Balancing organisational and professional obligations in

1. Researchers’ names and universities: Dr Dale Tweedie Macquarie University Ph: + 61 432 652 505 [email protected]

A/Prof Maria Cadiz Dyball The University of Sydney Ph: +61 2 9351 6382 [email protected]

Acknowledgements The researchers would like to thank CIMA for funding this project. We also thank participants in this interview study for their time and insights.

Overview of are ethically obliged to act in the public interest, while also working with management to achieve strategic organisational goals. Building on prior CIMA studies, this project focuses on how management accountants respond to the ethical issues that arise from their roles as both professional accountants and management’s partners. We interviewed management accountants and other organisational stakeholders to examine the pressures that professional management accountants face to uphold professional ethical standards in their workplaces, and responses to these pressures. Through the interviews we found four different ‘types’ of management accountants, each of whom respond differently to ethical challenges. We also identified five distinct strategies that management accountants use to address ethical issues. The primary recommendation is to tailor ethics training and resources to meet the needs of management accountants who have different ethical outlooks

Objectives The project had two main objectives:

1. To understand the challenges professional management accountants face in maintaining professional standards while also working with management to implement organisational strategies; and 2. To identify practical approaches for management accountants to use to manage these tensions.

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Key findings

1. Management accountants have similar views of their role, but very different approaches to ethics. Therefore, the primary recommendation is for tailored ethics strategies and resources.

2. We distinguish four ‘types’ of management accountants: the team player, the lone ranger, the ‘’s accountant’, and the technical accountant. Understanding these types provides insight into:

a. How individual professional management accountants approach ethical issues; and

b. What training strategies they may require.

3. The study identifies five distinct strategies that management accountants use to address ethical issues in practice, which are potentially useful tools for practitioners and educators.

4. Organisational culture significantly influences how management accountants responded to ethical issues.

5. No management accountants in this study directly referred to the public interest in their ethical deliberations. Training and professional development should emphasise this aspect of professional accounting more strongly.

Research approach and method

This study builds on prior CIMA studies (CIMA, 2012; CGMA, 2014) that used surveys to investigate the pressures CIMA members can face in upholding professional ethical standards. Our project used in-depth interviews with thirteen accountants in (Appendix A) to gain a better understanding of the ethical issues that management accountants face and how they respond to these issues. We also gained additional insight by interviewing five other stakeholders in management accounting ethics, including three management accounting academics and two representatives of professional accounting associations. All interviews were ‘semi-structured’, which means they were grouped around key themes but open-ended. We then used computer-aided analysis (NVIVO 10) to help identify shared themes.

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Findings and implications

1. Management accountants had similar views of their role, but very different approaches to ethics. Hence, we recommend tailored ethics strategies and resources.

All research participants had a similar view of what makes management accounting unique. Participants in the study described management accountants as strategically-minded, future- orientated and needing an especially deep understanding of how business works. Some participants also described management accounting as more innovative and open-ended than .

However, the participants had very different views of management accounting ethics. This included different perspectives on:

 Who management accountants are responsible to (e.g. shareholders, the organisation, the board, senior management, employees or clients)  What should guide ethical practice (e.g. professional ethics codes, corporate ethics codes, one’s own conscience), and;  The best strategies for managing ethical issues.

Consequently, there is unlikely to be a ‘one size fits all’ approach to supporting management accountants to act ethically. Instead, the advice and resources provided to management accountants needs to engage with management accountants’ specific ethical outlooks and needs.

2. Our analysis identified four ‘types’ of management accountants – the team player, the lone ranger, the ‘accountant’s accountant’, and the technical accountant. Understanding these types of accountants provides insight into:

a. How accountants approach ethical issues; and

b. What training strategies may be required.

Table 1 describes the key characteristics of the four ‘types’ of professional management accountant that our study identified. This table is adapted from Dinovitzer et al.’s (2014, p. 688) analysis of how professional lawyers conceptualise ethics.

