Ethical lens June 2014

ETHICAL LENS CIMA ROUNDUP OF RESPONSIBLE BUSINESS ISSUES - JUNE 2014

IN THIS ISSUE

CGMA „Rethinking the value chain‟ series: Ethics, governance and risk The Elephant in the Boardroom – the crisis of natural capital Call for uniform reporting standards Future mega trends – sustainable business UNGC Corporate Sustainability report

ETHICS AND THE MANAGEMENT ACCOUNTING PRINCIPLES “The Principles are to management accounting, what ethics is to the law. They‟re not about what you have to do but what you should do. They‟re not mandatory standards, but instead represent best practice approaches to management accounting.

Like ethics, they‟re not about what you have to do, but what is it right that you do.” www.cimaglobal.com/principles 1 · www.cimaglobal.com/ethicallens

Naomi Smith, Head of Policy Research

NEWS New Student Ethics Support e-Tool CIMA have created an ethics study tool to support students’ learning, both for their exams and in their working lives. The tool has three parts, setting the context of ethics and accountants, introducing the Code and outlining how ethical issues will arise in different areas of the syllabus and exams. With links to resources, webcasts and study texts the tool also enables users to test their thinking and responses and to practice applying them to real life situations. » Access the student support e-tool, or our CPD ethics tool

REPORTS & EVENTS CGMA: New reports and videos on ethics, governance and risk

Sri Lanka Convocation underlines importance of ethics

The many risks and opportunities that come with the globalised climate that businesses now operate in are highlighted in the CGMA series 'Rethinking the value chain'. Management accountants can add value by helping organisations on to a more sustainable track, safeguarding the effectiveness of the supply chain but also the trust and reputation of the organisation. How an organisation responds, and if there are common traits to resilient businesses, is further explored in the AIRMIC report ‘Roads to ruin’.

CIMA Sri Lanka recently held its bi-annual Convocation for the 279 students who graduated in September and November 2013. An ethics seminar took place on the same day witnessing a participation of 60 students. The seminar served as a final reminder to all students of the importance of ethics and professionalism, highlighting that it is what sets them apart as professionals, and underlining how reputation and trust are essential for long term business success. Ceremony with CIMA President

Efforts to combat corruption are now more far-reaching than ever before. A joint briefing with Transparency International UK gives an overview of key legislation and trends. A case study on Siemens ‘Ethical culture change’ explores how, after a scandal, the organisation established a culture of integrity. Sedex CEO Carmel Giblin also shares her top tips for CGMAs in overseeing the Supply Chain. The final paper in the series will highlight Natural Capital, later in June. » Access the series at www.cgma.org/valuechain

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Malcolm Furber

» Read more in FT Sri Lanka

Accounting for natural capital: the elephant in the boardroom This report from CIMA, EY, IFAC and the Natural Capital Coalition, calls for finance professionals to take action.

Natural capital depletion will become one of the most st prominent business concerns in the 21 Century.

Yet this issue remains an ‘elephant in the boardroom’ absent from most corporate accounts and business models and largely ignored by investors as boardrooms continue to focus on short-term pressures. Organisations that respond swiftly, embracing opportunities to innovate and managing risks, will thrive. Those that do nothing will suffer from rising input costs, risks to their supply chain, and reputational damage. » Access the report

Embedding ethical values: A guide to CIMA partners on Codes of Ethics The CIMA Training and Development accreditation scheme now includes a requirement for employers to have an ethics policy or equivalent and to provide training in this area. To support our partners in fulfilling this new requirement the Institute of Business Ethics (IBE) and CIMA have produced two new guidance documents.

'Embedding ethical values – a guide for CIMA partners' provides the right resources and support to draw up a code or policy document. For those already with a Code, it directs to resources which help address what else can be done to embed ethical values and make the code effective. The second guide, ‘Business Ethics for SMEs’, explores what business ethics mean for small to medium-sized businesses.

Although aimed at CIMA partners, these guides are relevant to all with a remit to embed good practice. » Access the guidance documents

IFAC Global knowledge gateway IFAC have recently launched this new hub for accountancy news, views, resources and thought leadership – including specific section on governance, ethics and sustainability. The Knowledge Gateway includes information about and resources from IFAC, member bodies including CIMA, and other notable groups and individuals. » Access the Global Knowledge Gateway

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SUSTAINABILITY & INTEGRATED REPORTING EU: New non-financial disclosure requirements

Corporate and integrated reporting – a functional perspective

In April 2014 the EU Parliament adopted a directive on disclosure of non-financial data such as social and environmental issues including human rights, anti corruption and diversity in board of directors.

