Ethical Lens June 2016 Final

ETHICAL LENS CIMA ROUNDUP OF RESPONSIBLE BUSINESS ISSUES - JUNE 2016

IN THIS ISSUE

New Code of Ethics Animation Business and Human Rights Joining the Dots What type of accountant are you?

Reporting human capital

ETHICS ARE IMPORTANT TO ME BECAUSE...

‘They are the building blocks and the moral compass for every decision I make.’

1 · www.cimaglobal.com/ethicallens

Angela Nolan, Director of HR & Workplace Performance, CIMA

NEWS New Ethics Animation The new ethics animation has been released to introduce and explain the 2015 CIMA Code of Ethics and the Code of Ethics for CGMAs. In just 2 minutes, the animation gives you a fun introduction to the different parts of the Code, how it sets you apart as a CIMA student and a CGMA designation holder and most importantly, why the Code is important and why you are obliged to uphold it. » To watch the new animation and other ethics webcasts, click here

REPORTS & EVENTS Business and Human Rights: Evolution and Acceptance Since 2008, when the UN Human Rights Council unanimously endorsed the UN Protect, Respect and Remedy (PRR) Framework, it has been globally accepted that businesses have a responsibility to respect internationally recognized human rights. In 2011, the UN Guiding Principles on Business and Human Rights were released to implement the PRR Framework.

While management accountants may not be directly focused on conducting a human rights due-diligence process, they should still be aware of what it is and its key role in identifying the company’s human rights risks and impacts, impacting on value.

The new CGMA guidance for assessing and protecting human rights, Business and Human Rights: Evolution and Acceptance, has been published in collaboration with the Global Compact Network UK. It was written to set out the context for the rise in importance of human rights issues to business, identifying the areas management accountants should consider in relation to their organisations.

Joining the Dots: Decision Making for a New Era High quality decision making has never been more important or more difficult. Senior business leaders are striving to position their organisations to thrive in the short, medium and long term, but they are having to do so in an operating environment that is volatile and uncertain.

After surveying 300 C-suite executives at major organisations globally, the new CGMA report, Joining the Dots, examines the number of major flaws in companies’ decision making and suggests that decision making in many businesses can be fundamentally improved. Some of the major struggles faced include overcoming bureaucracy, building greater levels of trust, defining the right metrics, turning big volumes of data into strategic insight and building decision making skills of senior leaders. » Access the findings and recommendations here

» Access the guidance here

2 · Ethical Lens

Thinking the unthinkable: a new imperative for leadership in the digital age Executive leadership at the highest levels of corporate, public service and political life faces new vulnerabilities that few in these positions are willing to talk about publicly. In 2016, they are greater than at any time in recent history and the implications are deeply troubling.

A proliferation of ‘unthinkable’ events over the previous two years has revealed a new fragility at the highest levels of corporate and public service leaderships.

Their ability to spot, identify and handle unexpected, nonnormative events is shown not just to be wanting but also perilously inadequate at critical moments.

This new CIMA report explores some of the corporate governance issues in an effort to help boards understand what they must do to be more effective.

Management accounting ethics What type of accountant are you?

Recent research by Dr. Dale Tweedie and Maria Dyball funded by CIMA suggests that how management accountants respond to ethical issues depends on what ‘type’ of management accountant they are.

The research found that accountants face ethical challenges in two major areas. The first is pressure to provide information to alter managerial decisions in potentially unethical ways such as inflating bonuses – and the second is how to use management controls to achieve ethical outcomes such as ensuring public funds are being used properly.

The research distinguished four main types of management accountants, based on who they identified with and the main source of their ethical principles: team players, lone rangers, accountants’ accountants and technical accountants. » Read about the different types of management accountants and the ethical implications here

» Read the report in full here

IFAC Latest from the IFAC Global Knowledge Gateway The IFAC Global Knowledge Gateway provides insights, ideas and information from around the globe, related to ethics, governance, sustainability and a range of other areas. You can find out more about the Gateway in this short YouTube animation.

