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Absence of integrity 'has damaged UK business'
Accountancy News |
28/06/2010
The failure of businesses to recruit senior executives and accountants with strong ethical compasses contributed to the economic crisis, a new report has claimed.
According to the Association of Chartered Certified Accountants (ACCA), companies need to focus more on their corporate social responsibilities if a repeat of the mistakes of the past decade is to be avoided.
In a new report entitled Risk and Reward - Tempering the Pursuit of Profit, the association points to a "massive failure" of people risks among many UK companies and banks.
ACCA is now encouraging recruiters to hire accountants with stronger character, and place an overall focus on creating strong ethical cultures.
This should include "setting the right tone at the top" and then ensuring, and monitoring, that this is reflected throughout the organisation, the report claimed.
It also called upon companies to maintain the higher internal profile of the risk function, and avoid cutting budgets in this area when the economic recovers kicks into gear.
Paul Moxey, ACCA's head of corporate governance and risk management, claimed that businesses of all kinds, including the banks, have been increasingly policed by reams of rules and regulations.
"But we have seen during the crisis that, despite all these regulatory requirements, or perhaps because of them, individuals exploited gaps," he stated.
He cited the example of Lehman Brothers, where executives were able to move debt on and off their balance sheets "at will" by picking and choosing which legal jurisdictions and accounting standards to comply with.
However, Mr Moxey noted that the collapsed bank's directors did not actually break any laws, despite the impact of their actions on creditors.
"The absence of any benchmark of conduct that would have prevented this sort of regulatory arbitrage arguably actually legitimised what they did," he claimed.
Mr Moxey commented that the effectiveness of any code of practice is ultimately dependent on the competence and integrity of business decision makers, urging hirers to look for "ethically literate candidates".
The Companies Act 2006, which as of last year has been fully implemented in the UK, imposed new requirements on UK companies to consider the interests of all stakeholders, not merely shareholders, when making business decisions.
Posted by John Lynes
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