Ethical Leadership and Decision-Making in Accounting

Chapter 8

8-#

Questions for Consideration

What does it mean to be an ethical leader?

How does ethical leadership influence the judgments and decisions made by accounting professionals?

What can the accounting profession do to regain its position of ethical leadership and serving the public interest?

8-#

Ethical Reflection

Leaders who lead ethically are role models, communicating the importance of ethical standards and holding their employees accountable to those standards

Reflect on the following:

What are the characteristics of a moral manager?

How can moral managers create an ethical culture built on values-based leadership?

What is the role of moral intensity in ethical decision making?

How does ethical leadership influence the judgments and decisions made by accounting professionals?

8-#

What is Ethical Leadership?

The Ethical Leader

Understands that positive relationships are built on respect, openness, and trust

Portrays the underlying principles of integrity, honesty, fairness, justice, responsibility, accountability, and empathy

Aligns external actions with ones internal values

Strives to honor and respect others in the organizations

Seeks to empower others to achieve success by focusing on right action

Leads by example

Has a vision of the future that entails some notion of the good

8-#

Framework for Ethical Leadership

Lawton and Paez framework for ethical leadership is built on

Who are leaders and what are their characteristics?

How do ethical leaders do what they do?

Why do leaders do as they do and what are the outcomes of ethical leadership?

Virtues cannot be separated from the context in which they are practiced

Different virtues will be appropriate to the different roles that leaders play

Ethical leadership entails building an environment where those in the organization feel comfortable in talking to others to share perspectives of the importance of finding an ethical solution to problems

8-#

Ethical Leadership in Accounting Firms

Auditors need to be virtuous and exhibit the characteristics of honesty, integrity, objectivity, and professional skepticism

Those traits are essential in auditors relations with clients because they enable professional judgment and ethical decision making

They also facilitate the kind of probing audits and targeted inquiries of management that should be conducted selflessly and in the public interest, not that of the client or self-interest

Partners must exhibit moral imagination through ethical perception of what it means to be ethical, professional, and successful

In dealing with conflicts in relationships with clients, auditors should demonstrate courage and moral imagination

Ethical judgment and ethical decision-making skills become critically important in the audit: evaluate estimates and judgments made by management

8-#

Moral Person and Moral Manager

Part of the role of leadership includes creating the moral organization, promoting development in others, and institutionalizing values within the organizations culture

Trevino et al. discuss building ethical leadership through two pillars of character: moral person and moral manager

A moral manager creates a strong ethics message that gets employees attention and influences their thoughts and behaviors; cultivating the ethics and values and infuse the organization with principles that will guide the actions of all employees

A moral person forms the basis of a reputation of ethical leadership and challenges the leader to convey that substance to others in the organization

People think of an ethical leader as having certain traits, engaging in certain behaviors, and making decisions based on ethical principles

8-#

Building Trust and Reputation

Building trust is a critical component of moral managers and is demonstrated through consistency, credibility, predictability, openness, respect, and fair treatment of others

Moral leaders strive not only to do the right thing but do so for the right reason and communicate to others that the right thing is going to happen at all times

Building a reputation for ethical leadership means to enable ethics and values to shine through the fog of beating the competition and meeting financial projections

8-#

Values-Driven Leadership

A leader needs to connect with organizational values

Leaders must ask what they stand for and why

Leaders must consider why others would want to follow them. The goal is to get in touch with what motivates ones actions and how best to motivate those in the organization who look to the leader for direction

Kouzes and Posner suggest that Clearly articulating and, more importantly, demonstrating ones values, forms the basis of a leaders credibilityand credibility in leadership is character-based.

8-#

Giving Voice to Values (GVV)

GVV develops the skills needed to deal with ethical challenges involving knowing what to say, to whom, and how to say it when a manager knows whats right in a particular situation but doesnt feel confident about how to act on his or her convictions

What are the shared values that should drive my actions?

With whom do I need to speak to enable voicing my values?

What do I need to say to most effectively give importance to my values?

What are the likely objections or push-back I should expect?

What should I say next?

