18 Personal effectiveness and communication
This chapter draws together a number of topics that relate to
the way that people do their jobs.
Section 1 covers time management, a very necessary skill for
all busy people. Good time management depends to some
extent on ruthless prioritisation and this requires a good
understanding by staff of just what their roles are. The role of
information technology in improving personal effectiveness is
discussed in Section 2.
In Section 3, we look at the consequences of ineffectiveness
Section 4 covers competence frameworks, and coaching,
mentoring and counselling as tools in personal development.
We also focus on personal development plans, which are
valuable for setting out the activities to ensure development
and improved job performance.
Section 5 looks at conflict and the techniques for resolving it.
The rest of this chapter (Sections 6 to 10) is principally
concerned with communication. Communication is
fundamental to the success of any organisation of any size,
since it is only via communication that we know what is to be
done, by whom and how. Communication is also fundamental
to motivation, as you discovered in Chapter 15.
|Study Guide||Intellectual level||
| E1 Personal effectiveness techniques
(a) Explain the importance of effective time management.
|(b) Describe the barriers to effective time management and how they may be overcome.||K|
|(c) Describe the role of information technology in improving personal effectiveness.||S|
| E2 Consequences of ineffectiveness at work
(a) Identify the main ways in which people and teams can be ineffective at work.
|(b) Explain how individual or team ineffectiveness can affect organisational performance.||K|
|E3 Competence frameworks and personal development (a) Describe the features of a ‘competence framework’.||
|(b) Explain how a competence framework underpins professional development needs.||S|
|(c) Explain how personal and continuous professional development can increase personal effectiveness at work.||S|
|(d) Explain the purpose and benefits of coaching, mentoring and counselling in promoting employee effectiveness.||K|
|(e) Describe how a personal development plan should be formulated, implemented, monitored and reviewed by the individual.||S|
| E4 Sources of conflict and techniques for conflict resolution and referral
(a) Identify situations where conflict at work can arise.
|(b) Describe how conflict can affect personal and organisational performance.||S|
|(c) Identify ways in which conflict can be managed.||S|
| E5 Communicating in business
(a) Describe methods of communication used in the organisation and how they are used.
|(b) Explain how the type of information differs and the purposes for which it is applied at different levels of the organisation: strategic, tactical and operational.||K|
|(c) List the attributes of good quality information.||K|
|(d) Explain a simple communication model: sender, message, receiver, feedback, noise.||K|
|(e) Explain formal and informal communication and their importance in the workplace.||K|
|(f) Identify the consequences of ineffective communication.||K|
|(g) Describe the attributes of effective communication.||K|
|(h) Describe the barriers to effective communication and identify practical steps that may be taken to overcome them.||K|
|(i) Identify the main patterns of communication.||K|
|Time is a scarce resource and managers’ time must be used to best effect. Urgency and importance must be recognised and distinguished. Tasks must be prioritised and scheduled. In-trays can be managed using the ABCD method. Other important matters are correct use of the telephone, availability to callers and seeing tasks through to completion.|
The scarcest resource any of us has is time. No amount of investment can add more hours to the day or weeks to the year. All we can do is take steps to make more effective use of the time which is available to us. Planning how we spend our time is as normal to us as planning how we will spend our income, and you should already have considerable experience of both.
To be worth their pay, every employee needs to add more value than they cost per hour. If you do the same exercise for the whole team, you can see how expensive the time of your section actually is, and why keeping colleagues waiting to start a meeting or training course is more serious than just a breach of manners. It is important, therefore, that managers work as efficiently as possible.
|Effective time management involves attention to:
• Goal or target setting
Time management tasks
- Identifying objectives: and the key tasks which are most relevant to achieving them – sorting out what the supervisor must do, from what he could do, and from what he would like to do. Urgent is not always the same as important.
1.1 Principles of time managementPrioritising and scheduling: assessing key tasks for relative importance and amount of time required. Routine non-essential tasks should be delegated – or done away with if possible. Routine key tasks should be organised as standard procedures and systems. Non-routine key tasks will have to be carefully scheduled as they arise, according to their urgency and importance; an up-to-date diary with a carry forward system to follow-up action will be helpful.
- Planning and control: Schedules should be regularly checked for disruption by the unexpected; priorities will indicate which areas may have to be set aside for more urgent items. Information and control systems in the organisation should be utilised so that problems can be anticipated, and sudden decisions can be made on the basis of readily available information.
The key principles of time management can be depicted as follows.
If you have no idea what it is you are supposed to accomplish, all the time in the world will not be long enough to get it done. Nor is there any way of telling whether you have done it or not. To be useful, goals need to be SMART:
1.1.2 Action plans
Now you must make written action plans that set out how you intend to achieve your goals.
Now you can set priorities from your plan. You do this by deciding which tasks are the most important: what is the most valuable use of your time at that very moment?
Focus: one thing at a time
Work on one thing at a time until it is finished, where possible.
1.1.4 Urgency: do it now!
Do not put off large, difficult or unpleasant tasks simply because they are large, difficult or unpleasant.
Apart from working to plans, checklists and schedules, your work organisation might be improved by the following.
- An ABCD method of in-tray management. Resolve to take one of the following approaches.
Act on the item immediately
Bin it, if you are sure it is worthless, irrelevant and unnecessary
Create a definite plan for coming back to the item: get it on your schedule, timetable or ‘to do list’
Delegate it to someone else to handle
- Organise your work in batches. Batches should contain jobs requiring the same activities, files, equipment, and so on.
- Take advantage of your natural work patterns. Self-discipline is aided by developing regular hours or days for certain tasks, like dealing with correspondence first thing, or filing at the end of the day.
- Improving time management
Plan each day. The daily list should include the most important tasks as well as urgent but less important tasks.
Produce a longer-term plan. This can highlight the important tasks so that sufficient time is spent on them on a daily basis.
Do not be available to everyone at all times. Constant interruptions can be prevented by, for example, setting ‘surgery hours’ during which your door is open to visitors.
Stay in control of the telephone. For example, only take calls during certain times and divert calls to your secretary during the rest of the day.
|Prioritising tasks involves ordering tasks in order of preference or priority, based on:
• The relative consequences of timely or untimely performance
• Dependency of other people on completion of the task(s)
• Defined deadlines, timescales and commitments
Prioritisation involves identifying key results (objectives which must be achieved if the section is to fulfil its aims) and key tasks (those things that must be done on time and to the required standard if the key results are to be achieved).
A job will be important compared with other tasks if it satisfies at least one of three conditions.
- One of the problems managers have in allocating their time comes from determining which tasks are important as defined above and distinguishing these from urgent tasks, which may have a deadline but less importance.It adds value to the organisation’s output.
- It comes from a source deserving high priority, such as a customer or senior manager.
- The potential consequences of failure are long term, difficult to reverse, far reaching and costly.
- Tasks both urgent and important should be dealt with now, and given a fair amount of time.
- Tasks not urgent but still important will become urgent as the deadline looms closer. Some of these tasks can be delegated.
- Tasks urgent but not important should be delegated, or designed out of your job. The task might be urgent to someone else, but not to you.
- Tasks neither urgent nor important should be delegated or binned.
Performance objective PO5 of your Practical Experience Requirements requires you to be able to manage yourself effectively. You can apply the knowledge that you learn from this section on time management to help you demonstrate this competence.
1.4 Work planning
|Work planning includes the following basic steps.
• Establishing priorities
• Loading, allocation of tasks
• Sequencing of tasks
• Scheduling: estimating the time taken to complete a task and working forwards or backwards to determine start or finish times
|Scheduling routine tasks so that they will be completed at pre-determined times||You plan to complete bank reconciliations every month.|
|Handling high-priority tasks and deadlines:
working into the routine any urgent tasks which interrupt the usual level of working
|You adjust your plans so that you can prepare an urgent costing requested by the sales manager.|
|Adapting to changes and unexpected demands||A colleague may go off sick: there should be a contingency plan to enable to you to provide cover for them.|
|Setting standards against which performance will be measured||You set a target to complete a certain number of costings to a certain level of accuracy.|
|Co-ordinating your own plans and efforts with those of others||You plan to get your costings to the sales meeting in time for sales staff to prepare a quote for a client.|
Work planning, as the term implies, means planning how, when and by whom work should be done, so that objectives can be efficiently met. At an individual level, this may involve the following.
Work planning consists of a number of basic steps.
- Allocating work to people and machines (sometimes called loading)
- Determining the order in which activities are performed (prioritising: sometimes called activity scheduling or task sequencing)
- Determining exactly when each activity will be performed (timetabling: sometimes called time scheduling)
- Establishing checks and controls to ensure that deadlines are being met and that routine tasks are still achieving their objectives
|2||The role of information technology|
In this section we discuss some of the most significant developments in communication technology, and the impact these developments have had on the way people do their work.
Digital means ‘of digits or numbers’. Digital information is information in a coded (binary) form.
Information in analogue form uses continuously variable signals.
- Modems and digital transmission
New technologies require transmission systems capable of delivering substantial quantities of data at great speed.
- Mobile communications
Networks for portable telephone communications, also known as ‘cellular‘ or ‘mobile phones‘, have boomed in developed countries since the 1990s.
