogic approach is useful as long as one does not compromise on standards for the sake of arriving at a consensus. In the case of moral issues there can be no compromise without a loss of integrity. To act in opposition to what one truly believes is a moral failing. This is much different from revising belief based on new evidence or a deeper interpretation of old evidence as is accomplished through open-mindedness. To avoid a loss of integrity one must examine all relevant evidence that is available with the firm intent of pursuing a justifiable course of action. Open-mindedness entails the giving up of beliefs only if they have been dispelled by reasoned argument, and firmly rejects any notion of one idea being as good as any other. From this perspective dialogue may be interpreted as a way of learning and coming to a true ethical perspective, leading to actions performed with full integrity.

As an accounting professional one has a duty to society to hear and respond to the reporting needs of all who are affected by accounting standards. One should not merely accept the current power relationships that exist in business. The moral point of view is not that financial reporting should serve the needs of the current power elite, but should serve society in general. This critical perspective does not just happen. People must be educated to think for themselves and become autonomous persons capable of taking the moral viewpoint. It is this combination of the autonomous and ethical dimensions of human behaviour upon which integrity depends. Accountants need integrity to guide them both within the profession to pursue a continuous improvement in standards and in their capacity as business leaders and influencers to better serve society. In summary, situations of ethical conflict have the potential of resolution if dialogic leadership is practised. The emphasis is on seeking ethical truth and not on control or on the exercise of power.

Individual Moral Responsibility

To be meaningful corporate social responsibility must be couched in terms of individual moral responsibility (IMR). This is because it is really individual agents who actually make business decisions. Individual moral responsibility is pivotal to the idea of integrity.

To be morally responsible certain criteria must be met. For example, IMR implies causal responsibility. One is causally responsible for an event if that event would not have occurred without that person's involvement. IMR requires that the accountant be a rational agent. In other words, the person acting must be capable of acting with purpose, and of understanding and choosing among alternatives. These are learned behaviours that are central to the educational process.

IMR also demands both knowledge and freedom. Ignorance, however, does not always excuse one from responsibility. There is such a thing as culpable ignorance, that is, a case in which one lacks knowledge that one would be expected to possess. A professional auditor, for example, would be expected to have a repertoire of audit techniques at his or her disposal and be up-to-date with current developments in the field. Failure to take these professional responsibilities seriously shows a lack of integrity. Such is culpable ignorance.

One can be causally but not personally responsible for events of which the agent is inculpably ignorant. Reasonable audit procedures, for example, cannot be expected to find fraud, where fraud exists, one hundred percent of the time. Integrity requires that when one intentionally and freely engages in an act, one accepts responsibility for the effects of that act. There may also be times when the individual can be held responsible for unintended effects resulting from carelessness or culpable ignorance. In cases where there are potential environmental hazards, an accountant could be held morally responsible for not seeking advice from environmental experts before making disclosures. To be free from blame one must demonstrate that there are justifiable limitations in knowledge or freedom. A characteristic of professionalism is that one does possess special knowledge as well as autonomy. Personal moral responsibility increases in accordance with the possession of this increased knowledge and freedom. The recognition and acceptance of personal moral responsibility is an aspect of integrity which should be cultivated through the educational process. This is a conception that individual moral responsibility can be learned. It is arguable that explicit attention should be paid to the notion of IMR so that students take the time to reflect on its importance.

An interesting aspect of IMR has to do with the problem of joint effects. Often in business there are several people involved in making business decisions. If a decision is made that harms others--for example, pollutes the environment or endangers the user of the firm's product or servicc it is arguable that each person is personally responsible and subject to blame. This is true even if that individual's participation would not be a sufficient condition for the harmful effect. In other words, IMR has no distributive properties as might be the case with legal responsibility. Personal moral responsibility for jointly determined effects is the same as that for singly determined effects. IMR cannot be legislated. It must be learned. In summary, integrity includes the recognition that individual moral responsibility increases in proportion to the amount of knowledge and autonomy held by the professional. It is conceivable that the cultivation of IMR can be harvested by explicitly emphasizing its importance throughout the entire accounting curriculum.