8-#

Authentic Leaders

Authentic leaders are

Focused on building long-term shareholder value, not in just beating quarterly estimates

Individuals who are deeply aware of how they think and behave and are perceived by others as being aware of their own and others values/moral perspectives, knowledge, and strengths; aware of the context in which they operate; and confident, optimistic, resilient, courageous, and of high moral character

Acknowledging the ethical responsibilities of their roles, authentic leaders can recognize and evaluate ethical issues and take moral actions that are thoroughly grounded in their beliefs and values

Followers are

Likely to emulate the example of authentic leaders who set a high ethical standard

Empowered to make ethical choices on their own without the input of the leader

Becoming moral agents of the organization

8-#

Transformational Leadership

Transformational leadership is defined as a leadership approach that causes change in individuals and social systems

It creates valuable and positive change in followers with the end goal of developing followers into leaders

It enhances the motivation, morale, and performance of followers through a variety of mechanisms and includes

Connecting the followers sense of identity and self to the mission and the collective identity of the organization

Being a role model for followers that inspires them

Challenging followers to take greater ownership for their work

Understanding the strengths and weaknesses of followers

Transformational leadership is more effective than transactional leadership, where the appeal is to more selfish concerns

Transformational leaders raise the bar by appealing to higher ideals and values of followers

8-#

Followership and Leadership

The flip side of leadership is followership

Introduced by Hollander and Webb, the term followership is characterized as an independent relationship in which the leaders perceived legitimacy can affect the degree to which followers allow themselves to be influenced

Followership, servant leaders (next slide), and authenticity all share one common characteristic: Leader ethicality

De Cremer and Tenbrunsel define leader ethicality as the intention to demonstrate normatively appropriate conduct and to create an environment within which others will be encouraged to act ethically and discouraged from acting unethically

The social perception of a leaders legitimacy may play an important role in determining how the leaders morally relevant actions are interpreted and the influence leaders have on followers

Leadership and followership are reciprocal relationships with one influencing the other

8-#

Servant Leadership

Servant leadership advocates a perspective that leaders have a responsibility to serve their followers by helping them achieve and improve by modeling leaders ethical values, attitudes, and behaviors that influence organization outcomes through the fulfillment of followers needs

Leaders should put the needs of the followers before their own needs

Servant leaders use collaboration and persuasion to influence followers rather than coercion and control; they understand their stewardship role and are accountable for their actions

8-#

Social Learning Theory

Social learning theory holds that individuals look to role models in the work context, and model or imitate their behavior

Modeling is acknowledged to be one of the most powerful means for transmitting values, attitudes, and behaviors

Leaders who engage in unethical behaviors create a context supporting what Kemper calls parallel deviance, meaning that employees observe and are likely to imitate the inappropriate conduct, especially if leaders are rewarded for the unethical conduct

The social learning approach argues that because of leaders authority role and the power to reward and punish, employees will pay attention and mimic leaders behavior, and they will do what is rewarded and avoid doing what is punished in the organization

8-#

Moral Intensity

The moral intensity of issues in an organization play a role in whether whistleblowing will occur

The predictor of whistleblowing and that of empathy corresponds directly to the two moral intensity dimensions of seriousness of issue and proximity

An ethical leader is more attuned to the magnitude of consequences and can use that in the pre-action decision stage to mitigate any bystander effect

Taylor and Curtis found that auditors were more likely to report an observed violation and to persevere when moral intensity is high

Moral awareness and moral leadership go hand in hand

A greater degree of harm or benefit results in an increase in moral intensity because more shareholders are at risk and the potential negative effects of unethical actions are more serious

Moral intensity is like materiality issues in accounting

8-#

The Role of Moral Intensity, Organizational Culture, and Ethical Leadership in Accounting

In an interview with Fraud Magazine, Sherron Watkins characterizes the leadership of Ken Lay at Enron as

Setting the tone

Once you got to the executive suite, the companys assets were there for you to move around for yourself or family

Watkins said that CEO must have pristine ethics if there is any hope of ethical behavior from the employees