Latest on the Global Knowledge Gateway, read about why a strong focus on combatting corruption is vital to addressing many of the crises currently besetting the world, the vital role professional accountants and lawyers play in fighting corruption, how to foster ethical behaviour throughout your value chain and creating strong ethical leadership. » Visit the IFAC Global Knowledge Gateway

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REPORTING Reporting human capital: illustrating your company’s true value A new report commissioned by the Valuing your Talent (VyT) partnership investigates how FTSE 100 organisations report human capital to their external stakeholders by analysing the content of company reports. VyT is a partnership between CIMA, CIPD, CMI and others, which brings the management, finance and HR professions together with government, to build greater understanding and appreciation of how people create and drive value in business.

It is becoming increasingly important to ensure that organisations understand and report on their human capital (HC) assets in a transparent way to existing and prospective employees, shareholders and other interested parties. VyT aims to establish a comprehensive framework, common language and set of key metrics for understanding and reporting on the impact of people in business. Overall, the report found that the quality and quantity of reporting on human capital issues is improving – with an increase in reporting across ethics (up by 22%), diversity (up by 39%) and human rights (up by 127%). » Access the full report and the executive summary here

Modern Slavery Act now requires increased transparency According to the International Labour Organisation (ILO), there are 21 million people currently working in some form of slavery, generating around $150BN (£103bn) a year in illicit profits. These numbers, as well as disasters such as the 2013 collapse of the Rana Plaza textile factory in Bangladesh, demonstrate the continuous need to fight slavery and protect human rights. The UK Modern Slavery Act 2015 is a big step forward.

From 1 April 2016, the Modern Slavery Act now requires organisations with a presence in the UK and and a turnover of £36m and over to include a statement within company reports explaining any activities it has undertaken to tackle modern slavery and wider human rights issues within its business and supply chains, including activity prior to the commencement of the new provision. » Click to read the articles by the Fairtrade Foundation and The Guardian

4 · Ethical Lens

Our sustainable future relies on SMEs embracing new reporting practices Small and medium sized enterprises (SMEs) account for approximately 90% of businesses worldwide and contribute up to 45% of total employment and up to 33% of GDP in emerging economies, according to statistics from The World Bank. Despite playing a crucial role in job creation and economic growth particularly in developing countries, GRI’s Sustainability Disclosure Database indicates that SMEs accounted for only 10% of sustainability reporting out of the total number of sustainability reports during the year.

The biggest challenges are lack of information on implementation of sustainability practices, interference with other business, and employee apathy. As part of its ongoing efforts to support SMEs in particular, GRI recently announced its new partnership with the world’s largest private sector network, the International Organisation of Employers (IOE). » Access the full article here

Moving beyond reports to enable transformational change using data

Reversing the productivity problem through reporting

The sustainability report has been the cornerstone of nonfinancial disclosure for decades but a new era of corporate disclosure is going to be digital, responsible and interactive, GRI reports. New and innovative approaches to disclosure are arising and will liberate the data from physical reports, which allows sustainability information to be used in new platforms by a range of data users. GRI states that this will ultimately enable better business and policy decisions leading us towards a more sustainable global economy.

In March, the Investment Association released the Productivity Action Plan, designed to boost the UK’s economy through long-term investment and help reverse the UK’s productivity problem. The role of corporate reporting was front and center in their ‘productivity principles’ and three relevant recommendations in the action plan are:

GRI recently announced its new Digital Reporting Alliance, which aims to help organisations and stakeholders lead for the next era of corporate disclosure. The alliance will address two key challenges in sustainability reporting: the lack of structured data and the lack of demand for digital reporting.

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» Read the full article on the GRI website

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Reporting and research on productivity and refocus on long-term strategic drivers Reporting on capital management and clarify investor expectations of capital management Reporting on culture, human capital and accounting for intangibles.

» Read the pwc article here and access the Productivity Action Plan

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RESPONSIBLE BUSINESS Five principles of high quality ethics and compliance programmes Ethics and compliance practices should be ingrained in a company’s strategy, not applied on a decision-by-decision basis. Safeguarding reputation is the primary motivator for organisations to focus on ethics and compliance. The Ethics and Compliance Initiative (ECI) recently released a report offering five principles of high quality ethics and compliance programmes: 1.