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Table 1: Four types of management accountant

Type of Identifies with Source of ethics Key Characteristics accountant  Usually feels part of the management team Team player Group  Often refers to corporate ethics principles or codes.  Feels either part of the management team or an Management adviser to management  Views ethics as largely Lone ranger personal judgements  Ethics often based on upbringing or life Individual ethics experience  Identifies strongly as an independent professional  Ethics mainly based on Technical personal experience accountant  Refers to more technically- focused ethical principles (e.g. ‘objectivity’) Accounting  Strongly identifies strongly profession as independent professional Accountant’s  Refers frequently to ethics Group accountant codes, although these may be either professional or corporate ethics codes

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Table 1 classifies management accountants’ approach to ethics according to their responses to two main issues:

1. Does the accountant identify more strongly as part of the management team or as a professional accountant?

2. Does the management accountant make ethical decisions and judgements according to his or her individual experience or according to shared ethical codes?

We explain each of the two characteristics more fully below.

2.1 Manager or professional?

One way of understanding how the professional management accountants in our study responded to ethical tensions was whether they viewed themselves predominately as a part of their employers’ organisation or an accounting professional. This distinction is based on Gunz and Gunz’s (2007, p. 855) discussion of professional and organisational identities, which is summarised in Table 2.

Table 2: Professional and organisational identities

Identity Definition (Gunz and Gunz, 2007, p. 855)

Professional The ‘professional’ identity is adopted by someone who sees him - or herself as, for example, a lawyer, accountant or engineer who just happens to be working for the [organisation].

Organisational The ‘organisational’ identity is that of a professional who has taken on some of the characteristics of a non-professional employee…in the limit, seeing him or herself as an employee who just happens to have, for example, a law, accounting or engineering degree.

Management accountants who identify as a ‘professional’ see their training as a management accountant, and their membership in a professional accounting association, as integral to their self-identity at work. They are more likely to describe their organisational role with reference to professional principles or goals:

My biggest challenge when I moved across [to management accounting] was, I knew what the financial accounting bits were and I knew what was right and not right. But when you're talking to a non-accountant, the thing that goes through your mind is that they don't care. So they're interested in results…As an accountant, we go no, no, that's actually not right (Management accountant (MA) 2).

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I had a responsibility to report to the group financial accounting director. So, I was fortunate because my managing director was an accountant – a – was qualified in the UK, so he quite well understood all the ethics, all the ‘what and how’ to be an accountant (MA 5).

Management accountants who had more ‘organisational’ identities were more likely to self- identify as part of the management team. They often described their organisational role as being either a manager or a ‘business partner’ (see also Pitcher, 2015, p. 8):

I would describe myself as a non-traditional accountant, in the sense that I work day in, day out with not finance people but with supply operations guys, factory director, supply teams all around the world and things like that. So for me, it's about supporting their decision making and how we can put financial rigour around the options that they're considering (MA 1) You put your management hat on now, we're on the same platform...Don't give me a technical answer to a management problem. (MA 12)

‘Professional’ and ‘organisational’ management identities are end-points on a spectrum, with individual accountants closer to one side or the other. So while some professional management accountants will identify very strongly with either the profession or management, others will fall somewhere in-between.

2.2. Ethics from the group or from individual experience

Our second way of distinguishing different ‘types’ of management accountant was based on whether they based their ethical judgements on ‘group’ ethical principles or their own personal experience (see also Dinovitzer et al., 2014, p. 688).

Accountants who based their ethics strongly on ‘group’ ethics typically used either their organisation’s or professional ethics codes when deciding how to respond to an ethical issue or dilemma. By contrast, accountants who based their ethical judgements more strongly on individual experience more frequently referred to the ethical principles they were raised with, or to principles they learned as a result of their life experiences.

Group and personal ethics are also points on a spectrum, with several participants’ influenced by both:

My personal traits are largely born out…[of] me at a very early age, my upbringing and the environments I was in…But also in becoming a member of CIMA, there is an undertaking around what is professional conduct. It's certainly reinforced what I consider to be right and wrong (MA 11).

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However, the majority of participants attributed their ethics to their upbringing or life experience:

[My ethics] would be part of the culture and upbringing…It's something inborn in how I see my parents and grandparents and people close to me, how they act in certain situations (MA 6). [My ethics] comes from my life experience (MA 13).

One practical implication of this finding is that even accountants who strongly identify with the accounting profession may not be significantly influenced by professional ethics codes.

