In well-governed companies, a sense of accountability and ethical leadership create a culture that places organizational ethics above all else. What role does organizational culture play in preventing financial shenanigans from being used to manage earnings?
SOLUTION
Organizational culture is the underpinnings of an ethical environment that sets a positive ethical tone with leaders who are committed to ethical behavior. In organizations that live by ethical values, employees are more likely to identify with those values and commit to carry them out. Even employees who may lack the ethical foundation can be swayed by social forces within the organization to act ethically.
Managers must acknowledge their role in shaping organizational ethics and seize this opportunity to create a climate that can strengthen the relationships and reputations on which their companies’ success depends. From the perspective of integrity, the task of ethics management is to define and give life to an organization’s guiding values, to create an environment that supports ethically sound behavior, and to instill a sense of shared accountability among employees. The need to obey the law is viewed as a positive aspect of organizational life, rather than an unwelcome constraint imposed by external authorities.
An integrity strategy is characterized by a conception of ethics as a driving force of an enterprise. Ethical values shape the search for opportunities, the design of organizational systems, and the decision-making process used by individuals and groups. They provide a common frame of reference and serve as a unifying force across different functions, lines of business, and employee groups. Organizational ethics helps define what a company is and what it stands for.
A strong organizational culture backed by ethical leadership makes it much less likely that financial shenanigans will exist and/or be tolerated if they do. An ethical leader would not stand for such abuse and would not want to be held accountable for unethical actions to manipulate reported earnings through the use of shenanigans.