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Ethics and compliance is central to business strategy.

Ethics and compliance risks are identified, owned, managed and mitigated.

Leaders at all levels build and sustain a culture of integrity.

The organisation encourages, protects, and values the reporting of concerns or suspected wrongdoing.

The organisation takes action and holds itself accountable when wrongdoing occurs.

» Read more from the CGMA Magazine

Anti-Bribery & Corruption in 2016 The executive director of Transparency International, Robert Barrington, recently gave a summary of the changes and challenges of the international anticorruption landscape.

The summary discusses the changing landscape such as the tightening net of anti-corruption legislation, the increasing pressure to make data open and free and the advent of social media for anti-corruption campaigners.

The challenges such as holding individuals to account and creating a level playing field are also discussed as well as different points to consider at the 2016 UK anticorruption summit, including the need for greater enforcement of anti-corruption practices and procedures and for governments to consider cutting funding to corrupt regimes. » Read the summary in full here and learn more about the 2016 UK Anti-Corruption Summit

Gender Equality Critical to Economic Development The Women’s Empowerment Principles (WEPs) Annual Event was held in March 2016, where business leaders, UN Member States and civil society organisations gathered to recognise gender equality as a fundamental human right, central to driving the global economy and achieving the recently adopted Sustainable Development Goals (SDGs). The WEPs is a partnership initiative of the UN Global compact and UN Women.

The event focused on the multiplier effect of empowering women and girls in advancing all development issues and the enormous opportunity for business to lead on promoting gender equality.

UN Secretary-General Ban Ki-moon stated, “We cannot achieve our SDGs without securing the full and equal rights of half of the world’s population, in law and in practice.” » Read more about the event here

6 · Ethical Lens

Risks and safeguards for a strong corporate ethics foundation The June 2016 edition of CGMA Magazine discusses the risks facing a strong corporate ethics foundation and how professional accountants can contribute to an effective risk culture.

According to a CGMA survey, the top sources of ethical pressure are working with other departments, meeting reporting deadlines, dealing with customers, compiling management accounts and managing staff.

Management accountants are well placed to take a proactive role in safeguarding the business by being aware of potential risks and identifying solutions to those risks.

With regard to their own professional codes of conduct, management accountants need to be alert to the following types of risks: adverse interests, self-interest, familiarity, undue influence, self-review and advocacy. » Access the CGMA Magazine to read more (pages 32-36)

Ending the UK’s role as a safe haven for corruption

Surveys on business ethics in 2015 and the key findings

A new publication, Paradise Lost, by Transparency International is a thorough analysis of the UK’s role in global corruption, outlining the multitude of ways in which the UK is enabling corrupt individuals to enjoy luxury lifestyles and cleanse their reputations.

The Institute of Business Ethics (IBE) published a briefing in February 2016 which highlights the findings on 10 different pieces of research conducted into business ethics in 2015.

It is reported that tens of billions of pounds of corrupt and illicit money is being laundered through the UK each year with the assistance of an eco-system of “professional enablers” such as British lawyers, accountants and estate agents, who face inadequate punishment if they are found to be involved in wrongdoing.

In the report, Transparency International stated, “The Government should establish more effective administrative sanctions on professional enablers by encouraging professional bodies to withdraw licenses from those implicated in such cases, in addition to prosecuting those who are personally involved. » Read an article by The Independent and access the Transparency International report

The key findings from the CGMA Managing Responsible Business 2015 report were included, revealing that the most relevant ethical issues facing management accountants were security of information, safety and security in the workplace, discrimination, conflicts of interest and bribery. One concern was that human rights was low on the agenda, with over 86% of respondents stating that they were not aware of the UN Guiding Principles on Business and Human Rights.