Digital networks have been developed which are better able to support data transmission than the older analogue networks, with higher transmission speeds and less likelihood of data corruption.
- Voice messaging systems
Voice messaging systems answer and route telephone calls. Typically, when a call is answered a recorded message tells the caller to dial the extension required, or to hold if they want to speak to the operator.
- A computer bulletin board consists of a central mailbox or area on a computer server where people can deposit messages for everyone to see and, in turn, read what other people have left in the system.Computer bulletin boards
Bulletin boards can be appropriate for a team of individuals at different locations to compare notes. It becomes a way of keeping track of progress on a project between routine team meetings.
Videoconferencing is the use of computer and communications technology to conduct meetings.
Videoconferencing has become increasingly common as the internet and webcams have brought the service to desktop PCs at reasonable cost. More expensive systems feature a separate room with several video screens, which show the images of those participating in a meeting.
2.6 Electronic Data Interchange (EDI)
EDI is a form of computer-to-computer data interchange. Instead of sending each other reams of paper in the form of invoices, statements, and so on, details of inter-company transactions are sent via telecoms links, avoiding the need for output and paper at the sending end, and for re-keying of data at the receiving end.
2.7 Deciding on a communication tool
|The channel of communication will impact on the effectiveness of the communication process. The characteristics of the message will determine what communication tool is best for a given situation.|
Technological advances have increased the number of communication tools available. The features and limitations of ten common tools are outlined in the following table.
|Conversation||Requires little or no planning||May be easily forgotten|
|Meeting||Allows multiple opinions to be expressed||Can highlight differences and become time-wasting confrontations|
|Presentation||Visual aids such as slides can help the communication process||Requires planning and skill|
|Telephone||Good for communications that do not require (or you would prefer not to have) a permanent written record||No written record gives greater opportunity for misunderstandings|
|Facsimile||Enables reports and messages to reach remote locations quickly||Complex images do not transmit well|
|Memorandum||Provides a permanent record||Can come across as impersonal|
|Letter||Provides a permanent record of an external message
Adds formality to external communications
|If inaccurate or poorly presented provides a permanent record of incompetence
May be slow to arrive depending on distance and the postal service
|Report||Provides a permanent, often comprehensive written record||Complex messages may be misunderstood in the absence of immediate feedback|
|Provides a written record
Attachments (eg reports or other documents) can be included
Quick – regardless of location
Can be sent to multiple recipients easily, can be forwarded on to others
|Long messages (more than one ‘screen’) may best be dealt with via other means, or as attached documents|
|Videoconference||This is in effect a meeting conducted using a computer and video system
Some non-verbal messages (eg gestures) will be received
|Image quality is often poor – resulting in not much more than an expensive telephone conference call!|
2.8 The effect of office automation on business
Office automation has an enormous effect on business. We discuss some of the most significant effects in this section.
2.8.1 Routine processing
The processing of routine data can be done in bigger volumes, at greater speed and with greater accuracy than with non-automated, manual systems.
2.8.2 The paperless office
There might be less paper in the office (but not necessarily so) with more data processing done using computers. Many organisations print information held in computer files resulting in more paper in the office than with manual systems!
2.8.3 Management information
The nature and quality of management information has changed.
- Managers are likely to have access to more information – for example from a database. Information is also likely to be more accurate, reliable and up to date. The range of management reports is likely to be wider and their content more comprehensive.
- Planning activities should be more thorough, with the use of models (eg spreadsheets for budgeting) and sensitivity analysis.
- Information for control should be more readily available. For example, a computerised sales ledger system should provide prompt reminder letters for late payers, and might incorporate other credit control routines. Stock systems, especially for companies with stocks distributed around several different warehouses, should provide better stock control.
- Decision-making by managers can be helped by decision support systems.
2.8.4 Organisation structure
The organisation structure might change. PC networks give local office managers a means of setting up a good local management information system, and localised data processing while retaining access to centrally held databases and programs. Office automation can therefore encourage a tendency towards decentralisation of authority within an organisation.
On the other hand, such systems help head office to keep in touch with what is going on in local offices. Head office can therefore readily monitor and control the activities of individual departments, and retain a co-ordinating influence.
2.8.5 Customer service
Office automation, in some organisations, results in better customer service. When an organisation receives large numbers of telephone enquiries from customers, the staff who take the calls should be able to provide a prompt and helpful service if they have online access to the organisation’s data files.
2.8.6 Homeworking or remote working
Advances in communications technology have, for some tasks, reduced the need for the actual presence of an individual in the office.
The advantages to the organisation of homeworking are as follows.
- Cost savings on space. Office rental costs and other charges can be very expensive. If firms can move some of their employees on to a homeworking basis, money can be saved.
- A larger pool of labour. The possibility of working at home might attract more applicants for clerical positions, especially from people who have other demands on their time (eg going to and from school) which cannot be fitted round standard office hours.
- If the homeworkers are freelance, then the organisation avoids the need to pay them when there is insufficient work, when they are sick, on holiday, etc.
Performance objective PO5 of your Practical Experience Requirements requires you to be able to ’work with others to recognise, assess and improve business performance. You use different techniques and technology to do this’. You can apply the knowledge that you learn from this section on the role of information technology to help you demonstrate this competence.
2.9 How technology can enhance personal effectiveness
Many organisations use their intranets to deliver training modules eg ethics, work and safety procedures. Studying and assessment is carried out online, enabling employees to get immediate results as part of their ongoing learning and development.
2.9.2 Proprietary systems
- Skype – using your PC to telephone with video link, also useful for video conferencing
- Webex – web conferencing, online meetings and events
|3||Ineffectiveness at work|
3.1 The main ways in which employees can be ineffective
- Failing to communicate (eg problems, delays)
- Failing to meet deadlines
- Failing to comply with job specifications Failing to deliver the exact product needed
3.2 Effects on the organisation
- Potential problems are not identified and so no countermeasures can be taken in time to prevent the problem arising
- Problems are not dealt with as they arise
- Deadlines are not met
- Customers are angry and go elsewhere
|4||Competence frameworks and personal development|
4.1 Competence frameworks
A competence framework sets out what an employee should be able to do and what the employee ought to know.
An employee’s job description should include a competence framework and the employee should be encouraged to keep up to date with developments in their field. This may involve regular attendance at conferences and update courses as part of the employee’s professional development. Having a defined set of competences that are necessary for a job should help an organisation in the following ways.
- Assisting effective recruitment
- As a tool for performance evaluation
- Identifying skills gaps and planning training accordingly
4.1.1 Advantages of competence frameworks
Evaluating an individual’s performance on the basis of what they can actually do is fairer than judging them on their personal qualities, qualifications or the amount of time spent on activities, providing a foundation for more objective performance reviews.
The framework also provides a basis for employees to plan their personal development.
4.1.2 Disadvantages of competence frameworks
Competency frameworks are hard to develop. They require a clear understanding of the job and a focus to think in terms of what employees need to be able to do rather than what they need to be.
Competences can be expressed at such a generic level (‘innovativeness’, ‘leadership’) that they become meaningless and difficult to measure.
Coaching is an approach whereby a trainee is put under the guidance of an experienced employee who shows the trainee how to perform tasks. It is also a fashionable aspect of leadership style and a feature of superior/subordinate relationships, where the aim is to develop people by providing challenging opportunities and guidance in tackling them.
|Step 1||Establish learning targets. The areas to be learnt should be identified, and specific, realistic goals (eg completion dates, performance standards) stated by agreement with the trainee.|
|Step 2||Plan a systematic learning and development programme. This will ensure regular progress, appropriate stages for consolidation and practice.|
|Step 3||Identify opportunities for broadening the trainee’s knowledge and experience, eg by involvement in new projects, placement on interdepartmental committees, suggesting new contacts, or simply extending the job, adding more tasks, greater responsibility, etc.|
|Step 4||Take into account the strengths and limitations of the trainee in learning, and take advantage of learning opportunities that suit the trainee’s ability, preferred style and goals.|
|Step 5||Exchange feedback. The coach will want to know how the trainee sees their progress and future. They will also need performance information in order to monitor the trainee’s progress, adjust the learning programme if necessary, identify further needs which may emerge and plan future development for the trainee.|
Note that coaching focuses on achieving specific objectives.
Mentoring is a long-term relationship in which a more experienced person acts as a teacher, counsellor, role model, supporter and encourager to another person with the aim of fostering the individual’s personal and career development.
Mentoring differs from coaching in two main ways.
- The mentor is not usually the protégé’s immediate superior.
- Mentoring covers a wide range of functions, not always related to current job performance.
Career functions include:
- Sponsoring within the organisation and providing exposure at higher levels Coaching and influencing progress through appointments
- Drawing up personal development plans
- Advice with administrative problems that people face in their new jobs Help in tackling projects by pointing people in the right direction Psychosocial functions include:
- Creating a sense of acceptance and belonging
- Counselling and friendship Providing a role model
Organisational arrangements for coaching and mentoring will vary, but in general a coach needs to be an expert in the trainee’s professional field. Mentors are often drawn from other areas of the organisation but can open up lines of communication to those with power and influence across it. For this reason, a mentor is usually in a senior position.
|Counselling is an interpersonal interview, the aim of which is to facilitate another person in identifying and working through a problem.|
The need for workplace counselling can arise in many different situations.
