Do you know how to improve your firm’s ethical behavior?
Engaging in ethical business practices is crucial for growing your firm and serving your clients. Although most people view themselves as ethical, common lapses in judgment can lead to all kinds of trouble.
Fortunately, Gusto and CPA Academy hosted an edifying webinar that will help you and your team engage in more ethical practices. Comedy CPE Founder Greg Kyte and Editor-at-Large at Gusto Caleb Newquist delivered this informative webinar on December 15, 2020, and you can watch the full webinar playback here. In addition to this article, Gusto also featured a preceding article, Part One of this webinar article series, all about behavioral ethics.
In this article, you’ll learn five essential hacks that will improve your team’s ethical behavior. After reading, you’ll be able to start making positive changes to your firm, so let’s get started!
1. Be transparent
Transparency is crucial for being honest and ethical within the accounting profession. When you’re transparent with your clients and your firm, you reduce the possibility of defrauding or misappropriating funds. Once you decide to pursue transparency, you’re deciding that you are going to maintain ethical business practices:
“There’s something about being watched or being observed that is helpful in pushing us toward … a conformist position. … I think people do want to conform to behave appropriately, to behave in a way that doesn’t pull a fast one on your fellow human beings.”– Caleb Newquist
Bringing visibility to your practices is crucial for performing ethically. When you’re transparent, you’re having others hold you accountable.
Psychologist and behavioral economist Dan Ariely conducted a fascinating study that emphasizes the importance of transparency. The study involved having college students take a challenging 20-question math test. With each question the students answered correctly, they would receive one dollar. The average amount of questions answered correctly in the control group was 7.
After conducting the initial test, Dan Ariely enabled the next batch of students to cheat by letting them check their own answers. The average score went from 7 to 12. An interesting thing to note about the experiment is that very few students said that they answered all 20 questions correctly. They cheated, but they weren’t willing to steal the entire $20. Greg observed that this reflects the way that people cheat in real life. They don’t steal as much as they could, so they view themselves positively:
“That’s basically the theory that’s at work here. You go, ‘How can you look at yourself?’ That’s the rationalization. … And part of it is, ‘I didn’t cheat as much as I could.’ And the other part of it is, ‘I didn’t cheat as much as everybody else.'”– Greg Kyte
When individuals know they can get away with it, they’ll cheat while also justifying it by telling themselves that they’re not cheating as much as others. Take steps in your firm to create more transparency with your team to avoid opportunities in which you and your team can engage in unethical behavior:
“You make it transparent. Not only does that automatically nudge you to perform more ethically, but it also brings it out where you can [make] some policy decisions to actually curb the possibility of committing fraud.”– Greg Kyte
If you notice an area in which you can cut corners or behave unethically and get away with it, make it known to your clients and your team so that you can change policies and practices to deter it instead.
2. Reflect on a moral code
Within Dan Ariely’s math puzzle experiment, he separated students that could potentially cheat into different sections. Before giving the test to one of the sections, he had students brainstorm how many of the Ten Commandments they could recall. When students brainstormed the Ten Commandments, they were less likely to cheat. This even worked on students who identified as atheists. In a different section, he had students sign a statement saying they understood that the test fell under the purview of the MIT code of ethical behavior. In reality, the MIT code of ethical behavior does not exist, but it still deterred students from cheating. Regularly reflecting on a moral code decreases the likelihood of acting unethical in business:
“That’s really what’s happening in all of those situations. Is that they’re saying, ‘Okay. You’re in a situation where you’re about to cheat, and you have that possibility,’ but before you’re putting that possibility in some way or another, you have some mental exercise, whether you’re really aware of it or not, where you’re thinking about ethics. And then you go to a place where you have a moral question, and you go, ‘Oh, you know what? I’m not the kind of person who’s going to cheat on this.’ And you reflexively do the right thing.”– Greg Kyte
Take steps to incorporate reflecting on a moral code in your firm. One thing you could do is have your firm reflect on a mission statement that includes ethical practices. Doing something as simple as reflecting on a moral code is an effective way to increase your team’s ethical behavior.