Watkins also suggested that CEOs must have a zero tolerance for ethically challenged employees, otherwise the internal control system will eventually be worthless

8-#

Ethical Leadership and Audit Firms

The promotion of responsible leadership is seen within audit firms as a way to improve audit quality

Responsible leadership is a critical component of setting the proper tone and encouraging members of the organization to ask probing questions when managements representations are unclear or unsubstantiated

Authentic partner leaders gain the confidence of audit staff and managers and create a foundation for ethical decision making

Ponemon found that leaders of accounting firms set the tone of their organizations, promoting those whose personal attributes more closely reflected the leaders perceptions and moral reasoning development

Ponemon hypothesized a correlation between the organizational culture created by leaders of the accounting firms and the subordinates personal characteristics and decision-making styles

8-#

Research on Leadership and Audit Firms

Shaub et al. found mixed evidence of the ability of an accounting firm to either change an auditors ethical orientation to match its own, or to provide an environment that closely matches an auditors norms

The selection-socialization bias causes a firm to hire and promote individuals who fit into the prevailing firm culture and causes individuals unable to fit into that culture to leave

Douglas et al. studied the influence of ethical orientation and ethical judgment in situations of high and low moral intensity and found that perceived organizational culture is indirectly related to ethical judgments, as ethical culture affects individual values and idealism and idealism affects judgments

8-#

Research on Leadership and Audit Firms (continued)

Morris studied the influence of authentic leadership and ethical firm culture on auditor behavior

Found that a typical senior more frequently under-reports time than prematurely signs off on audit work

Constructs of authentic leadership have influence over the employees perception of the ethical content of a firms organization culture

Authentic leaders can help to promote an ethical culture and reduce the instances of dysfunctional auditor behavior

Authentic leaders seek to eliminate ethical dissonance

Morris findings indicate there was a negative relationship between the audit seniors perceptions of their firms as ethical and instances of dysfunctional audit behavior

The findings support the mediation of perceptions of authenticity in leaders on the auditors perception of ethical firm culture and auditors instances of dysfunctional behavior

8-#

Gender Influence on Decision Making of Public Accounting Professionals

Bobek et al. studied how professional role, decision context, and gender influence public accounting professionals ethical decision making

Males and females see their role as accounting professionals differently

Males were less likely to recommend conceding to clients wishes, and less likely themselves to concede, in an audit context versus a tax context

Females appeared to use a different decision-making process than males; they are more likely to use an intuitionist approach

Perceptions of moral intensity were seen as a factor that might mediate context in decision in males but not females

Results show that professional role, context, and moral intensity potentially affect male decision making in a significant way but not female decision making

8-#

Ethical Leadership and the Internal Audit Function

Chambers identifies attributes of internal audit leadership behavior including honesty, courageousness, accountability, empathy, trustworthiness, respect, and proactiveness.

Internal auditors can sometimes be bullied by CFOs which makes it more difficult for them to carry out their ethical obligations

Auditors may take their cue from executive managements behavior, especially if such behavior is the social norm and has been rewarded in the past

A high quality internal audit function can reinforce the tone at the top and provide guidance for decision makers by monitoring internal control and managements actions

8-#

Research on Ethics and Internal Auditors

Prawitt et al. found from their study of earnings management that a quality internal audit function is associated with moderation in the level of earnings management

Arel et al. studied the impact of ethical leadership, the internal audit function, and moral intensity

Found that the joint influence of ethical leadership and internal audit quality on accountants willingness to book a questionable accrual entry is fully mediated by participants perception of the moral intensity of the issue

Accounting professionals who perceive greater moral intensity associated with the controllers request to record a questionable entry are less willing to book the questionable entry

Found a strong internal audit function may cause accountants to question the appropriateness and ethicalness of an undocumented journal entry when combined with weak leadership

8-#

Ethical Leadership and Tax Practice

Bobek et al. found that tax partners rated the ethical environments of their firms as stronger than nonpartner tax practitioner, especially with respect to firm leadership

In a later study, Bobek et al. found that, when nonpartners believe they have a meaningful role in shaping and maintaining the ethical environment of their firms and/or have strong organizational fit with the firm, they are more likely to perceive the ethical environment as strong and perceive it similarly to firm leaders