2.3 The diversity of management accounting ethics

Chart 1 illustrates the diversity in how the management accountants in our study approached ethical issues. This chart is indicative only, because the study is not of a sample that represents all management accountants. Moreover, since accounting ‘types’ are points on a spectrum, not all accountants fitted neatly into just one category.

However, Chart 1 does illustrate the diverse and distinctive ways that management accountants approach ethical issues.

Chart 1: Indicative accountant type in the interview sample

Technical Accountant Team player 15% 23%

Lone Ranger Accountant's 39% Accountant 23%

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Understanding the four different types of management accountants provides practical insights into how management accountants are likely to respond to ethical issues. For example, both ‘lone rangers’ and ‘technical accountants’ took strong ethical stands, including resisting unethical bonuses or wasteful spending. However, neither type of management accountant used professional or corporate ethics codes to make decisions.

Understanding the four different types of management accountant also has implications for professional training. First, management accountants may not be conscious of who they identify with most strongly (i.e. the profession or management) or of the primary source of ethics (i.e. the ‘group’ or their individual experience). Professional training could further improve management accountants’ ethical awareness by sensitizing them to their instinctive ethical identity.

Second, the diversity of management accountants’ ethical identities suggests that educators could further adapt ethics resources to engage with these different identities. For instance, both the ‘accountant’s accountant’ and ‘technical accountant’ identify most strongly as part of the profession. However, where ‘accountant’s accountants’ are likely to be particularly receptive to discussions of the broader social role of the profession, ‘technical accountants’ are focused on ethical principles that are more directly concerned with management accounting practice, such as competence and objectivity.

3. Strategies management accountants use to address ethical issues

3.1 Ethical issues that management accountants face Participants faced two main types of ethical issue in their accounting role. The most common was pressure to change information to alter internal decisions in potentially unethical ways, such as by inflating bonuses or building an artificially strong (or weak) case for particular business projects or strategies.

Another ethical tension was based in the management control function, with several management accountants feeling ethically obligated to prevent wasteful spending. For instance, one public sector management accountant felt ethically obligated to ensure taxpayers get value for money:

Because I'm a management accountant, I think in terms of money…The Commonwealth gives a lot of money to [this government]…How our children

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perform compared to what I had when I was a school kid. Are we contributing? That is an ethical [issue] (MA 7).

However, although management accountants observed unethical conduct, they did not always have decision-making authority to prevent it:

I remember my first day there. They took over a smaller charity and the director pretty much in the first half an hour I'd met him had a lawyer there and they were going through all of the employees they'd just taken over. They were just saying well that one's going to be too stupid to understand their rights so we won't give them anything…Within the finance division there was a lovely woman. She was leaving and I was trying to explain to her that she'd been a contractor for more than two years – she'd worked really hard for that organisation – that she was entitled to maternity leave. She said no, I thought that, I've gone to HR and they've told me that I'm not entitled. She was really upset because she didn't know how she was going to make ends meet (MA 13).

3.2 Strategies for responding to ethical issues

Table 3 summarises the five main strategies participants used to respond to ethical tensions or issues. These strategies are listed roughly in order from the mildest response to unethical conduct (e.g. making one’s own accounting assumptions clear) to the strongest (e.g. external whistle-blowing).

Table 3 also lists which type of management accountant used each strategy. The Table shows that all four types of management accountant took stances that challenged unethical conduct. However, the Table also provides indicative evidence that each management accountant ‘type’ is predisposed to different strategies. For instance, ‘team players’ were more likely to discuss or verbally challenge unethical conduct than to exit an organisation or whistle-blow. Conversely, ‘lone rangers’ were relatively more likely to take stronger stances against unethical conduct, including leaving their employer or whistle-blowing.

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Table 3: Strategies for responding to ethical issues

Strategy Description Accountants who exercised strategy

1 Transparency Making the assumptions of an  Team player unethical decision clear, and leaving  Technical accountant others to decide how to manage.

2 Explanation Discuss the issue; typically,  Team player attempting to change unethical  Accountant’s Accountant conduct by articulating potential consequences.  Lone Ranger

3 Challenging / Opposing unethical conduct (weaker)  Team player refusal or refusing to act unethically  Lone Ranger (stronger).  Technical Accountant

4 Exit Leaving an unethical organisation.  Lone Ranger  Technical accountant

5 Whistle-blowing Reporting unethical conduct to an  Accountant’s Accountant external body.  Lone Ranger

Some participants took actions aimed at preventing unethical conduct before it occurred. This included building trust with management or across their business, so as to facilitate open and collaborative discussions of ethical issues when they arose.