A recent working paper from Robert Eccles and George Serafeim, ‘Corporate and integrated reporting: a functional perspective’, exploring the purpose of integrated reporting, argues that an integrated report is more likely than a separate financial and sustainability report to perform the functions to ‘inform’ stakeholders and ‘transform’ as a result of stakeholder engagement. The authors suggest that the success may also depend on levels of regulation, explaining that ‘if regulation is too prescriptive and ‘rules-based’, the risk is that integrated reporting becomes more of a compliance exercise’.

The new directive applies to some large companies with more than 500 employees, and will include approximately 6000 companies and groups across the EU. Flexibility is left for organisations to report in whichever way they see most useful to them. » Find out more on the European Commission website, or read the article in CGMA Magazine

» Access the report

Investors and stock exchanges call for uniform reporting standards

Misrepresentations in sustainability reporting

Sustainability advocacy group Ceres, in collaboration with BlackRock and other major institutional investors, have announced a new initiative to engage global stock exchanges via the World Federation of Exchanges on a possible uniform reporting standard for sustainability reporting.

Research undertaken by Catalyst Australia suggests that several prominent Australian companies could be inflating numbers in sustainability and corporate responsibility reports, making it ‘nearly impossible to verify whether companies meet own targets’. The research found several reports with information based on data that was either missing or unexplained.

Meanwhile, integrated reporting is gaining following globally, with several large Exchanges already involved in the pilot programme. The BM&F BOVESPA stock exchange in São Paulo, Brazil, begins its 2014 ‘report or explain for sustainability or integrated reports’, which encourages integrated reporting among listed companies, and in 2013 reported 66% of companies adhering to the initiative. Other stock exchanges that support and encourage integrated reporting include the Johannesburg Stock Exchange, and Deutsche Börse Group. » Read more about the initiative, or access the proposal

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This issue no doubt extends beyond Australia - in 2013 the Global Reporting Initiative released a report on external assurance. The purpose of external assurance is to support reporters and report readers alike, to: ‘assess whether the report provides a reasonable and balanced presentation of performance, taking into consideration the veracity of data in the report as well as the overall selection of content’. » Read more about the Catalyst Australia findings, or access the GRI report on External Assurance

RESPONSIBLE BUSINESS Anti bribery: „Say no‟ toolkit

UNGC: Corporate Sustainability

Estimates by the World Economic Forum show that corruption equals more than 5% of global GDP, and Bloomberg News columnist Jonathan Weil recently reported about challenges with holding individuals accountable in business corruption cases. Helping businesses understand the implications of the UK Bribery Act and how it affects them, the City of London Police have released a webcast entitled ‘Consequences Begin at Home’, and the Institute of Business Ethics recently launched a ‘Say no’ toolkit to help organisations encourage employees to make the right decision in difficult situations.

The UN Global Compact has released its 2013 ‘Global corporate sustainability report’, a survey of nearly 2,000 UNGC companies to assess the state of corporate sustainability today. It lists four key findings:

CIMA members and students worldwide have a responsibility to be fully aware of the implications of anticorruption legislation in their market as well as the implications of laws with global reach such as the UK Bribery Act 2010 and FCPA.

1) Although there is still a gap between the ‘say’ and the ‘do’, the survey found a move towards action. 2) Company size matters – larger companies have more resources to invest in sustainability strategy (see the Guardian’s list of the best sustainability performers amongst US corporates). 3) Supply chains are still a challenge in need of urgent attention. 4) Companies are beginning to see ‘the bigger sustainability picture’.

» Access the IBE ‘Say no’ toolkit, CIMA’s anti bribery guidance, or the recent CGMA / Transparency International paper

» Read the full UNGC sustainability report

CEO call for tax transparency

Changes in EU Data Protection Law

59% of respondents to a 2014 PwC CEO survey agreed that multinationals should be required to publish revenues, profits and taxes in each territory where they operate, and 65% agreed that the current international tax system has not changed to reflect how multinational corporations operate today and is in need of reform.

A number of revisions to EU data protection law are due.

Controversy has currently delayed adoption, due to the potential of economic impact from the changes. The law could pass by year end, with a two year grace period.

As a response to recent revelations about tax avoidance by multinationals, the OECD is looking into aggressive tax planning, detailing fifteen actions to deliver in three phases.

