Tag Archives: ethics

Hawaiian cardinal

Light’s effect on integrity and honesty

Following an earlier post about how clean smells were corre­lated with more ethically minded decision making is this HBR post about good lighting encour­aging the same thing:

In one laboratory exper­iment, we placed partic­i­pants in a dimly or well-lit room and asked them to complete 20 math problems under time pressure. The partic­i­pants received a cash bonus for every correct answer. Since we were inter­ested in whether darkness affects cheating rates, we left it up to the partic­i­pants to score their own work and to pay themselves from a supply of money they had received at the beginning of the study. While there was no difference in actual perfor­mance on the math problems, almost 61 percent of the partic­i­pants in the slightly dim room cheated while “only” 24 percent of those in a well-lit room did. Eight additional fluorescent lights in the room where the study took place reduced dishonesty by about 37 percent.

They also performed the test based on the perception of lighting levels using sunglasses, and had similar results.

I anxiously await the results of a combi­nation of smell and lighting!

But why stop there? What else in the sensory-ethics world can we adjust and test? Sounds? Tastes? Should we all be chewing mint gum every day and listening to waves crashing onto the shore?

The question is: could this be taken too far? How brutally honest do we want our co-workers to be with us? At least in the interests of getting along, perhaps some things are better left in the dark.

Slow down for better ethics

Inter­esting tidbit (and relevant for internal audit) from an article in the latest Economist on how taking time to make decisions results in getting the ethics right:

Slowing down makes us more ethical. When confronted with a clear choice between right and wrong, people are five times more likely to do the right thing if they have time to think about it than if they are forced to make a snap decision. Organi­za­tions with a “fast pulse” (such as banks) are more likely to suffer from ethical problems than those that move more slowly… The authors suggest that companies should make greater use of “cooling-off periods” or introduce several levels of approval for important decisions.

Several levels of approval for important decisions sounds like a fantastic idea to me. What I find is that too many decisions are made or approvals given orally in meetings, with scant evidence to support their existence later, in case of an audit. Surely intro­ducing more rigor around this aspect of approvals would further improve ethical behaviour!

Delay even works in fields where time might seem to be of the essence. Doctors and pilots can profit from following a checklist, even when doing things they have done many times before. A list slows them down and makes them more methodical, as Atul Gawande describes in “The Checklist Manifesto”.

Now you’re beginning to see why this article prompted me to write a blog post for the first time in umpteen weeks! Not just levels of approval, but check­lists too? Be still my beating heart!

Auditors have been employing check­lists to improve quality for eons. It’s great to see articles like this extolling their virtues to all people and for all tasks.

Ethics enhanced by clean smells

I wonder if this is something businesses (including accounting firms) might want to look into: A study at Brigham Young University has found that people are “uncon­sciously fairer and more generous” in clean-smelling environments.

The research found a dramatic improvement in ethical behavior with just a few spritzes of citrus-scented Windex.

The researchers see impli­ca­tions for workplaces, retail stores and other organi­za­tions that have relied on tradi­tional surveil­lance and security measures to enforce rules.

Companies often employ heavy-handed inter­ven­tions to regulate conduct, but they can be costly or oppressive,” said [Katie Liljen­quist, assistant professor of organi­za­tional leadership at BYU’s Marriott School of Management], whose office smells quite average. “This is a very simple, unobtrusive way to promote ethical behavior.”

I wonder if the persis­tence of a citrus smell at a business would affect the assessment of audit risk for that business? Maybe a cost-effective way to justify reduced audit testing? I can see it now: “Well, the assessment says we test a sample of 25, but does anyone else smell lemons?”

The study is at this point still “soon to be published,” but the article at BYU’s website details the tests performed to support the conclusions.

Rentokil-KPMG deal seen to threaten independence

The news that KPMG has snapped up the audit of Rentokil Initial from rival PwC brings with it renewed concerns around the indepen­dence of firms providing additional services as well as opining on financial statements.

Under the arrangement KPMG would undertake all the statutory respon­si­bil­ities associated with an external audit, while also ‘delving deeper’ and offering advice on internal audit issues.

Not only that, but the audit will cost 30% less than what PwC was charging. I wonder if the company will end up losing more than they’ve saved if the market punishes them for the perception of having a less independent opinion. The director of the Profes­sional Oversight Board, the UK body respon­sible for monitoring the UK’s ethical standards, declined to state whether the deal would be inves­ti­gated. For their part, KPMG says they are confident they can address the threats to their independence.

Some observers say the arrangement would not be a viable option for companies with a dual listing in the US, owing to strict indepen­dence guide­lines or ‘bright lines’ set down by the Securities and Exchange Commission.

It may not help shave costs during a time of economic diffi­culty, but I firmly believe keeping internal audit service providers separate from external auditors is critical to preserving the indepen­dence required for a financial statement opinion and is just best practice in general. I would’ve thought 7 years after SOX we’d have this down pat.

Estate tax as income tax

I just finished reading an article recom­mended by Richard about the estate tax, titled “Death and taxes”. It appears in New Statesman, a UK magazine “created in 1913 with the aim of perme­ating the educated and influ­ential classes with socialist ideas.”

I’m glad I read the article in full before reading the magazine’s history, as it would’ve no doubt coloured my impression. The article refers to a John Rawls’ idea that would revolu­tionize estate taxes:

… hence inher­i­tance tax could be made progressive, through orienting it towards receivers rather than donors. Large estates need not attract any taxation, as long as they were dispersed among a number of relatively disad­van­taged recip­ients. At the same time, even small estates could be taxed heavily if they were all left to others who were themselves already wealthy.

I love this idea. Will it be imple­mented though? Most political discussion of the tax revolves around scrapping it or keeping it. It will take leadership to steer the discussion towards reori­en­tation the likes of which Rawls suggests.

The article defends the estate tax on a number of points, but the free market one resonated with me most, which is no big surprise:

A free market in trade and employment gives us, let us suppose, a dynamic, innov­ative and thriving economy. It does this by incen­tivizing hard work, and letting economic rewards flow to those with the best ideas and the greatest capacity for hard graft.

But, if this is our vision of society, we surely must admit that the unearned windfall gains of inher­i­tance tax distort this picture. Large inher­i­tances distort the level playing field which would allow the dynamic and innov­ative to prosper.

Turning the estate tax into a income tax on the recip­ients would certainly shake things up, poten­tially improving the compet­i­tiveness of the economy while preserving the source of progressive government revenue. We should give it a shot, but the political will has to be there.