Preventing dishonest behavior and promoting integrity are critical for your firm. You need to understand common rationalizations for unethical conduct, and you should learn different ways to dissuade bad behavior in your firm.
Gusto, along with our partners at CPA Academy, presented a webinar all about promoting ethical behavior and dissuading dishonesty titled, “Ethics: The Four Most Common Rationalization Used by Horrible People.” You can watch the entire webinar here.
In this article, we’ll share invaluable insights from Greg Kyte, founder of Comedy CPE, and Caleb Newquist, Editor-at-Large at Gusto. You’ll learn about how loyalty can result in ethical conflicts, how people rationalize unethical behavior, and how to avoid dishonest accounting.
How loyalty can create ethical issues
Greg and Caleb discussed different rationalizations people use to justify unethical behavior. They primarily drew from an article published by Harvard Business Review in 1986 by Saul W. Gellerman titled “Why ‘Good’ Managers Make Bad Ethical Choices.” A critical rationalization Gellerman observes in his article is the idea that if you engage in unethical behavior that benefits your company, your company will protect you:
“[A common rationalization for unethical behavior is the] belief that because the activity helps the company, the company will condone it and protect the person who engages with it. … This is almost like the company is [in favor of] this [unethical] activity because it’s not just like, ‘I’m expected to do it.’ They’re [saying], ‘No, I got your back on top of that.’”
– Greg Kyte
Greg noted that a common significant factor in unethical behavior is loyalty. Individuals feel a sense of commitment to their companies, and as a result, they perform or hide unethical behavior.
“The big thing here that this comes down to … [is loyalty in companies is] like, ‘If you’re loyal to us, we’ll be loyal to you. If you do this unethical behavior that helps the company, the company is going to have your back, and we’re going to protect you from any of the things that fall out based on that unethical behavior.”
– Greg Kyte
Greg used his former boss as an example of how loyalty can lead to unethical behavior. His former boss stole over $600,000, and he expected others at his firm to help him hide his theft for the good of the company:
“[The] tone from the top … was, ‘Hey, you’re loyal to me, and you’re not going to rat me out because that’s not okay here. Don’t rat me out,’ and … he would belittle other people [when] he sensed a lack of loyalty. … That was a lot of the dynamic with my old boss.”
– Greg Kyte
Greg’s former boss put pressure on others to protect him under the guise of it being beneficial for the company. An important lesson to learn from Greg’s experience is that your firm should emphasize ethics above loyalty. Caleb observed that your commitment to your company shouldn’t impact your ability to make ethical decisions:
“If your [firm’s] policy is to always do what’s ethical and legal, … loyalty should be discouraged 100%. It should not be a factor in how you make a decision of any kind, whether to do something or whether or not to do something. The loyalty [is] not a variable, [and] it’s not a factor that should play into your decision-making.”
– Caleb Newquist
Don’t let loyalty cloud your ability to make ethical decisions. You shouldn’t be loyal to companies that put pressure on employees to engage in unethical behavior. Additionally, if you’re in a position to set the tone for your firm, make sure to explicitly inform accountants that being ethical is more important than loyalty to the company.
Excusing unethical behavior by believing you can get away with it
The final rationalization Gellerman observed in his article is believing you’re justified in unethical behavior because you can get away with it:
“[The final rationalization is the] belief that the [unethical] activity is safe because it will never be found out or publicized.”
– Greg Kyte
Greg and Caleb used the typical example of finding a duffle bag full of money. Because one might feel that they can get away with it, they may claim the cash without informing the authorities or declaring the money to the IRS.
Greg cited another work experience that involved this rationalization. He used to manage a storage facility in which he would often handle cash. There was no oversight for handling the dollar transactions, so he could have pocketed cash without the owners knowing. Rather than let himself be tempted to take the money because he believed he could get away with it, he brought transparency to the situation and informed the owners:
“There’s zero separation of duties, and it became clear to me very early on I could easily steal all of the cash payments that are coming to the storage facility. … I was sort of on my own for everything, even setting prices. … I went to the owner[s] and said, ‘Just so you know, I can totally steal cash from you guys on a monthly basis,’ and it was a weird conversation that I had, but I was forcing transparency on myself.”
– Greg Kyte
Greg knew that a lack of oversight from the owners could create a situation where he was either tempted to pocket money or be accused of stealing, so he had a conversation to create transparency. Ultimately, the storage facility stopped accepting cash payments.
Greg’s story illustrates the importance of transparency in your firm.
How to avoid unethical behavior
If you’re not in a position to implement policies in your firm and you see unethical behavior, it’s crucial to remember that it takes independence to avoid corruption. Rather than remain loyal to an unethical firm, you can embrace your independence and find a different firm:
“If you see unethical behavior [and nothing improves], … we’re supposed to quit our job[s]. Quitting your job [is] not loyalty—that’s independence. … There has to be some level of independence for you to truly be ethical in what you’re doing.”
– Greg Kyte
If you follow suit and remain loyal at an unethical firm, you could become complicit in illegal behavior. When his former boss stole hundreds of thousands of dollars, Greg made it clear to his firm that he would exit if his boss remained. Fortunately, this ultimatum worked, and the firm fired the unethical boss. Greg took a significant risk that could have cost him his job because he valued ethical behavior at the firm.
As noted before, your firm needs to value ethics above loyalty. If you’re in a management position, you need to promote ethics above profits and growth to ensure that your accounting team values honesty and integrity.
Greg noted that another way you can promote integrity at your firm is the perception of transparency. If accountants think that there could be oversight of their work, they’ll be less inclined to behave dishonestly. Greg offered the example of when he saw a camera at a gas station. The owners installed a camera to dissuade employees from stealing cash from the register. The owners never looked over the footage, but the employees knew that they could look at the footage at any time. This helped prevent the employees from stealing.
Another great way to promote integrity in your firm and create perceived transparency is by sending bank statements to your clients and ensuring that they read over the bank statements:
“Make sure that the owner is opening the bank statements because if they do that, even if you never looked at them, that’s perceived transparency, and people are going to go, ‘I’m going to get found out if I do something wrong.’”
– Greg Kyte
If the employees in your firm know that their work could be checked at any time, they’re more likely to remain ethical in their accounting work.
Learn more about ethical issues
Avoiding rationalizations for unethical behavior at your firm is crucial for your long-term success. You need to promote ethics above loyalty, and if you’re working for a firm that engages in unethical behavior, you should consider exiting.
If you want to learn more about ethics in accounting as well as famous examples of unscrupulous accountants, read Part One of this webinar article series. You can also watch the full webinar here.
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