- Note that counselling is non-directive. The individual decides what is to be achieved and how. Counselling helps people to help themselves.During appraisal, to solve work or performance problems
- In grievance or disciplinary situations
- Following change, such as promotion or relocation
- On redundancy or dismissal
- As a result of domestic or personal difficulties
- In cases of sexual, racial or religious harassment or bullying at work (to support the victim and educate the perpetrator)
4.5 Benefits of counselling
Effective counselling is not merely a matter of pastoral care for individuals, but is very much in the organisation’s interests. Counselling can:
- Prevent underperformance, reduce labour turnover and absenteeism and increase commitment from employees
- Demonstrate an organisation’s commitment to and concern for its employees
- Give employees the confidence and encouragement necessary to take responsibility for self and career development
- Recognise that the organisation may be contributing to the employees’ problems and provide an opportunity to reassess organisational policy and practice
- Support the organisation in complying with its obligations (eg in regard to managing harassment in the workplace).
4.6 The counselling process
|Counselling is facilitating others through the process of defining and exploring their own problems: it is primarily a non-directive role.|
Managers may be called on to use their expertise to help others make informed decisions or solve problems by:
- The counselling process has three broad stages (Egan, 2014).Advising: offering information and recommendations on the best course of action. This is a relatively directive role, and may be called for in areas where you can make a key contribution to the quality of the decision: advising an employee about the best available training methods, say, or about behaviour which is considered inappropriate in the workplace.
- Counselling: facilitating others through the process of defining and exploring their own problems and coming up with their own solutions. This is a relatively non-directive role, and may be called for in areas where you can make a key contribution to the ownership of the decision: helping employees to formulate learning goals, for example, or to cope with work (and sometimes nonwork) problems.
|Step 1||Reviewing the current scenario: helping people to identify, explore and clarify their problem situations and unused opportunities. This is done mostly by listening, encouraging them to tell their ‘story’, and questioning/probing to help them to see things more clearly.|
|Step 2||Developing a preferred scenario: helping people to identify what they want, in terms of clear goals and objectives. This is done mostly by encouraging them to envisage their desired outcome, and what it will mean for them (in order to motivate them to make the necessary changes).|
|Step 3||Determining how to get there: helping people to develop action strategies for accomplishing goals, for getting what they want. This is done mostly by encouraging them to explore options and available resources, select the best option and plan their next steps.|
There will be situations when an employee cannot be completely open unless they are sure that any comments will be treated confidentially. However, certain information, once obtained by the organisation (for example about fraud or sexual harassment) calls for action. In spite of the drawbacks, employees must be made aware when their comments will be passed on to the relevant authority, and when they will be treated completely confidentially.
- Personal development plans and objectives
- A personal development plan is a clear developmental action plan for an individual which incorporates a wide set of developmental opportunities, including formal training.
- Self development may be defined as: ‘personal development, with the person taking primary responsibility for his or her own learning and for choosing the means to achieve this.’ (Pedler, et al, 1991)
Personal development implies a wide range of activities with the objectives of:
- Improving performance in an existing job
- Improving skills and competences, perhaps in readiness for career development or organisational change
- Planning experience and pathways for career development and/or advancement within the organisation
- Acquiring transferable skills and competences for general ’employability’ or change of direction
- Pursuing personal growth towards the fulfilment of one’s personal interests and potential
4.9 A systematic approach to personal development planning
A systematic approach to planning your own development will include the following steps.
|Step 1||Select an area for development: a limitation to overcome or a strength to build on. Your goals might be based on your need to improve performance in your current job and/or on your career goals, taking into account possible changes in your current role and opportunities within and outside the organisation. You might carry out a personal SWOT (strengths, weaknesses, opportunities, threats) analysis. One helpful tool is an interest/ aptitude and performance matrix, on which you can identify skills which you require (don’t do well) but for which you can build on your aptitudes and interests (like).|
|Step 2||Set a SMART (specific, measurable, agreed, realistic and time-bounded) learning objective: what you want to be able to do or do better, and in what timescale.|
|Step 3||Determine how you will move towards your objective:
• Research relevant learning resources and opportunities
• Evaluate relevant learning resources and opportunities for suitability, attainability and cost effectiveness
• Secure any support or authorisation required from your manager or training development
|Step 4||Formulate a comprehensive and specific action plan, including:
• The SMART objective
• The learning approaches you will use, described as specific actions to take. (Ask a colleague to provide feedback; watch a training video; enrol in a course.) Each action should have a realistic timescale or schedule for completion.
• A monitoring and review plan. Precisely how and when (or how often) will you assess your progress and performance against your objectives? (Seek feedback?
review results? pass an end of course test?)
|Step 5||Secure agreement to your action plan (if required to mobilise organisational support or resources).|
|Step 6||Implement your action plan.|
Make sure you don’t neglect your study and revision in what may appear to be ‘soft’ syllabus topics, such as the preparation of a PDP.
Part of performance objective PO3 of your Practical Experience Requirement on strategy and innovation indicates that you should ‘plan, identify and monitor appropriate personal targets and standards of delivery so that they meet the wider departmental and strategic objectives of your organisation’. You can apply the knowledge that you have learnt from this section to help fulfil this requirement.
|Key approaches to managing disagreements and conflicts include understanding the problem and the personalities involved; encouraging those involved to discuss the problem; exploring possibilities for mutual satisfaction (win-win); negotiating compromise where required; using formal grievance procedures where necessary.|
5.1 How does conflict arise?
Conflict is the clash of opposing ‘forces’, including the personalities, interests, opinions or beliefs of individuals and groups. Conflict often arises within and between teams because of a number of factors.
- Power and resources are limited (and sometimes scarce) in the organisation. Individuals and groups compete for them, fearing that the more someone else has, the less there is to go around.
- Individuals and teams have their own goals, interests and priorities – which may be incompatible.
- There may be differences and incompatibilities of personality between individuals, resulting in ‘clashes’.
- There may be differences and incompatibilities of work methods, timescales and working style, so that individuals or teams frustrate each other with apparent lack of co-ordination (especially if one person’s task depends on the other’s).
Difference and competition by themselves do not lead directly to conflict: they can even be positive forces, helping people to solve problems or to lift their performance.
However, they can escalate or deteriorate into destructive conflict if:
- There is poor or limited communication: assumptions go unchallenged, misunderstandings go unclarified, and feelings are left undealt with.
QUESTION ConflictThere is poor co-ordination: working relationships are not managed or structured, and so are subject to interpersonal problems or unchecked competition.
- There are status barriers: problems in the relationship are glossed over by the superior asserting authority (‘do it because I said so’), or hidden by the subordinate feeling powerless or threatened (‘it’s more than my job’s worth to say anything’).
- Work demands put pressure on individuals and teams: competition may escalate, feelings may become less manageable under stress, and there may be little time allowed for interpersonal problem-solving.
Suggest how conflict may be (a) positive or constructive and (b) negative or destructive.
Conflict is constructive, when its effect is to:
- Introduce different solutions to problems
- Define power relationships more clearly
- Encourage creativity, the testing of ideas
- Focus attention on individual contributions
- Bring emotions out into the open
- Release of hostile feelings that have been, or may be, repressed otherwise
Conflict is destructive when its effect is to:
- Distract attention from the task
- Polarise views and ‘dislocate’ the group
- Subvert objectives in favour of secondary goals
- Encourage defensive or ‘spoiling’ behaviour
- Force the group to disintegrate (f) Stimulate emotional, win-lose conflicts, ie hostility
5.2 Managing your own interpersonal conflicts
Performance objective PO2, covering stakeholder relationship management, mentions as an example demonstrating how you are able to discuss work problems or issues with colleagues or clients to improve or maintain relationships. If you have experienced any problems or conflicts while working with someone, you might attempt some of the methods discussed here..
Conflicts and sources of dissatisfaction can be managed informally in several ways.
The first step in any conflict or difficulty should be direct, informal discussion with the person concerned.
- Where there is a personality or style clash, this gets the problem out in the open and gives an opportunity to clear up any misunderstandings and misperceptions.
- Problems of incompatible working styles or excessive work demands are matters which can be taken, informally, to your supervisor: they will best be able to help you develop solutions to the problem.
- If your dissatisfaction is with someone in authority over you, or about your own status, you may have to discuss the matter with someone higher up in the organisation: this is probably best handled using more formal channels.
Where interests or styles are genuinely incompatible, or work demands are unmanageable, you may need to work together to explore a range of options that will at least partially satisfy both parties. You may have to make a concession in order to gain a concession: this is called compromise. However, the best approach is to attempt to find a mutually satisfying solution: a win-win.
If personality clash is the main source of conflict, you may have to arrange (or request) a way of dealing with the other person as little as possible. It may be within your power to simply walk away from potential conflicts, rather than allow yourself to participate. If the problems persist, you may need to initiate formal conflict resolution proceedings: to have a third party mediate – or to physically separate you in different areas, duties or departments.