They also found that among tax partners, the sense of having a stronger public interest responsibility and a higher frequency of receiving mentoring are both associated with stronger perceptions of the ethical environment

Studies indicate that the weakest part of the ethical environment appears to be outcomes, rewards or sanctions and explicitly rewarding or punishing ethical behavior is a tangible way to encourage nonleaders to participate in maintaining a strong ethical environment for the firm

8-#

The Role of CFOs

CFOs at HealthSouth showed how they can be influenced by a strong CEO –Richard Scrushy

Aaron Beam, former CFO of HealthSouth in an interview with Business Report noted

As CFO of a publicly traded company, you are under a lot of pressure to deliver good numbers

It is just the culture of Wall Street: you learn to put lipstick on the pig

You learn to be deceptive, because you want to protect the price of the stock

At HealthSouth there was no ethical leadership by the internal auditors to raise the level of moral intensity to a degree that could have influenced the accounting

Many employees of HealthSouth, particularly those who worked at medical centers in other parts of the country, thought they worked for an ethical company

HealthSouth is a case study in how unethical leaders can corrupt the ethical culture and drag others into financial fraud that destroys a company and ruins lives along the way

8-#

Implications for Whistleblowing in Accounting

Mesmer-Magnus and Viswesvaran found that organizational employees have three options to address an unsatisfactory situation faced within an organization

Exit the organization

Voice discontent, OR

Remain silent

Sims and Keenan studied organizational and interpersonal values as predictors of external whistleblowing

Found that employees were more likely to engage in external whistleblowing, if they had the support of their supervisor or perceived company policies suggested that such behavior was acceptable

Found that external whistleblowing channels would be used only if they believed internal whistleblowing would be ineffective

In public accounting, organizational commitment is heavily emphasized through identification with the ethical systems, quality controls, and firm leadership

Colleague commitment is a sense of responsibility and readiness to support colleagues within the organization

8-#

Research on Whistleblowing

Taylor and Curtis examined the complex relationships in accounting firms that influence an individuals decision to report an ethical violation

Auditors can be committed to the firm and the profession, neither one, or one or the other

Individuals vary in their commitment to colleagues within the organization

Materiality, moral intensity, and whether an act is critical affects reporting

Perceived personal costs of reporting affects reporting

A correlation exists between the likelihood of audit seniors reporting audit staff for premature sign-off based on whether the audit was a necessary step or not and the staffs prior performance history

Brennan and Kelly found that audit trainee showed a reluctance to report externally and findings indicate that audit firms should review and improve their structures for reporting suspected and actual wrongdoing, and to encourage staff to voice concerns internally

8-#

Research on Whistleblowing (continued)

Miceli et al. found that feelings of moral compunction and role prescriptions form the basis of the moral intensity of the situation

Graham found the higher the moral intensity, the more likely it will be reported and that the professional identify of the person reporting takes precedence over organizational and colleague commitment

For auditors, the act of whistleblowing is internally required when differences exist on accounting issues with management because of compliance obligations

8-#

A Case Study in Ethical Leadership

Diem-Thi Le, senior auditor at Defense Contract Audit Agency (DCAA), found the accounting system of defense contractor was inadequate; there were misallocations and mischarging costs to the government

Le had her audit opinion of an inadequate system changed by branch manager; her work papers were similarly altered

Le was not supported by her supervisor who deferred to the branch manager

Le found out this was standard practice at DCAA

Le blew the whistle on the fraudulent practice; she was retaliated against

DCAA violated whistleblower act

Le was ultimately put under whistleblower protection and now trains auditors

Diem-Thi Les experience stands as an example of when doing the right thing can lead to the right results, and that acting on ones conscience and a sense of professional identify can lead to positive results

8-#

Accounting Leaders Discussed in the Text

Accounting professionals identified in the book who demonstrated leadership qualities and were successful in putting an end to wrongdoing in their organizations

Cynthia Cooper at WorldCom, Anthony Menendez at Haliburton, and Diem-Thi Le at DCAA