Overall, it appears that global business ethics landscape seems to be moving in a positive direction, as well as increase in the investment in the ethics function and awareness of ethics programmes. » Access the full briefing by IBE here

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Corrupt European countries costing EU nearly £800bn a year

Special report on business ethics: enhancing corporate governance

According to a new European Parliament study, corruption throughout Europe is costing almost £800 billion a year, which equates to 6.3 per cent of over EU-28 GDP. The new estimate of the total annual loss is more than eight times higher than previous calculations because it measures the full cost of the problem including indirect and direct impacts.

Romania, Bulgaria and Croatia are listed as the most corrupt countries in the EU and the report recommends that several major changes could save more than £56 billion a year.

According to Henrik Syse, a senior fellow at the Peace Research Institute in Oslo, Norway, the connection between ethics and corporate governance is exceedingly close. Corporate governance refers to the rules and policies that determine how a company is controlled.

Positively, several emerging economies have made strides in the past four years in tackling corruption and bribery, according to the 2015 Corruption Perception Index. Six of the ten emerging economies perceived least corrupt improved their scores since 2012, with Lithuania, Poland and Qatar being the most improved among the top ten emerging economies.

The goal of this special report, published by Knowledge@Wharton and AKO Foundation, is to explore how firms can enhance their understanding and implementation of corporate governance. The report considers five key topics: the relationship between corporate governance and the purpose of a firm; whether firms have a moral responsibility; the link between corporate governance and compliance programs; the impact of corporate culture; and the role of leadership and boards of directors. » Access the full report here

» Read more on CGMA Magazine and The Independent

Whistleblowers fear prosecution under new European law The aim of the Trade Secrets Protection Act is to protect European companies from corporate spying by their rivals in other parts of the world. However, critics say that journalists and whistleblowers could be criminalised if they publish information that companies deem to be secret. More than half a million people have signed a petition against the bill, as of April 2016.

Globally, industrial espionage is a major worry in the corporate world and other countries, such as the US and China, have already put laws in place to protect companies.

According to the European Commission, one in five companies in Europe suffered an attempt to steal trade secrets in the last 10 years.

However, the opponents of this plan say the bill is not specific enough about the type of information it is trying to protect and could make it possible for corporations to define any information they do not want released as a trade secret to prosecute whistleblowers who release it to the public. » Read more on the BBC article here

8 · Ethical Lens

Only 5% of Australian fashion firms know origin of raw materials According to a new report released in April by Baptist World Aid Australia, only 5% of Australian fashion companies know the origin of the raw materials used to manufacture their products and just 16% have fully traced their input supply chain.

A total of 87 companies, which represent more than 300 clothing brands, were assessed and given a grade of between A to F on their policies, knowledge of suppliers, auditing practices and supplier relationships, and worker empowerment.

Results showed Australian companies had improved significantly since Baptist World Age’s first annual report in 2013, but it appears the industry still has a long way to go; particularly in the case of protecting workers who produce the raw materials used in garment manufacturing.

» Read the full article by The Guardian here

MORE FROM CIMA ETHICS Student and member ethics e-tools Would you know what to do when a situation arises that conflicts with the CIMA code of ethics? CIMA ethics e-tools will give you an overview of the CIMA code of ethics, the importance of ethics in the workplace, and how ethical considerations may appear in the CIMA exams. They can be used as part of your continuing professional development or if you are a student, it will help you in your ethical education. » To the ethics e-tools

AML suspicious activity reports CIMA will not advise you whether you should submit a SAR or whether circumstances you describe should lead to an SAR being made. If you have actual knowledge or suspicions of money laundering/terrorist financing, or reasonable grounds for knowing or suspecting a client of being involved with money laundering/terrorist financing, then you are obliged to report this immediately to the National Crime Agency in the UK OR the relevant Financial Intelligence Unit (FIU) in your jurisdiction. » Please refer to this guide in respect of SAR reporting

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. This is not a substitute for technical or legal advice. Operators speak multiple languages, the service is available 24/7, and the caller will remain anonymous.

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

Find information about CIMA’s helplines and support at www.cimaglobal.com/helplines

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Access the Code and all ethics resources at www.cimaglobal.com/ethics

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Alternatively, send your ethics query in an email to ethics@cimaglobal.com

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.

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June 2016 · 9