Measuring with Integrity

Individual moral responsibility is a critical element of integrity which the educational process should seek to instil. Consistent with this view of IMR is that accounting professionals also have a strong social obligation to serve society in return for the special rights and privileges which society bestows upon professionals. (autonomy, high incomes, etc.). Social responsibility can be partially met by providing full and accurate disclosure. Accounting professionals have a critical role to play here. Integrity demands that accounting reporting systems should reflect the interests of a broad constituent base. Currently, corporations produce financial reports that are audited by public accounting firms, which attest to whether these reports have been prepared by generally accepted accounting principles. Truth in accounting is an elusive concept, because many accounting measurements are based on arbitrary assumptions regarding amortization of assets or inventory valuation. Although many of the numbers reported can be objectively reported, much is not reported, and the emphasis of what is reported is more on stewardship and less on providing relevant information for current and future use.

Integrity in accounting demands a pursuit of the truth. Because accounting is a socially constructed discipline, as opposed to a natural science, it lacks the preciseness needed for full objectivity. Although attempts have been made to develop a conceptual framework (see Financial Accounting Standards Board, 1978), accounting has no single unifying structure. Generally accepted accounting principles and generally accepted auditing standards are merely socially constructed guidelines. Many accounting choices are left to "professional judgement." It is theoretically possible to tighten the rules to allow for fewer choices, but this is unlikely to happen for at least two reasons. First, the judgement factor is considered to be what distinguishes the professional from other occupations. Second, it is a virtual impossibility to foresee every possible reporting alternative. Attempting to do so would result in an unmanageable preponderance of rules.

The questions of what to measure and how to measure are perennial problems for professional accountants. Material discretion among accounting practices has paved the way to the problem of earnings management. Earnings management has been defined as

purposeful intervention in the external financial reporting process, with the intent of obtaining some private gain (as opposed to, say, merely facilitating the neutral operation ofthe process) (Schipper, 1989, p. 92).
Without fraud, falsifying records, or circumventing inter¿¿al controls (obvious moral failures), it is possible to manage reported net income. Because there is so much discretion with respect to the time period chosen to recognize expenses, net income can be controlled through the accrual process. That is, the portions of revenue and expenses which are not represented by cash flows makes it possible to shift costs to or from one accounting period to another. Examples include the following:
  1. The CICA Handbook allows some discretion in reporting amortization, for example, depletion of oil and gas based on cost and quantity estimates.
  2. There is a discretionary element in the reporting of accounts receivable. Changes can be made in the allowance for doubtful accounts. By increasing this allowance, for example, one will increase expenses and consequently decrease reported earnings.
  3. Flexibility in how a manufacturing firm accounts for inventory also opens the door for earnings management. The choice of what portion of fixed overhead to include in the cost of inventory versus what portion to charge immediately to expenses will obviously affect reported earnings.
  4. There is also discretion in the reporting of accounts payable and accrued liabilities. One can be more or less optimistic about warranty provisions, and there is room for judgement in accounting for certain items as contingencies, with footnote disclosure rather than as accruals, which would immediately affect total expenses and net income.
From the perspective of the user it is difficult to determine whether earnings are being manipulated or whether an honest attempt is being made to apply generally accepted accounting principles in a consistent and objective manner. Where earnings management occurs, however, it is unethical because it gives unfair advantage to some interest groups over others. When one constituency (management) exercises its power to control net income to suit its private interest, that is, maximize company bonuses, etc., integrity has been undermined.

