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Good Ethics: One Decision at a Time

Although a healthy economy often means accounting ethics is a back-burner issue, that’s not the case in Baylor classrooms. Through ethics courses, articles and reviews of the actions of Texas CPAs, accounting professors are attempting to ensure corporate business scandals are not repeated.

Bill Thomas, master teacher and holder of the KPMG/Holton Chair and the J.E. Bush Professorship in Accounting, whose research has focused on recent scandals, has written a paper asking the question, “Can Ethics Be Taught?” His answer: yes.

He tells of a speech at Baylor in which a professor of business ethics at Yale listed three types of students to consider. One cannot be persuaded to do wrong, and another cannot be swayed to do right. Neither is a good subject for an ethics class.

“In the middle, there’s hope,” Thomas said. “We expose these people to values, codes, moral judgment and consequences. They can be guided and given a set of tools that will help them make the right decision.”

A veteran of more than 30 years at Baylor, Thomas has never taught a full-blown ethics course. His recent research, however, has focused extensively on the subject. After Enron declared bankruptcy in December 2001, he spent his Christmas holidays researching what had drawn the one-time energy giant into its deep hole. The result was an article titled “The Rise and Fall of Enron,” outlining the attitudes, motives and actions that led to Enron’s downfall. It originally appeared in Today’s CPA and was later reprinted in the Journal of Accountancy. State accounting societies began calling Thomas.

By 2003, the Texas State Board of Public Accountancy decided to require an ethics course for accounting students who wanted to obtain CPA certification.

“We designed a class for accounting majors,” Thomas said. His current ethics research describes the experience of Texas educators in implementing Texas’ new rule. So far, Texas is one of only four states to require formal ethics training for CPA candidates. Other states are considering it.

In the world outside of the university, a strong trust between accountant and client is important. An ethical background helps to establish this relationship, said Charles Stanley, associate professor of Accounting and a member of the Professional Ethics Committee of the Texas Society of Certified Public Accountants.

“Our primary services are fiduciary,” Stanley said. “If we are going to do our jobs properly, our clients must trust us.”

Much of his research comes from his committee work, where he reviews the behavior of CPAs to determine how their actions reflect on the profession.

A recent article he wrote, published in the Journal of Business Ethics, deals with the ethical attitudes of CPAs.

“Most CPAs are decent, but there are always a few who get blinded by money. We try to do as much self-regulation as we can,” Stanley said. He notes that CPAs are neither police officers nor legal experts, but professionals who prefer self-regulation to government regulation.

His interest in accounting ethics spans about 20 years, starting with his study of codes of conduct when he was teaching auditing. He began writing papers on the subject and was invited to join the Texas Society of CPAs committee in 1990. In turn, the actions he has examined over the years have piqued his interest even more.

“We get some interesting cases over the years. When you deal with practitioners, you see things you’d never see in a university setting,” Stanley stated.

He has studied such topics as advertising, confidentiality, and discreditable acts. Stanley’s current research explores sexual harassment, and he plans to study ethics in managerial accounting. The profession offers broad opportunities for ethics research even though licensed CPAs are sparse as a percentage of the Texas population.

“We all don’t do the same thing,” Stanley noted.

Marty Stuebs, assistant professor of Accounting and Business Law, emphasizes to his students the importance of developing strong character. He teaches this partially through the use of a character journal that his accounting students keep.

One text Stuebs uses is The Ethics of Management by La Rue Tone Hosmer, and a recent conversation between Stuebs and Hosmer led to collaboration on an article about the KPMG tax shelter case, in which KPMG admitted to selling fraudulent shelters and agreed to pay a $456 million penalty.

In the paper, “Moral Confrontation: An Essential Companion to Moral Imagination,” the two and a graduate student argue that people faced with ethical crises and little economic or legal direction must draw on theories that ethical philosophers espouse, and not merely use moral imagination.

“We say that moral imagination is not enough and that theories can aid your decision-making,” Stuebs said. “We believe that moral imagination must be paired with moral confrontation.” Moral confrontation occurs when economic incentives and legal guidance confront ethical theory, he said, and using both theory and intuition forces decision-makers to consider complexities that directly affect others ethically, economically and legally.

“In the KPMG tax shelter case, the company shopped for wealthy clients (for its shelters) and got a consulting fee. The clients avoided taxes,” Stuebs said. “Both had a strong economic incentive. And from a legal standpoint, tax shelters can be ambiguous. However, in the absence of clear legal guidance, ethical theories paired with moral imagination can confront economic incentives and guide reasoned judgments.”

Accountants must take responsibility for bad behavior, Thomas said. “My profession has a reputation for being one of the most ethical in the world, and yet, when scandals occur, our ethics are called into account. People ask, ‘Where were the accountants?’ Were we responsible for not imparting necessary information? The answer is partly yes,” he said. “You never know what a person is going to do until his future is on the line or nobody else is looking. It’s hard to determine whether people are going to do the right thing. Good ethics comes one decision at a time.”

Drs. Marty Stuebs and Bill Thomas
Drs. Marty Stuebs and Bill Thomas
Baylor University