Rules based and framework approaches to ethics

Rules based and framework approaches to ethics

There is a different approach to those codes and standards that are compliance based and those ethics based. This is human nature. The former tends to be tick box and the latter principle based.

These are two different aspects of internal culture which organizations sign up to: compliance because they have to and ethics because they feel they ought to. In governance terms they are deemed an important way of engendering trust from others.

Given a strong regulatory background within which professional accountants have to operate there can be confusion as to which might be the ‘chicken’ and which the ‘egg’ in the debate. So which does come first?

A professional body has an overriding commitment as a Chartered institute in the UK to protect the public interest. It, therefore, has agreed an ethics code based on principles and ethics as specific guidance for members in business and practice as to ‘how they will behave in carrying out their role’ the chicken.

This leads to reinforcing the culture and behavior expectations of everyone working in the profession. It is this on which reputations are built and trust engendered. Compliance, the egg is a mechanism for reporting to others how the profession is measuring up to those exceptions.

This can be demonstrated in the following table contrasting the characteristics of a compliance driven framework versus one primarily driven by values, principles and ethics.

An example of applying the different approaches above would be a company which has a strong rules based culture where individuals clearly have a sense of what they can and cannot do (letter of the law, black and white, mandatory, explicit) and what will hap-pen if they do not (fear-driven, requires obedience, mandatory). However, if an employee is faced with a situation not covered by the ‘rule book’ they will be required to use their own judgement as to what to do. In most instances, the decision they take will be the right one but any potential for the wrong decision being made will be reduced if the employee has guiding values and principles which will underpin that difficult decision making. So an ethical framework of guidance is likely to be more wide ranging in its applicability than a fully rules based one.

A key aspect of compliance is measurement in addition to ‘ticking boxes’ that all is well. This of course, is difficult with ethical issues which tend not to be conveniently black and white. There is therefore a need to develop and use proxy indicators by those assuring them-selves that individuals are acting in a proper fashion.

In a wider context the same is true in the public and private sectors, where organizations equally, as though they were individuals, seek to build trust with their employees, customers, supplies, shareholders and all others who have a legitimate interest in how they perform. But the essential question remains: is trust better engendered by principled behavior based on ‘doing it because it is the right thing to do’ or because the individual, the company or the public body has to?

The compliance cultural approach to ethics and CR is well developed in the US following the introduction in the early 1990s of Sentencing Guidelines for judges. These allowed a judge to mitigate a fine if the company could demonstrate it had ethical guidelines in place and endeavored to guide employees’ behavior.