The five strategies in Table 3 provide an additional resource that management accounting practitioners could use to address ethical issues (see also CIMA, 2015). By alerting management accountants to their particular ethical ‘type’, educators could encourage management accountants to reflect on what strategies they may be pre-disposed to use and to consider alternatives.

4. The influence of organisational culture

Consistent with prior research (e.g. CIMA, 2012), organisational culture significantly affected whether management accountants acted ethically. For some participants – especially ‘team players’ – their organisations’ ethical standards was a positive influence on their own outlook or behaviour. The ethical standards that were most influential were short statements of ethical principles (e.g. ‘responsibility…to the business and society’ – MA 1) that

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integrated into their decision-making processes. ‘Integrated’ ethics principles are regularly discussed in meetings, rather than only recorded in ethics codes.

On the other hand, several participants encountered unethical cultures in their organisations that impeded them from acting ethically. Some of these companies had formal ethics codes, ethics procedures and even ethics training. However, since management did not take ethics seriously in practice, unethical cultures and practices remained.

5. The lack of explicit reference to serving the public interest

Serving the public interest is the primary goal of professional ethics codes (CIMA, 2010). However, while several participants’ took actions that clearly served the public interest, no participant explicitly volunteered serving the public interest as an ethical obligation of management accountants. This finding illustrates how even management accountants who identify as professionals may not strongly identify with key professional ethics principles (e.g. the ‘technical accountant’).

We found some evidence that more closely integrating professional education with ethics education could increase management accountants’ awareness of public professional principles (see also IFAC, 2006). For example, one management accountant vividly recalled an ethics code several years after training due to its repeated use across her professional training modules:

APES 110 is engrained in my brain. You did it across three of the five CA modules. It was everywhere, and I get it and I can visualise the purple tabs of the standards. So I know it and that's part of the reason I think with the management…[in this ethical issue]…they don't know, they're in denial (MA 4).

Recommendations

1. Tailoring ethics resources to meet different management accounting ‘types’

Our key recommendation from this study is for both professional associations and organisations to tailor ethics resources and strategies to best support the different types of management accountants to uphold professional ethical standards. All types of management accountants in this study had challenged unethical conduct, and a range of strategies could be effective. We recommend that educators and organisations use resources and strategies to engage management accountants with different ethical orientations. This advice includes further research into the distinctive ways management accountants think about ethical issues.

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2. More frequent and diverse professional development ethics forums after professional qualification

Several participants were in favour of more frequent professional ethics training or activities, which could be tailored to different management accounting ‘types’. The most difficult type of management accountant to engage in further professional ethics education is likely to be the ‘lone ranger’, who strongly identifies with management and largely follows their own ethical compass. However, since these management accountants may also be strongly committed to acting ethical, they may be interested in forums that discuss ethics from a variety of different perspectives, rather than focused on professional accounting alone. This could include debates or forums on contemporary ethical issues that the profession faces (e.g. managing bonuses) with speakers from different backgrounds. Or it could include events that explore ‘personal’ (e.g. character-based) reasons for acting ethically in addition to business imperatives.

3. Further support management accountants to guide organisations’ ethics

Consistent with CIMA’s (2014) emphasis on management accountants as ‘organisations’ conscience’, the study recommends further developing resources (e.g. CIMA, 2008; CIMA & IBE, 2014) and training that management accountants can use to support an ethical culture in their organisations. For example, short statements of ethical principles that can be easily integrated into business decision-making might usefully supplement more detailed ethical codes. Resources could also better target specific management accounting identities. For example, training and ethics guides targeted at the ‘team player’ could emphasise links between ethics and effective management practice. Similarly, resources targeted at the ‘accountant’s accountant’ might more strongly emphasise the professional’s role in establishing an ethical organisational culture.