5.2.1 Managing conflict in the team
Management responses to the handling of conflict (not all of which are effective).
|Denial/withdrawal||‘Sweeping it under the carpet’. If the conflict is very trivial, it may indeed blow over without an issue being made of it, but if the causes are not identified, the conflict may grow to unmanageable proportions.|
|Suppression||‘Smoothing over’, to preserve working relationships despite minor conflicts.|
|Dominance||The application of power or influence to settle the conflict. The disadvantage of this is that it creates all the lingering resentment and hostility of ‘win-lose’ situations.|
|Compromise||Bargaining, negotiating, conciliating. To some extent, this will be inevitable in any organisation made up of different individuals. However, individuals tend to exaggerate their positions to allow for compromise, and compromise itself is seen to weaken the value of the decision, perhaps reducing commitment.|
|Integration/collaboration||Emphasis must be put on the task, individuals must accept the need to modify their views for its sake, and group effort must be seen to be superior to individual effort.|
|Encourage co-operative behaviour||Common goals may be set for all teams/departments. This would encourage co-operation and joint problem-solving.|
QUESTION Conflict resolution
In the light of the above consider how conflict could arise, what form it would take and how it might be resolved in the following situations.
- Two managers who share a secretary have documents to be typed.
- One worker finds out that another worker who does the same job as he does is paid a higher wage.
- A company’s electricians find out that a group of engineers have been receiving training in electrical work.
- Department A stops for lunch at 12:30pm while Department B stops at 1pm. Occasionally the canteen runs out of puddings for Department B workers.
- The Northern Region and Southern Region sales teams are continually trying to better each other’s results, and the capacity of production to cope with the increase in sales is becoming overstretched.
- Both might need work done at the same time. Compromise and co-ordinated planning can help them manage their secretary’s time.
- Differential pay might result in conflict with management – even an accusation of discrimination. There may be good reasons for the difference (eg length of service). To prevent conflict such information should be kept confidential. Where it is public, it should be seen to be not arbitrary.
- The electricians are worried about their jobs, and may take industrial action. Yet if the engineer’s training is unrelated to the electricians’ work, management can allay fears by giving information. The electricians cannot be given a veto over management decisions: a ‘win-lose’ situation is inevitable, but both sides can negotiate.
- The kitchen should plan its meals better – or people from both departments can be asked in advance whether they want puddings.
- Competition between sales regions is healthy, as it increases sales. The conflict lies between sales regions and the production department. In the long term, an increase in production capacity is the only solution. Where this is not possible, proper co-ordination methods should be instituted.
5.3 A win-win approach
One useful model of conflict resolution is the win-win model. This states that there are three basic ways in which a conflict or problem can be worked out.
|Win-lose||This is quite common.||One party gets what they want at the expense of the other party:
for example, Department A gets the new photocopier, while Department B keeps the old one (since there were insufficient resources to buy two new ones). However well justified such a solution is (Department A needed the facilities on the new photocopier more than Department B), there is often lingering resentment on the part of the ‘losing’ party, which may begin to damage work relations.
|Lose-lose||This sounds like a senseless outcome, but actually compromise comes into this category. It is thus very common.||Neither party gets what they really wanted: for example, since Department A and B cannot both have a new photocopier, it is decided that neither department should have one. However ‘logical’ such a solution is, there is often resentment and dissatisfaction on both sides. (Personal arguments where neither party gives ground and both end up storming off or not talking are also lose-lose: the parties may not have lost the argument, but they lose the relationship …) Even positive compromises only result in halfsatisfied needs.|
|Win-win||This may not be common, but working towards it often brings out the best solution.||Both parties get as close as possible to what they really want. How can this be achieved?|
It is critical to the win-win approach to discover why both parties really want something.
- They want something because they have not considered any other options.
- They can get away with having something.
- They need something in order to avoid an outcome they fear.
Department B may want the new photocopier because they have never found out how to use all the features (which do the same things) on the old photocopier; because they just want to have the same equipment as Department A; or because they fear that if they do not have the new photocopier, their work will be slower and less professionally presented.
To get to the heart of what people really need and want, the important questions in working towards winwin are:
- What do you want this for?
- What do you think will happen if you don’t get it?
In our photocopier example, Department A says it needs the new photocopier to make colour copies (which the old copier does not do), while Department B says it needs the new copier to make clearer copies (because the copies on the old machine are a bit blurred). Now there are options to explore. It may be that the old copier just needs fixing in order for Department B to get what it really wants. Department A will still end up getting the new copier – but Department B has in the process been consulted and had its needs met.
Win-win is not always possible: it is working towards it that counts. The result can be mutual respect and co-operation, enhanced communication, more creative problem-solving and – at best – satisfied needs all round.
QUESTION You win again
Suggest a (i) win-lose, (ii) compromise and (iii) win-win solution in the following scenarios.
- Two of your team members are arguing over who gets the desk by the window: they both want it.
- You and a colleague both need access to the same file at the same time. You both need it to compile reports for your managers, for the following morning. It is now 3pm, and each of you will need it for two hours to do the work.
- Manager A is insisting on buying new computers for her department before the budgetary period ends. Manager B cannot understand why, since the old computers are quite adequate. She will moreover be severely inconvenienced by such a move, since her own systems will have to be upgraded as well in order to remain compatible with department A (the two departments constantly share data files). Manager B protests, and conflict erupts.
- (i) Win-lose: one team member gets the window desk, and the other does not. (Result: broken relationships within the team.)
- Compromise: the team members get the window desk on alternate days or weeks. (Result: half satisfied needs.)
- Win-win: what do they want the window desk for? One may want the view, the other better lighting conditions. This offers options to be explored: how else could the lighting be improved, so that both team members get what they really want? (Result: at least, the positive intention to respect everyone’s wishes equally, with benefits for team communication and creative problem-solving.)
- (i) Win-lose: one of you gets the file and the other doesn’t.
- Compromise: one of you gets the file now, and the other gets it later (although this has an element of win-lose, since the other has to work late or take it home).
- Win-win: you photocopy the file and both take it, or one of you consults your boss and gets an extension of the deadline (since getting the job done in time is the real aim – not just getting the file). These kind of solutions are more likely to emerge if the parties believe they can both get what they want.
- (i) Win-lose: Manager A gets the computers, and Manager B has to upgrade her systems.
- Compromise: Manager A will get some new computers, but keep the same old ones for continued data sharing with Department B. Department B will also need to get some new computers, as a back-up measure.
- Win-win: what does Manager A want the computers for, or to avoid? Quite possibly, she needs to use up her budget allocation for buying equipment before the end of the budgetary period: if not, she fears she will lose that budget allocation. However, that may not be the case, or there may be other equipment that could be more usefully purchased – in which case, there is no losing party.
5.4 The limits of your ability and authority to resolve relationship issues
Resolving difficulties in working relationships may be:
- Beyond your authority
Difficulties arising from work demands, work methods and status, for example, may require the intervention of someone who has the authority to change work schedules, reorganise work – and discipline unco-operative subordinates and colleagues (or even superiors) if necessary.
- Beyond your ability
You may have done your best to resolve personality clashes or to solve other problems, but the situation or relationship may just not be improving. It may require a wider perspective, more developed interpersonal skills, or special expertise in conflict resolution.
In these cases, you may need to mobilise organisational procedures for formal grievance handling.
5.5 Formal grievance procedures
A grievance occurs when an individual thinks that they are being wrongly treated by their colleagues or supervisors; that is, when working relationships break down.
The individual may consider that they are being picked on, being given an unfair workload, unfairly appraised in the annual report or unfairly blocked for promotion, or discriminated against.
When an individual has a grievance they should be able to pursue it and ask to have the problem resolved.
If one to one discussion has not worked, a more formal approach will be needed. A typical grievance procedure provides for the following steps.
|Step 1||The grievance should be carefully explained to the aggrieved individual’s immediate boss (unless they are the subject of the complaint, in which case it will be the next level up). Employees have the right to be accompanied by a colleague or representative to such an interview, if they feel they need support or a witness.|
|Step 2||If the immediate boss or other person cannot resolve the matter, or an employee is otherwise dissatisfied with the first interview, the case should be referred to the next level of management (and if necessary, in some cases, to an even higher authority).|
|Step 3||Cases referred to a higher manager should also be reported to the personnel department, for the assistance/advice of a personnel manager in resolving the problem.|
All complaints should be thoroughly investigated, so if you do find that you have to go through a formal grievance procedure it is important that you are honest and fair. Records should be kept of all interviews and actions taken – and these should be confidential.
QUESTION Grievance procedures
Check what the grievance procedures are in your organisation! If there is nothing set out in your job description or procedures manual, ask the personnel department.
Your own observations.
|6||Communication in the workplace|
6.1 Communication in the organisation
|Communication is a two-way process involving the transmission or exchange of information and the provision of feedback. It is necessary to direct and co-ordinate activities.|
Communication is required for planning, co-ordination and control.
- Management decision-making requires data. Managers are at the hub of a communications system.
- Interdepartmental co-ordination depends on information flows. All the interdependent systems for purchasing, production, marketing and administration can be synchronised to perform the right actions at the right times to co-operate in accomplishing the organisation’s aims.
- Individual motivation and effectiveness depends on communication, so that people know what they have to do and why.
Communication in the organisation may take the following forms.
- Giving instructions
- Giving or receiving information
- Exchanging ideas
- Announcing plans or strategies
- Comparing actual results against a plan
- Rules or procedures
- Communication about the organisation structure and job descriptions
|Communication in an organisation flows downwards, upwards, sideways and diagonally.|
6.2 Direction of communication
Communication links different parts of the organisation.