Shared qualities of behavior include

Strong set of ethical values

Persistent in searching for the truth

Courageous and willing to put their own positions in jeopardy to serve the public

Many discussed in the book got caught up in the moment, gave into the pressure of superiors, and typically set aside their own values to do what they were told to do

Betty Vinson at WorldCom, and numerous CFOs at HealthSouth are examples

Common thread was fear, and intimidation

Being a team player, just going along with it this one time

8-#

Responsible Leadership

Pless and Maak suggest that becoming a responsible leader requires not only cognitive abilities but a combination of cognitive, emotional, relational, and moral qualities

Responsible leaders show interpersonal qualities in interacting with the different stakeholders and generating fair solutions

They need to be cooperative and empathetic in order to build and rely on social structures and resources both internal and external to the organization, which allow them to facilitate responsible actions

Ethical intelligence is an integral component of responsible leadership.

Ethical intelligence depends on three ethical qualities: moral awareness (or ethical sensitivity), reflection skills (abilities to judge from a critical distance), and moral imagination (ability to develop new structures of thinking)

8-#

Ethical Leadership Competence

Ethical leadership competence refers to the ability to handle all kinds of moral problems that may arise in an organization

It requires developing the competency to reason through ethical conflicts in a systematic way, judgment and reflection on what the right thing to do is

Thornton identifies five levels of ethical competence

Personal and Professional accounting professionals should internalize the values of the profession, including objectivity, integrity, diligence, and duty to society

Interpersonal working in teams requires respect of others and fair-mindedness

Organizational and Societal auditors should follow the ethics codes and expectations of their organization, but they should never compromise their professional identify

8-#

The Ethical Leadership Scales

Kelly and Earley developed three measures called The Ethical Leadership Scales, which provide a measure of personal ethical competence, ethical leadership, and ethical organization

Questions to ask yourself include

Are you reliable and dependable?

Are you willing to admit mistakes?

Are you true to your word?

Are you worthy of confidence?

Do you keep promises

Read more
Applied Sciences
Architecture and Design
Biology
Business & Finance
Chemistry
Computer Science
Geography
Geology
Education
Engineering
English
Environmental science
Spanish
Government
History
Human Resource Management
Information Systems
Law
Literature
Mathematics
Nursing
Physics
Political Science
Psychology
Reading
Science
Social Science
Home
Blog
Archive
Essay
Reviews
Contact
google+twitterfacebook
Copyright © 2019 HomeworkMarket.com

Our Service Charter

1. Professional & Expert Writers: Blackboard Experts only hires the best. Our writers are specially selected and recruited, after which they undergo further training to perfect their skills for specialization purposes. Moreover, our writers are holders of masters and Ph.D. degrees. They have impressive academic records, besides being native English speakers.

2. Top Quality Papers: Our customers are always guaranteed of papers that exceed their expectations. All our writers have +5 years of experience. This implies that all papers are written by individuals who are experts in their fields. In addition, the quality team reviews all the papers before sending them to the customers.

3. Plagiarism-Free Papers: All papers provided by Blackboard Experts are written from scratch. Appropriate referencing and citation of key information are followed. Plagiarism checkers are used by the Quality assurance team and our editors just to double-check that there are no instances of plagiarism.

4. Timely Delivery: Time wasted is equivalent to a failed dedication and commitment. Blackboard Experts is known for timely delivery of any pending customer orders. Customers are well informed of the progress of their papers to ensure they keep track of what the writer is providing before the final draft is sent for grading.

5. Affordable Prices: Our prices are fairly structured to fit in all groups. Any customer willing to place their assignments with us can do so at very affordable prices. In addition, our customers enjoy regular discounts and bonuses.

6. 24/7 Customer Support: At Blackboard Experts, we have put in place a team of experts who answer to all customer inquiries promptly. The best part is the ever-availability of the team. Customers can make inquiries anytime.

Ethical Leadership and Decision-Making in Accounting

Ethical Leadership and Decision-Making in Accounting

Our Service Charter

Recent Posts

Recent Comments