A survey of 649 managers revealed two major problems concerning the ethical and moral implications of earnings management (Bruns and Merchant, 1990). The survey concluded that not only is some form of short-term earnings management being practised in many, if not all, companies, but there existed a wide dispersion in managers' views about which practices were ethical. The authors argue that the numerous liberal definitions of what is ethical "should raise questions about the quality of financial information that is used for decision-making purposes by parties both inside and outside a company" (Bruns and Merchant, 1990, p. 22). This is a warning that one ought to be sceptical about the quality and accuracy of financial statements which may be providing information that has been manipulated and is deliberately deceptive. If some stakeholders are taking advantage of information asymmetry at the expense of other stakeholders it is clearly out of step with the moral point of view. It is disturbing that this study reported a lack of consensus about which practices are unethical. This may be due to ignorance of not having thought through the ethical implications of earnings management. Exposure to accounting ethics in the accounting curriculum would sensitize stakeholders to such issues and raise expectations for greater integrity. It is because of the highly technical nature of accounting that general ethics education is not sufficient. Ethics must be taught in a setting which provides practice in identifying ethical issues which may be unique to accounting and business situations. Otherwise, honest people with high integrity may fail to act ethically simply because they are not sensitized to the context.

Stepping away from earnings management, numbers also lack integrity because they fail to reveal the true costs and benefits to society. Business decisions often have significant impact on the ecological environment or on family and community life. Some attempt should be made to record such costs or benefits as part of the corporate report. Many important events cannot be easily quantified in terms of monetary consideration. Nevertheless, information such as number of jobs created, number of customer complaints, products returned, measures of employee satisfaction, customer satisfaction, and so forth, are important quality measurements that help reflect the integrity of an organization and its contribution to society. A greater mixture of quantitative and qualitative information will produce a more complete picture, thereby enhancing the integrity of the disclosure. Unfortunately, social responsibility reporting is seldom part of the accounting curriculum. Open-mindedness demands that current practice be critically evaluated with a view towards improvement. Greater disclosure of both economic and non-economic information may lead to decisions that more fairly represent the interests of all stakeholders.. With current technology, reports can be generated which supply such information at reasonable cost. In the interest of integrity this broader approach to disclosure is essential. In summary, integrity demands truthfulness in reporting. The scope of financial reports must be expanded to include more qualitative information so that a more accurate assessment can be made ofthe entity's contribution to societal goals. The university is well positioned to allow this debate to take place through open and critical discourse aimed at finding truth in the spirit of open-mindedness and integrity.


It is the contention of this paper that individual agents for a business or professional organization ought to act with integrity. It has been argued that this involves acquiring the disposition of open-mindedness, engaging in serious discourse, and practising dialogic leadership. This engages the wholeness of what it is to be human. As Alasdair MacIntyre (1981) has said, integrity cannot be specified at all except with reference to the wholeness of human life.

Ultimately, if corporations are to be socially responsible there should be reporting systems which generate accurate, reliable, and more complete information. Hopefully, the general issues developed in this paper will provide a framework to guide the development of integrity in business and serve as a guide to the education of professional accountants who will play a major role in how businesses are run. Further research is need to develop models of how this concept of integrity can be integrated into accounting education.


1.For example, see articles concerning Union Carbide and the Bhopal plant, The New York Times, 25 April 1985, p. 34, 9 December 1984; "Lockheed to Pay Full $1.49 Million in Safety Penalties," Los Angeles Times, 5 February 1991; "Cleaning Up Wall Street,''Insight , 23 March, 1987; "Levitt sentenced to 30 years for theft from S&L," Washington Post, July 3, 1986: "Morals in the rat race," Globe and Mail, 27 February, ] 987; "Diamond ads bring record penalty, Simpsons-Scars is fined $1 million," Globe and Mail, 1 July,1983; "Boesky affair fueling push for tougher rules," Financial Post, 24 November 1986; "Court to Consider Allowing U.S. to Sue S. & L. Advisors," New York Times, p.30. More recently many articles have been written concerning the Body Shop controversy as well as scandals involving financial derrivitives such as the Orange County and Nick Leeson scandals.

2. There is a dispute as to whether ethics is practical or theoretical. G E. Moore in Principia Ethica says that ethics is an inquiry into what good is.


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Copyright Ray F. Carroll

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