- Vertical communication flows up and down the scalar chain from superior to subordinate and back.
- Horizontal or lateral communication flows between people of the same rank, in the same section or department, or in different sections or departments. Horizontal communication between peer groups is usually easier and more direct then vertical communication, being less inhibited by considerations of rank. It may be part of a formal work relationship, to co-ordinate the work of several people, and perhaps departments, who have to co-operate to carry out a certain operation. Alternatively, informal communication may furnish emotional and social support to an individual.
- Interdepartmental communication by people of different ranks may be described as diagonal communication. Departments in the technostructure which serve the organisation in general, such as Human Resources or Information Systems, have no clear line authority linking them to managers in other departments who need their involvement.
6.3 Communication patterns (or networks)
A communication pattern channels communication between people. One of the purposes of a formal organisation structure is the design of a communications pattern for the organisation.
Leavitt (1951), in a series of experiments, examined the effectiveness of four communication networks for written communication between members of a small group.
- The circle. Each member of the group could communicate with only two others in the group, as shown.
In both the ‘Y’ and the ‘wheel’ patterns, C occupies a more central position in the network.
|Speed of problem-solving||Fastest||2nd fastest||3rd fastest||Slowest|
|Leader||C||C||C (less so than wheel and Y)||None emerged|
|Job satisfaction||Lowest||3rd highest||2nd highest||Highest(?)|
In Leavitt’s experiment, each member of a group of five people had to solve a problem and each had an essential piece of information. Only written communication, channelled according to one of the four patterns described above, was allowed. The findings of the experiment are tabulated below. A direct trade off between speed and job satisfaction is evident.
6.4 Internal information
|Data and information come from sources both inside and outside an organisation. An organisation’s information systems should be designed so as to obtain – or capture – all the relevant data and information required.|
Capturing data and information from inside the organisation involves designing a system for collecting or measuring data and information which sets out procedures for:
- What data and information is collected
- How frequently
- By whom
- By what methods
- How data and information is processed, filed and communicated
6.4.1 The accounting records
The accounting ledgers provide an excellent source of information regarding what has happened in the past. This information may be used as a basis for predicting future events eg budgeting.
Accounting records can provide more than purely financial information. For example, an inventory control system includes purchase orders, goods-received notes and goods-returned notes that can be analysed to provide information regarding the speed of delivery or the quality of supplies. Receivables ledgers can provide sales information for the marketing function.
6.4.2 Other internal sources
Much information that is not strictly part of the accounting records nevertheless is closely tied in to the accounting system.
- Information about personnel will be linked to the payroll Additional information may be obtained from this source if, say, a project is being costed and it is necessary to ascertain the availability and rate of pay of different levels of staff, or the need for and cost of recruiting staff from outside the organisation.
- Much information will be produced by a production department about machine capacity, fuel consumption, movement of people, materials, and work in progress, set up times, maintenance requirements, and so on. A large part of the traditional work of cost accounting involves ascribing costs to the physical information produced by this source.
- Many service businesses, notably accountants and solicitors, need to keep detailed records of the time spent on various activities, both to justify fees to clients and to assess the efficiency and profitability of operations.
Staff themselves are one of the primary sources of internal information. Information may be obtained either informally in the course of day-to-day business or through meetings, interviews or questionnaires.
6.5 External information
Formal collection of data from outside sources includes the following.
- A company’s tax specialists will be expected to gather information about changes in tax law and how this will affect the company.
- Obtaining information about any new legislation on health and safety at work, or employment regulations, must be the responsibility of a particular person – for example the company’s legal expert or company secretary – who must then pass on the information to other managers affected by it.
- Research and development (R&D) work often relies on information about other R&D work being done by another company or by government institutions. An R&D official might be made responsible for finding out about R&D work in the company.
- Marketing managers need to know about the opinions and buying attitudes of potential customers. To obtain this information, they might carry out market research exercises.
Informal gathering of information from the environment occurs naturally, consciously or unconsciously, as people learn what is going on in the world around them – perhaps from newspapers, television reports, meetings with business associates or the trade press.
Organisations hold external information, such as invoices, letters and advertisements, received from customers and suppliers. But there are many occasions when an active search outside the organisation is necessary.
The phrase environmental scanning is often used to describe the process of gathering external information, which is available from a wide range of sources.
- The Government
- Advice or information bureaux eg Reuters
- Newspaper and magazine publishers
- There may be specific reference works which are used in a particular line of work
- Libraries and information services
- Increasingly businesses can use each other’s systems as sources of information, for instance via extranets or electronic data interchange (EDI)
- Electronic sources of information are becoming increasingly important
- For some time there have been ‘viewdata’ services, such as Prestel, offering a very large bank of information gathered from organisations including the Office for National Statistics, newspapers and the British Library. Topic offers information on the stock market. Companies like Reuters operate primarily in the field of provision of information – often in electronic form.
(ii) The internet is a vast source of information.
6.6 Efficient data collection
To produce meaningful information it is first necessary to capture the underlying data. The method of data collection chosen will depend on the nature of the organisation, cost and efficiency. Some common data collection methods are listed below.
- Document reading methods
6.7 Why do organisations need information?Magnetic ink character recognition (MICR)
- Optical mark reading (OMR)
- Scanners and optical character recognition (OCR)
- Bar coding and Electronic Point of Sale (EPOS)
- Electronic Funds Transfer at the Point of Sale (EFTPOS)
- Magnetic stripe cards
- Smart cards
- Touch screens
- Voice recognition
- Data is the raw material for data processing. Data consists of numbers, letters and symbols and relates to facts, events and transactions.
- Information is data that has been processed in such a way as to be meaningful to the person who receives it.
|Organisations require information for a range of purposes.
• Planning Decision-making
Once any decision has been made, it is necessary to plan how to implement the steps necessary to make it effective. Planning requires a knowledge of, among other things, available resources, possible timescales for implementation and the likely outcome under alternative scenarios.
Once a plan is implemented, its actual performance must be controlled. Information is required to assess whether it is proceeding as planned or whether there is some unexpected deviation from the plan. It may consequently be necessary to take some form of corrective action.
Information is also required to make informed decisions. This completes the full circle of organisational activity.
6.8 The qualities of good information
|Good information has a number of specific qualities: the mnemonic ACCURATE is a useful way of remembering them.|
|Accurate||Figures should add up, the degree of rounding should be appropriate, there should be no typos, items should be allocated to the correct category and assumptions should be stated for uncertain information (no spurious accuracy).|
|Complete||Information should include everything that it needs to include, for example external data if relevant, or comparative information.|
|Costbeneficial||It should not cost more to obtain the information than the benefit derived from having it.
Providers of information should be given efficient means of collecting and analysing it.
Presentation should be such that users do not waste time working out what it means.
|User targeted||The needs of the user should be borne in mind, for instance senior managers may require summaries, junior ones may require detail.|
|Relevant||Information that is not needed for a decision should be omitted, no matter how ‘interesting’ it may be.|
|Authoritative||The source of the information should be a reliable one (not, for instance, ‘Joe Bloggs Predictions Page’ on the internet unless Joe Bloggs is known to be a reliable source for that type of information.|
|Timely||The information should be available when it is needed.|
|Easy to use||Information should be clearly presented, not excessively long, and sent using the right medium and communication channel (email, telephone, hard-copy report, etc).|
The qualities of good information are outlined below – in mnemonic form. If you think you have seen this before, note that the second A here stands for ‘Authoritative’, an increasingly important concern given the huge proliferation of information sources available today.
6.9 Information in the organisation
A modern organisation requires a wide range of systems to hold, process and analyse information. We will now examine the various information systems used to serve organisational information requirements.
Organisations require different types of information system to provide different levels of information in a range of functional areas.
|System level||System purpose|
|Strategic||To help senior managers with long-term planning. Their main function is to ensure changes in the external environment are matched by the organisation’s capabilities.|
|To help middle managers monitor and control. These systems check if things are working well or not. Some management-level systems support non-routine decision-making, such as ‘what if?’ analyses.|
|Operational||To help operational managers track the organisation’s day-to-day operational activities. These systems enable routine queries to be answered, and transactions to be processed and tracked.|
- The operational level would deal with cash receipts and payments, bank reconciliations and so forth.
- The tactical level would deal with cash flow forecasts and working capital management.
- Strategic level financial issues are likely to be integrated with the organisation’s commercial strategy, but may relate to the most appropriate source of finance (eg long-term debt, or equity).
