ICAS president Nisbet urges zero tolerance of unethical action by directors

Published on 30/05/2009 14:29

THE accountancy profession in Scotland wants all company directors to adhere to strict guidelines on ethical behaviour and avoid the temptation to bend the rules.

Douglas Nisbet, newly elected president of the Institute of Chartered Accountants of Scotland, says directors should apply a zero-tolerance approach to unethical behaviour.

In a lot of cases directors know they are acting wrongly, but they allow things to happen as a quick fix to a problem or short-term benefit, he says.

"They may get tipped off about a rival's tender price, or agree to a $10 bribe to avoid being detained at passport control. These things happen regularly, but once you have fixed something for the short term you are on the slippery slope," he said.

ICAS is compiling case studies of examples of where accountants face such dilemmas in their day-to-day activities.

Nisbet says they should never succumb to temptation as it may come back to haunt them. "They may find their client knows they have acted unethically on a previous occasion," he said.

ICAS has proposed changes to the established code governing the way companies are run so that directors "uphold the highest ethical standards of integrity and probity".

In its response to the Financial Reporting Council's review of the combined code on corporate governance, the ICAS says this principle should be "clearly reflected in all statements issued by the company and set the overall tone of the business".

It adds that "the highest ethical standards should underpin all company communications, and be clearly seen to do so."

The FRC instigated a review of corporate governance following the recent crisis in the financial sector. But Nisbet has warned against panic measures. "There is a view that the code on corporate governance is broken. It is not," he said. "If there are issues it is about how people do not ask the right questions or fully understand the situation they are in."

ICAS is demanding that a stronger emphasis be placed on the "explain" element in the code's requirement that directors comply with the guidelines or explain why they have not done so. "The Code should explicitly state that where a company explains its policies and practices in support of compliance or non-compliance this is a positive and effective means of communicating to stakeholders," it says.

The submission calls for non-executive directors to have relevant skills and be competent in the role. They should be encouraged to be more pro-active in gathering relevant information before accepting an appointment.

It says there should be a reconsideration of the emphasis on "independence" of non-executive directors compared to their experience and knowledge of the company.

"Institutional investors could strengthen their input to the governance of the company by holding a separate meeting each year with the chairman and company secretary, and on occasion the senior independent director, specifically to discuss the governance of the company.

"For smaller companies it may be useful to establish a governance committee instead of an audit committee, remuneration committee, and nomination committee."

It claims that the current economic challenges have stemmed from the banking sector and there is no evidence of systematic failures of governance across all sectors.