New independent standards body in the UK banking industry

The first phase is coming to an end in September 2014, when they have set to deliver an in-depth report identifying tax challenges in a digital economy, followed by recommendations. » Read more about the BEPS project and action plan, or access the PwC CEO Survey results

» Find out more in a whitepaper by Val Lodge at Expolink Europe

Following recommendations from Sir Richard Lambert’s Banking Standards Review, a new standards body to champion higher standards and competence in the banking industry is set to be launched later in this year. The proposal highlighted the importance of ‘working with the professional bodies already active in the banking industry to increase the value placed on professional qualifications’. » Visit the BSRC website, or read the press release

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India: whistleblowing and CR news

Future trends in business

Amid elections, India has seen the new Companies Act and Whistleblowers’ Protection Bill taking shape and coming to force. The Companies Act took effect in April, now requiring companies to dedicate a percentage of their income to CSR practices. Meanwhile the Whistleblowers’ Protection Bill, which has now been passed in both the lower and upper house of parliament, has already come under criticism for not being protective enough of the whistleblower.

The responsible supply chain organisation SEDEX held its annual conference in April. At the ‘Exploring mega trends’ session, experts in the field were invited to predict what trends will shape business in the future. Lucy Shea, Chief Executive at Futerra, gave three headlines: people, technology and anthropocene.

Reuters reports that the new Prime Minister Narendra Modi has promised tax and labour market reforms, and the opening up of markets to foreign investment. Global risk analyst Maplecroft also suggest that a change of regime is likely to improve the business climate in India, but still raises a warning finger of supply chain risks in relation to small subcontractors - in particular in the textile sector. » Read about the Companies Act, and the Whistleblowing Bill

A change in demographics and an aging Western population, and new possibilities that come with better technology, will change business behaviour. Anthropocene refers to human beings being the defining factor shaping our planet - which in effect means we also possess the ability to create change.

Also mentioned by other panelists were carbon tax and decarbonisation, increasing south-south trade, closed loop economy, and business stepping in where governments fail to create solutions. » Watch the 2014 SEDEX Conference ‘Exploring mega trends’

Ethisphere announce ranking of world‟s most ethical companies In March the Ethisphere Institute, which aims to promote best practices in corporate ethics and compliance, announced their selection of the 2014 World’s Most Ethical Companies. By doing so, they seek to recognise companies that truly go beyond making statements about doing business ethically and translate those words into action.

Source: mckayasavage, Flickr CC

These companies are recognised for leading their industries in compliance, corporate governance and social responsibility and aligning ethical business practices with performance. Of 144 honorees, the list includes 38 organisations from outside the US, representing 21 countries and 5 continents and over 40 industries. » Read more in CGMA Magazine or access the full list at the Ethisphere website

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MORE FROM CIMA ETHICS Anti bribery guidance

Ethics exercises and case studies

CIMA members and students worldwide have a responsibility to be fully aware of the implications of anticorruption legislation in their market as well as the implications of laws with global reach such as the UK Bribery Act 2010 and the US Foreign Corrupt Practices Act (FCPA). Find more guidance online.

What would you do if you felt your professional ethics were being compromised? How do you uphold integrity and ethical conduct throughout your working life? CIMA provides a range of ethics training and case studies to practise ethical decision making and reflect on your skills as a finance professional. The tools available are relevant to both members and students, and can count as part of your CPD, or support your studies.

» www.cimaglobal.com/bribery

» Access all ethics exercises and case studies

CPD ethics e-learning Would you know what to do in a situation that conflicts with the CIMA code of ethics? What decision process would you go through and what choices would you make for action? Explore what it means to do the right thing with CIMA’s free CPD ethics e-tool. » www.cimaglobal.com/ethicstool

HELPLINES AND SUPPORT Global Guidance Line

UK Legal Helpline

This service, aimed at CIMA members and students outside the UK, allows the caller to discuss a concern and get help to decide next steps and other potential areas of support. Operators speak multiple languages, it is open 24/7 and the caller will remain anonymous. Please note that this is not a substitute for technical or legal advice.

LAW Express - for CIMA members and students in the UK. This service gives access to information online for no charge and a low cost professional legal advice line.

CIMA Ethics Helpline This free confidential helpline offers ethical guidance and assistance with applying the Code of Ethics, available to all CIMA members and students.

Find information about CIMA’s helplines and support at www.cimaglobal.com/helplines Access the Code and all ethics resources at www.cimaglobal.com/ethics Alternatively, send your query in an email to ethics@cimaglobal.com

What do you think about Ethical Lens? Share your thoughts in our feedback survey or contact camilla.hedborg@cimaglobal.com

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Chartered Institute of Management Accountants 26 Chapter Street London, SW1P 4NP United Kingdom Tel: +44 (0) 20 8849 2251 ethics@cimaglobal.com www.cimaglobal.com/ethics

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