The type of information at each level can be seen in the table below.
|Strategic||Plans, competitor information, overall market information||Summarise
|Key ratios, ad hoc market analysis, strategic plans|
|Management/tactical||Historical and budget data||Compare
|Operational||Customer orders, programmed inventory control levels, cash receipts/payments||Update files
|Updated file listings, invoices|
|7||Formal communication processes|
7.1 The communication process
|Encoding of a message||The code or ‘language’ of a message may be verbal (spoken or written) or it may be non-verbal, in pictures, diagrams, numbers or body language.|
|Medium for the message||There are a number of channels for communication, such as a conversation, a letter, a noticeboard or via computer. The choice of medium used in communication depends on a number of factors, such as urgency, permanency, complexity, sensitivity and cost.|
|Feedback||The sender of a message needs feedback on the receiver’s reaction. This is partly to test the receiver’s understanding of it and partly to gauge the receiver’s reaction.|
|Distortion||The meaning of a message can be lost at the coding and decoding stages. Usually the problem is one of language and the medium used; it is very easy to give the wrong impression in a brief email message.|
|Noise||Distractions and interference in the environment in which communication is taking place may be physical noise (passing traffic), technical noise (a bad telephone line), social noise (differences in the personalities of the parties) or psychological noise (anger, frustration, tiredness).|
7.2 Desirable qualities of a communication system in an organisation
Clarity. The coder of a message must bear in mind the potential recipient. Jargon can be used – and will even be most appropriate – where the recipient shares the same expertise. It should be avoided for those who do not.
Recipient. The recipient should be clearly identified, and the right medium should be chosen, to minimise distortion and noise.
Medium. The channel or medium should be chosen to ensure it reaches the target audience. Messages of general application (eg health and safety signs) should be displayed prominently.
Timing. Information has to be timely to be useful.
7.3 Effective communication
What does ‘good communication’ look like? It is perhaps easiest to identify poor or ineffective communication, where information is not given; is given too late to be used; is too much to take in; is inaccurate or incomplete; is hard to understand. Effective communication is:
- Directed to appropriate people. This may be defined by the reporting structure of the organisation, but it may also be a matter of discretion, trust, and so on.
- Relevant to their needs. Information should be non-excessive in volume (causing overload); focused on relevant topics; communicated in a format, style and language that they can understand.
- Accurate and complete (within the recipient’s needs). Information should be ‘accurate’ in the sense of ‘factually correct’, but need not be minutely detailed: in business contexts, summaries and approximations are often used.
- Timely. Information must be made available within the time period when it will be relevant (as input to a decision, say).
- Flexible. Information should be suited in style and structure to the needs of the parties and situation. Assertive, persuasive, supportive and informative communication styles have different applications.
- Effective in conveying meaning. Style, format, language and media all contribute to the other person’s understanding or lack of understanding. If the other person doesn’t understand the message, or misinterprets it, communication has not been effective.
- Cost effective. In business organisations, all the above must be achieved, as far as possible, at reasonable cost.
|8||Informal communication channels|
The formal pattern of communication in an organisation is always supplemented by an informal one, which is sometimes referred to as the grapevine. People like to gossip about rumours and events.
8.1 The grapevine
The grapevine has a number of characteristics.
- The grapevine acts quickly.
- The working of the grapevine is selective: information is not divulged randomly.
- The grapevine usually operates at the place of work and not outside it.
- Oddly, the grapevine is most active when the formal communication network is active: the grapevine does not fill a gap created by an ineffective formal communication system.
- Higher-level executives were better communicators and better informed than their subordinates.
- More technostructure executives were in the know about events than line managers (because the staff executives are more mobile and get involved with more different functions in their work).
8.2 The importance of informal communications
Managers, rather than staff, might rely on the grapevine, as opposed to formal communication channels, because of the qualities informal communication possesses.
- It is more current than the formal system.
- It is relevant to the informal organisation (where many decisions are actually determined).
- It relates to internal politics, which may not be reflected in formal communications anyway.
- It can bypass excessively secretive management.
8.3 Interpersonal skills
Interpersonal skills are needed in order to understand and manage roles, relationships, attitudes and perceptions. They enable us to communicate effectively and to achieve our aims when dealing with other people.
- The ability to interpret body language and to use it to reinforce messages
- The ability to listen attentively and actively
- The ability to put others at their ease, to persuade and to smooth over difficult situations
- The ability to identify when false or dishonest arguments are being used, and to construct logical ones
- The ability to recognise how much information, and of what kind, another person will need and be able to take in
- The ability to use communication media effectively: to speak well, write legibly, use appropriate vocabulary and use visual aids where required
- The ability to sum up or conclude an argument clearly and persuasively (h) The ability to communicate and show enthusiasm, ie leadership or inspiration The above list is by no means exhaustive.
Here are some more important things to consider in interpersonal relations.
|Goal||What does the other person want from the process? What do you want from the process? What will both parties need and be trying to do to achieve their aims? Can both parties emerge satisfied?|
|Perceptions||What, if any, are likely to be the factors causing distortion of the way both parties see the issues and each other? (Attitudes, personal feelings, expectations?)|
|Roles||What roles are the parties playing? (Superior/subordinate, customer/server, complainer/soother?) What expectations does this create of the way they will behave?|
|Resistances||What may the other person be afraid of? What may they be trying to protect? (Their ego/self-image, attitudes?) Sensitivity will be needed in this area.|
|Attitudes||What sources of difference, conflict or lack of understanding might there be, arising from attitudes and other factors which shape them (sex, race, specialism, hierarchy)?|
|Relationships||What are the relative positions of the parties and the nature of the relationship between them? (Superior/subordinate? Formal/informal? Work/non-work)? What style is appropriate to it?|
|Environment||What factors in the immediate and situational environment might affect the issues and the people? (Eg competitive environment; customer care; pressures of disciplinary situation; nervousness; physical surroundings formality/informality)|
Listening in the communications model is about decoding and receiving information. Effective listening has three consequences.
- It encourages the sender to listen effectively in return to what you have to say.
- It reduces the effect of noise.
- It helps resolve problems by encouraging understanding from someone else’s viewpoint.
Advice for good listening
- Be prepared to listen. Put yourself in the right frame of mind and be prepared to grasp the main concepts.
- Be interested. Make an effort to analyse the message for its relevance.
- Keep an open mind. Your own beliefs and prejudices can get in the way of what the other person is actually saying.
- Keep an ear open for the main ideas. An awareness of how people generally structure their speech can help the process of understanding. Be able to distinguish between the thrust of the argument and the supporting evidence.
- Listen critically. This means trying to assess what the person is saying by identifying any assumptions, omissions and biases.
- Avoid distraction. People have a natural attention curve, high at the beginning and end of an oral message, but sloping off in the middle.
- Take notes. However, note taking can be distracting.
8.3.2 Non-verbal communication: body language
The hidden messages in face-to-face communication can be a common cause for communication breakdown, as they cause decoding problems. Observe others in meetings, presentations, interviews or just talking in the bar. Notice the signs of boredom or disagreement, support and interest. Picking up these signals will help you improve your own communication skills.
While watching others, also become more aware of yourself. Be aware of the signals you are sending and transmit only those you intend to.
Non-verbal communication can be controlled and used for several purposes.
- It can provide appropriate feedback to the sender of a message (a yawn, applause, clenched fists, fidgeting).
- It can create a desired impression (smart dress, a smile, punctuality, a firm handshake).
- It can establish a desired atmosphere or conditions (a friendly smile, informal dress, attentive posture, a respectful distance).
- It can reinforce spoken messages with appropriate indications of how interest and feelings are engaged (an emphatic gesture, sparkling eyes, a disapproving frown).
If we can learn to recognise non-verbal messages, our ability to listen is improved.
- When we are speaking, non-verbal feedback helps us to modify our message.
- We may recognise people’s real feelings when their words are constrained by formal courtesies (an excited look, a nervous tic, close affectionate proximity).
- We can recognise existing or potential personal problems (the angry silence, the indifferent shrug, absenteeism or lateness at work, refusal to look someone in the eye).
- Facial expression
- Movement and stillness
- Silence and sounds
- Posture and orientation
- Appearance and grooming
- Proximity and contact
- Response to norms and expectations
While not really a form of communication, observation as a management skill is linked to topics in communication such as interviewing, so it is convenient to deal with it here.
Observation is an important data-gathering technique. It can be used to measure the effectiveness of procedures, or, indeed, to establish just what procedures and processes are in use. It is perhaps most useful in establishing the nature of less formal aspects of the organisation, such as how the informal organisation works; how individuals perform their tasks; who interacts with whom; and how specified procedures are informally modified.
|9||Barriers to communication|
- General faults in the communication process
Distortion or omission of information by the sender
Misunderstanding due to lack of clarity or technical jargon
Non-verbal signs (gesture, posture, facial expression) contradicting the verbal message, so that its meaning is in doubt
‘Overload’ – a person being given too much information to digest in the time available
People hearing only what they want to hear in a message
Differences in social, racial or educational background, compounded by age and personality differences, creating barriers to understanding and co-operation
(Mnemonic using words in bold above: Distorted Messages Never Overcome Personal Differences.)
- Communication difficulties at work
Status (of the sender and receiver of information)
- A senior manager’s words are listened to closely and a colleague’s perhaps discounted.
- A subordinate might mistrust their superior believing that they might look for hidden meanings in a message.
Jargon. People from different job or specialist backgrounds (eg accountants, personnel managers, IT experts) can have difficulty in talking on a non-specialist’s wavelength.
Suspicion. People discount information from those not recognised as having expert power.
Priorities. People or departments have different priorities or perspectives so that one person places more or less emphasis on a situation than another.
Selective reporting. Subordinates may give superiors incorrect or incomplete information (eg to protect a colleague, to avoid bothering the superior); also a senior manager may only be able to handle edited information because they do not have time to sift through details.