3. Be ethical in all areas of your life
Another fascinating part of Dan Ariely’s study was testing if cheating is infectious. He brought a case of genuine Chloé sunglasses to the experiment and divided students into three groups. Each group would wear the sunglasses before taking the test, but they were given different backstories about the sunglasses. Dan Ariely told the first group that they were legitimate Chloé sunglasses, and he told the second group that they were knockoffs. The third group was a control group and didn’t receive a backstory on the sunglasses. When students took the test, Dan Ariely found differing results based on the sunglasses’ different backstories. 42% of students in the control group cheated. Only 32% of students who were told that they were legitimate Chloé sunglasses cheated, and an astounding 78% of students who were told the sunglasses were knockoffs cheated.
So what does this study say about behavioral ethics?
“The problem that we see based on the evidence with the fake Chloé sunglasses is if you cheat in one area of your life, you are priming yourself to cheat in other areas. … If you want to be ethical in arena A, be ethical in arenas B-Z as well.”– Greg Kyte
Students who wore knockoff sunglasses were more likely to cheat because they were already cheating by wearing the knockoff sunglasses. Greg observed that a common problem within accounting is people cheating on CPE courses. He noted that the cheating behavior will seep into other areas of their lives, including their firms. If you want to improve your ethical behavior at work, be consistently ethical in other areas of your life.
4. Don’t push yourself or your team too hard
An important concept to be aware of in accounting is ego depletion. Ego depletion directly affects your day-to-day willpower:
“Ego depletion [is] a fancy psychology term, and basically … the best way to think about it is the science has demonstrated that humans have a limited supply of willpower. … During the day, you use up your willpower. … By the time you’re done with the day, you might not have any left at all.”– Greg Kyte
You typically have more willpower earlier in the day than you do in the evening because your ego becomes depleted throughout the day. Ego depletion also affects our ethical behavior because we have more willpower to make ethical choices earlier in the day:
“[Dan Ariely] says, ‘If you wear down your willpower, you will have considerably more trouble regulating your desires, and that difficulty can wear down your honesty as well.’ … When your willpower is weakened by resisting temptation, you’re more likely to succumb to the next time, which is what we talked about. Self-control is like a muscle. It may start showing, but it weakens with repeated use.”– Greg Kyte
Making ethical choices gets more difficult when your ego is depleted. A major problem within the accounting profession is that people work too much, especially during busy times such as tax season, which leads to more ego depletion. When accountants are overworked, they’re more likely to participate in unethical behavior because the workload has reduced their willpower.
So what can you do to prevent your team’s ego from depleting?
“If you’re in a position in your firm to not allow it to turn into a sweatshop during [a] busy season, hire temporary people. If your core values say that you are committed to the highest level of ethics from your people, but you’re making them work 80 hours a week during [a] busy season, I don’t believe that you’re really committed to the highest levels of ethics.”– Greg Kyte
Rather than overworking, consider hiring additional accountants temporarily. Your firm’s quality of work will dramatically decrease if your team overworks, so it’s in clients’ best interests for your firm to avoid working too much.
5. Fire a smarmy client
The final ethical hack is getting rid of a smarmy client. Some clients engage in questionable ethical behaviors, and that can affect the ethical behavior of your team. Greg recounted his experience working for a company that engaged in aggressive behavior and unethical business practices. He observed that his accounting firm would have dropped the company:
“If my firm had said, ‘Hey, that company, they’re just not giving us good vibes. We’re going to just let them go. … We’re not going to do their work anymore. … If they told their staff, ‘We cut them loose because we don’t want to work with people whose ethics are questionable.’ … All of a sudden, your tone at the top of your control environment just would have shot through the roof.”– Greg Kyte
Establishing an ethical environment is crucial for improving your team’s behavior, and dropping a client that engages in unethical behavior is an important part of creating that environment. If your client pushes your firm to take aggressive and questionable actions on their taxes, it may be time to drop them. You may lose some money in the short term, but you’re growing a better firm that’s committed to ethics.
Learn more about improving your team’s ethical behavior
Greg Kyte and Caleb Newquist delivered a great presentation for improving ethical behaviors. If you want to learn more about improving your team’s ethical behavior, check out the full webinar playback here.
If you need support with ethics and people-based consulting services, look into the Gusto Partners Program. Our Partners Program offers free payroll and HR tools for your firm, and we also offer discounts in perpetuity for your clients. We also offer People Advisory services through the program to help you serve your clients effectively and grow your firm.