4. Re-emphasising the public interest ideal

The public interest ideal is critical to professional accounting practice and ethics codes (CIMA, 2010). Since no participant in this study directly articulated a responsibility to act in the public interest (even though several participants took actions that could be described in these terms), the goal of serving the public interest should be further embedded into management accounting education and professional development. While not all management accountant types will be motivated by this ideal, it is critical that management accountants are aware of the expectation. Some accountants (e.g. the ‘accountant’s accountant’) may

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Conclusions

Our study highlights how management accountants have very different motivations and strategies for addressing ethical issues. Our primary recommendations aim to help support management accountants to meet shared professional standards in ways that recognise their diversity. The study has some limitations. Most notably, the professional management accountants we interviewed may not represent the views of other management accountants, so more research is required to identify how widely the findings are applicable. Nonetheless, our study provides a framework for understanding management accountants’ distinctive ethical approaches, and also a set of strategies accountants can use to manage ethical issues. These strategies suggest ways of furthering tailor professional education and development to better suit how management accountants in fact interpret professional ethical principles, and for sustaining the strategies they use to implement these principles in practice.

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Appendix A - Research Participants Organisation No. Role Size2 industry1 1 Management Accountant Food wholesaling Large 2 Management Accountant Food wholesaling Large 3 Management Accountant Architectural services Large 4 Machinery and Motor Unclear Management Accountant Vehicle Processing 5 Food manufacturing Large Management Accountant and wholesale 6 Financial Accountant in Financial Services Large Business [CIMA qualified] 7 Government Large Management Accountant Administration 8 Management Accountant Consultant Small 9 Financial Accountant in Health Services Large Business [CIMA Qualified] 10 Management Accountant Consultant Small 11 Management Accountant Food Retailing Large 12 Retired – previously Large Management Accountant Manufacturing 13 Management Accountant Community Services Unclear 14 Management Accounting University N/A Academic 15 Management Accounting University N/A Academic 16 Management Accounting University N/A Academic 17 Professional association Professional N/A representative Association 18 Professional association Professional N/A representative Association

1 Organisations for participants 1-13 use the Australian Bureau of Statistic industry classifications. Available at: http://www.abs.gov.au/AUSSTATS/[email protected]/66f306f503e529a5ca25697e0017661f/7cd8aebba7225c4eca2569 7e0018faf3!OpenDocument 2 While there are many different classifications, we use a Bank of Australia definition in terms of number of employees: Small <20 employees, Medium 20-199, Large, >200. See Connolly et al (2012), available at: http://www.rba.gov.au/publications/workshops/other/small-bus-fin-roundtable-2012/pdf/01-overview.pdf 14

References and further reading

CGMA (2014) Ethical Performance: Driving value from an ethical culture. London: American Institute of CPAs and Chartered Institute of Management Accountants. CIMA (2008) Managing responsible business. London: Chartered Institute of Management Accountants. CIMA (2010) CIMA Code of Ethics for Professional Accountants. London: Chartered Institute of Management Accountants. CIMA (2012) Acting under pressure: how management accountants manage ethical issues. London, United Kingdom: Chartered Institute of Management Accountants. CIMA (2014) Brief employer guide. Chartered Institute of Management Accountants. Available at :http://www.cimaglobal.com/Documents/Our%20locations%20docs/Southern%20Africa/Co mmissioner%20of%20Oaths%202014.pdf. [Accessed 9th December 2014]. CIMA (2015) Ethical checklist. London: Chartered Institute of Management Accountants. CIMA & IBE (2014) Embedding ethical values: A guide for CIMA partners. London: Chartered Institute of Management Accountants and Institute of . Connolly, E., Norman, D. & West, T. (2012) Small Business: An Economic Overview. Sydney: Reserve Bank of Australia. Dinovitzer, R., Gunz, H. P. & Gunz, S. P. (2014) 'Reconsidering Lawyer Autonomy: The Nexus Between Firm, Lawyer, and Client in Large Commercial Practice'. American Business Law Journal 51(3): 661-719. Gunz, H. & Gunz, S. (2007) 'Hired professional to hired gun: An identity theory approach to understanding the ethical behaviour of professionals in non-professional '. Human Relations, 60(6): 851-887. IFAC (2006) Approaches to the Development and Maintenance of Professional Values, Ethics and Attitudes in Accounting Education Programs. New York: International Federation of Accountants Pitcher, G. S. (2015) Management Accounting in Support of the Process. London: Chartered Institute of Management Accountants.

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