Use. Managers may be prepared to make decisions on a hunch without proper regard to the communications they may or may not have received.
Timing. Information which has no immediate use may be forgotten.
Opportunity. Opportunity, formal or informal, for people to say what they think may be lacking.
Conflict. Where there is conflict between individuals or departments, communications will be withdrawn and information withheld.
Personal differences. Differences such as age, educational/social background or personality mean that people have different views as to what is important or different ways of expressing those views. Sometimes individuals’ views may be discounted because of who they are, not what they say.
Secrecy. Information might be given on a need-to-know basis, rather than be considered as a potential resource for everyone to use.
Can’t handle bad news. The culture of some organisations may prevent the communication of certain messages. Organisations with a ‘can-do’ philosophy may not want to hear that certain tasks are impossible.
9.2.2 Categories of communication problems
- There may be a bad formal communication system.
- There may be misunderstanding about the actual content of a message.
- Interpersonal difficulties may hamper communication.
9.3 Improving the communications system
Establish better communication links
- Standing instructions should be recorded in easily accessible manuals which are kept fully up to date.
- Management decisions should be sent to all people affected by them, preferably in writing.
- Regular staff meetings or formal consultations with trade union representatives should be held.
- A house journal should be issued regularly.
- Appraisal interviews should be held between a manager and their subordinates to discuss the job performance and career prospects of the subordinates.
- Technology should be utilised, for example ensuring organisational knowledge and information is captured and stored, and is easily searchable.
Use the informal organisation to supplement this increased freedom of communication.
9.4 Clearing up misunderstandings
Confirmation: issuing a message in more than one form (eg by word of mouth at a meeting, confirmed later in minutes) can help.
Reporting by exception should operate to prevent information overload on managers.
Train managers who do not express themselves clearly and concisely. Necessary jargon should be taught in some degree to people new to the organisation or unfamiliar with the terminology of the specialists.
Communication between managers and direct reports will be improved when interpersonal trust exists. Exactly how this is achieved will depend on the management style of the manager, the attitudes and personality of the individuals involved, and other environmental variables. Peters and Waterman advocate ‘management by walking around’ (MBWA), and informality in superior/subordinate relationships as a means of establishing closer links.
Is the statement below true or false?
‘A clearly expressed verbal message will always be understood.’
False. ‘Clear expression’ is a matter of opinion and perception, or in terms of the communications model, of coding and decoding. We must also consider the effect of noise, such as cultural differences.
10.1 Communication methods
There are a wide range of communication methods available. In all situations, the method used should help the communication process.
|Communication objective||Method||Reason for method|
|Generate new ideas
On the spot feedback
Spread information quickly
|Face to face/meetings||People can ‘bounce ideas’ off one another.|
|Increase commitment and understanding of workforce||Teambriefing||A team briefing is more personal than a noticeboard.|
|Reach large membership spread over a wide area||Conference||A conference gives members a chance to discuss and understand what the organisation is doing.|
|Formal and confidential communication||Interview||Interviews are costly in terms of managerial time but are necessary for confidential communication.|
|Face to face communication without travel time||Telephone||The telephone is more impersonal than an interview but should save time.|
|Transmit information cheaply to a large number of people||Noticeboard||A noticeboard can provide a variety of information to any or all employees.|
|External communication/confidential written record||Letter||A letter is a flexible method of providing a written record.|
|Reach large number of people in several sites/countries||Email messages need not interrupt the recipient’s flow of work.|
|Explain complex facts and arguments||Report||A report allows people to study the material in their own time.|
A key element of Practical Experience Requirement PO2 requires you to communicate effectively with stakeholder groups. You can apply the knowledge that you learn from this chapter to help you demonstrate this competence.
|N||Time is a scarce resource and managers’ time must be used to best effect. Urgency and importance must be recognised and distinguished. Tasks must be prioritised and scheduled. In-trays can be managed using the ABCD method. Other important matters are correct use of the telephone, availability to callers and seeing tasks through to completion.|
|Effective time management involves attention to:
– Goal or target setting – Focus
– Action planning – Urgency
– Prioritising – Organisation
|Prioritising tasks involves ordering tasks in order of preference or priority, based on
– The relative consequences of timely or untimely performance
– Dependency of other people of tasks
– Defined deadlines, timescales and commitments
|Work planning includes the following basic steps:
– Establishing priorities
– Loading, allocation of tasks
– Sequencing of tasks
– Scheduling estimating the time taken to complete a task and working forwards or backwards to determine start or finish times
|N||The channel of communication will impact on the effectiveness of the communication process. The characteristics of the message will determine what communication tool is best for a given situation.|
|N||Counselling is an interpersonal interview, the aim of which is to facilitate another person in identifying and working through a problem.|
|N||Counselling is facilitating others through the process of defining and exploring their own problems: it is primarily a non-directive role.|
|N||Key approaches to managing disagreements and conflicts include understanding the problem and the personalities involved; encouraging those involved to discuss the problem; exploring possibilities for mutual satisfaction (win-win); negotiating compromise where required; using formal grievance procedures where necessary.|
|N||Communication is a two-way process involving the transmission or exchange of information and the provision of feedback. It is necessary to direct and co-ordinate activities.|
|N||Communication in an organisation flows downwards, upwards, sideways and diagonally.|
|N||Data and information come from sources both inside and outside an organisation. An organisation’s information systems should be designed so as to obtain – or capture – all the relevant data and information required.|
|Organisations require information for a range of purposes.
– Planning – Decision-making
|N||Good information has a number of specific qualities: the mnemonic ACCURATE is a useful way of remembering them.|
|N||Communication can be depicted as the radio signal model. The sender codes the message and transmits it through a medium to the receiver who decodes it into information.|
|N||Effective communication: the right person receives the right information in the right way at the right time.|
|N||Informal communication supplements the formal system.|
|N||Barriers to communication include ‘noise’ from the environments, poorly constructed or coded/decoded messages (distortion) and failures in understanding caused by the relative position of the senders and receivers.|
- List six elements of effective time management.
- Which of the following necessarily makes a piece of work high priority?
- Importance and urgency
- Other people want you to do the work by a given deadline
- A list of activities in the order in which they must be completed is the product of task loading. True or false?
- When scheduling routine accounting tasks, you are more likely to use forward scheduling rather than reverse scheduling. True or false?
- Communication between two members of a project team from different functions, but with the same level of authority, is:
- Upward C Lateral
- Downward D Diagonal
- What are the stages of the counselling process?
- Is the statement below true or false?
‘Informal communication does not fill a gap created by an ineffective formal communication system, but co-exists with it.’
- Is the statement below true or false?
‘Coaching encompasses a much wider range of functions than mentoring.’
- Goals; action plans; priorities; focus; urgency; organisation
- C An important point: work may be urgent but not important or important but not urgent. You may have paused over D – but this is an assertiveness issue: if someone else ‘wants’ you to do something, you still have a right to consult your own priorities and commitments, assess their right to ask, and so on.
- False: it is a product of task sequencing. Task loading is allocating tasks to people or machines.
- Reverse scheduling is more suitable for scheduling tasks for which you already have a completion date or deadline.
- Reviewing the current scenario; developing a preferred scenario; determining how to get there
- Mentoring encompasses a wider range of functions than coaching.
|Now try …|
|Attempt the questions below from the Practice Question Bank
Ethical conduct is a matter of continuing debate. This chapter begins
by considering why society developed a framework of rules in
Section 1. There have been many examples of misbehaviour at all
levels of large organisations in recent years. All professional bodies are
alarmed by these events and what they say about ethical standards in
everyday life. They are determined to do everything they can to
promote and ensure high standards of behaviour among their
members. Ethics has an increased focus in this syllabus.
In Section 2, we look at the idea of managers’ accountability and
fiduciary responsibility. The vital theme here is that, even at the
highest level, managers are not autonomous: they are always
responsible to someone for their actions.
Section 3 looks at the wider background to ethical behaviour.
Organisations are embedded in society and must respond not only to
established ideas about ethical conduct but also to current public
concerns, including some current notions about social responsibility.
Section 4 is about the way organisations manage ethical problems
and, in particular, about the desirability of building and maintaining
an ethical culture.
Sections 5 and 6 consider in particular why ethics are relevant to
accountants, and the qualities that accountants should demonstrate.
In particular, you are encouraged to make yourself familiar with
ACCA’s own ethical code.
Section 7 looks at ethical codes for businesses, while Sections 8 and
9 deal with ethical dilemmas arising in business and their resolution.
|Study Guide||Intellectual level||
| F1 Fundamental principles of ethical behaviour
(a) Define business ethics and explain the importance of ethics to the organisation and to the individual.
|(b) Describe and demonstrate the following principles from the IFAC (IESBA) code of ethics, using examples.||K|
(iii) Professional competence
(v) Professional behaviour
(c) Describe organisational values which promote ethical behaviour using examples.
(iii) Honesty (iv) Respect
(d) Explain the concept of acting in the public interest.
| F2 The role of regulatory and professional bodies in promoting ethical and professional standards in the accountancy profession
(a) Recognise the purpose of international and organisational codes of ethics and codes of conduct, IFAC (IESBA), ACCA etc.
|(b) Describe how professional bodies and regulators promote ethical awareness and prevent or punish illegal or unethical behaviour.||K|
|(c) Identify the factors that distinguish a profession from other types of occupation.||K|
|(d) Explain the role of the accountant in promoting ethical behaviour.||K|
|(e) Recognise when and to whom illegal or unethical conduct by anyone within or connected to the organisation should be reported.||K|
| F3 Corporate codes of ethics
(a) Define corporate codes of ethics.
|(b) Describe the typical contents of a corporate code of ethics.||K|
|(c) Explain the benefits of a corporate code of ethics to the organisation and its employees.||K|
| F4 Ethical conflicts and dilemmas
(a) Describe situations where ethical conflicts can arise.
|(b) Identify the main threats to ethical behaviour.||K|
|(c) Outline situations at work where ethical dilemmas may be faced.||K|
|(d) List the main safeguards against ethical threats and dilemmas.||K|
|1||Framework of rules|
The society we live in could not exist without rules and standards. Think about it: what would life be like if everyone went about doing exactly what they felt like?
People may decide not to turn up for work. This would mean shops not opening, and that you could not buy food. What we consider crime would spiral out of control as members of the public decide to take what they want and the police would only tackle criminals if they felt like it. Businesses would not function and the financial markets could not operate.
As society developed from prehistoric tribes to the complex interrelationships we have today, rules regulating behaviour also had to evolve. This is because humans recognised the need for everyone to work together for the good of the group.
1.1 Development of society
Imagine a prehistoric tribe. They would have started as individuals, roaming for food and shelter to keep themselves alive. By working as a group, some could find shelter, while others hunted for things to eat. It would be no good if the hunters ate all the food they found, and those who found shelter refused to let the hunters into the shelter. The shelter finders would starve to death while the hunters would freeze.
Humans have evolved from these tribes and have built a strong society that has revolutionised our planet. This has only been possible because individuals have worked together, guided by rules.
1.2 A need for rules
Further rules developed as society grew and eventually the first laws were laid down to control the larger populations. Religion played a major role in developing the rules for the individual, and many of these rules are still in place today.
Back in prehistoric times, there were no laws, no courts and no police. Rules would have developed through need. The tribe would have a collective idea of what was right and wrong for the good of the group and would have punished a group member who stepped out of line, for example by taking food from others.
Business law is relatively new, and has only developed over the last couple of hundred years with industrialisation and the needs that grew from it.
1.3 How do the rules fit together?
|There are three main sources of rules that regulate behaviour of individuals and businesses. These are:
• The law
• Non-legal rules and regulations
The diagram below shows how the three sources of regulation fit together.
Point A shows a company’s current behaviour. It indicates that it is currently breaking the law. It could be treating its employees in an illegal way, such as breaking health and safety laws.
The company wants to move to point B. This means taking the maximum care of employees that is expected by society. To get to this point, the company needs to meet its legal and non-legal obligations first.
The law is the minimum level of behaviour required. Any standard of behaviour below it is considered illegal and warrants punishment by society.
By meeting non-legal regulations (such as the rules of your workplace), you meet a higher level of behaviour than just the legal requirements.
Ethical behaviour is seen as the highest level of behaviour that society expects. Your behaviour goes further than just meeting your legal and non-legal obligations.
1.4 Corporate governance concepts
One view of governance is that it is based on a series of underlying concepts.
The directors’ deliberations and also the systems and values that underlie the company must be balanced by taking into account everyone who has a legitimate interest in the company, and respecting their rights and views. In many jurisdictions, corporate governance guidelines reinforce legal protection for certain groups; for example, minority shareholders.
Transparency means open and clear disclosure of relevant information to shareholders and other stakeholders, also not concealing information when it may affect decisions. It means open discussions and a default position of information provision, rather than concealment.
Disclosure in this context obviously includes information in the financial statements, not just the numbers and notes to the accounts but also narrative statements, such as the directors’ report and the operating and financial review. It also includes all voluntary disclosure; that is, disclosure above the minimum required by law or regulation. Voluntary corporate communications include management forecasts, analysts’ presentations, press releases, information placed on websites and other reports such as standalone environmental or social reports.
The main reason why transparency is so important relates to the agency problem, the potential conflict between owners and managers. Without effective disclosure the position could be unfairly weighted towards managers, since they have far more knowledge of the company’s activities and financial situation than owner/investors. Avoidance of this information asymmetry requires not only effective disclosure rules but also strong internal controls that ensure that the information that is disclosed is reliable.
Linked with the agency issue, publication of relevant and reliable information underpins stock market confidence in how companies are being governed and thus significantly influences market prices. International accounting standards and stock market regulations based on corporate governance codes require information published to be true and fair. Information can only fulfil this requirement if adequate disclosure is made of uncertainties and adverse events.
Circumstances where concealment may be justified include discussions about future strategy (knowledge of which would benefit competitors), confidential issues relating to individuals and discussions leading to an agreed position that is then made public.
Independence is an important concept in relation to directors. Corporate governance reports have increasingly stressed the importance of independent non-executive directors, directors who are not primarily employed by the company and who have very strictly controlled other links with it. They should be free from conflicts of interest and in a better position to promote the interests of shareholders and other stakeholders. Freed from pressures that could influence their activities, independent nonexecutive directors should be able to carry out effective monitoring of the company in conjunction with equally independent external auditors on behalf of shareholders.
Non-executive directors’ lack of links and limits on the time that they serve as non-executive directors should promote avoidance of managerial capture – accepting executive managers’ views on trust without analysing and questioning them.
Hopefully this should be the most self-evident of the principles. It relates not only to telling the truth but also not misleading shareholders and other stakeholders. Lack of probity includes not only obvious examples of dishonesty such as taking bribes but also presenting information in a slanted way that is designed to give an unfair impression.
Responsibility means management accepting the credit or blame for governance decisions.
Accountability of directors to shareholders has always been an important part of company law, well before the development of the corporate governance codes. For example, companies in many regimes have been required to provide financial information to shareholders on an annual basis and hold annual general meetings. However, particularly because of the corporate governance scandals of the last 30 years, investors have demanded greater assurance that directors are acting in their interests. This has led to the development of corporate governance codes.
Making the accountability work is the responsibility of both parties. Directors, as we have seen, do so through the quality of information that they provide, whereas shareholders do so through their willingness to exercise their responsibility as owners, which means using the available mechanisms to query and assess the actions of the board.
The accountability relationship will be different for bodies owned or run by national or central government. The nature of the relationship may be clear – that government determines objectives. How accountability is demonstrated and enforced may depend though on how coherent the objectives are. The main problem will often be where the body’s main objectives are non-economic, but the government also wishes to limit the amount it spends on the body.
As with responsibility, one of the biggest debates in corporate governance is the extent of management’s accountability towards other stakeholders, such as the community within which the organisation operates. This has led on to a debate about the contents of accounts themselves.
In the context of public service, holders of public office are deemed accountable for their decisions and actions to the public, and must submit themselves to whatever scrutiny is appropriate for their office.
Risks to an organisation’s reputation depend on how likely other risks are to crystallise. In the same way, directors’ concern for an organisation’s reputation will be demonstrated by the extent to which they fulfil the other principles of corporate governance. There are commercial reasons for promoting and protecting an organisation’s reputation. A key commercial reason relates to the company value, as reflected in the share price. Share price is often closely linked to reputation.
Judgement means the board making decisions that enhance the prosperity of the organisation. This means that board members must acquire a broad enough knowledge of the business and its environment to be able to provide meaningful direction to it. This has implications not only for the attention directors have to give to the organisation’s affairs but also to the way the directors are recruited and trained.
The complexities of senior management mean that the directors have to bring multiple conceptual skills to management that aim to maximise long-term returns. This means that corporate governance can involve balancing many competing people and resource claims against each other. Although risk management is an integral part of corporate governance, corporate governance isn’t just about risk management.
Integrity is an essential principle of the corporate governance relationship, particularly in relationship to representing shareholder interests and exercising agency. Monitoring and hence agency costs can be reduced if there is trust in the integrity of the agents. In addition, we have seen that a key aim of corporate governance is to inspire confidence in participants in the market and this significantly depends upon a public perception of competence and integrity.
Integrity can be taken as meaning someone of high moral character, who sticks to principles no matter the pressure to do otherwise. In working life this means adhering to principles of professionalism and probity. Straightforward dealing in relationships with the different people and constituencies whom you meet is particularly important. Trust is vital in relationships and belief in the integrity of those with whom you are dealing underpins this.
Integrity is also one of the fundamental principles discussed in the IFAC code of ethics. It provides assurance to those with whom the accountant deals of good intentions and truthfulness.
|Organisations are not autonomous; they exist to serve some external purpose, usually manifested in a group such as shareholders in a company or trustees of a charity. In particular, the strategic apex must not lose sight of this accountability. All managers have a duty of faithful service to the external purpose of the organisation and this lies most heavily on the shoulders of those at the strategic apex.|
2.1 Fiduciary responsibility
Organisations are not autonomous; that is to say, they do not exist to serve their own purposes or those of their senior managers. They exist to serve some external purpose and their managers have a duty to run them in a way that serves that purpose, whether it be to relieve distress (a charity), to keep the peace and manage the economy (a government), to promote the interests of its members (a trade union) or to make a profit (a business). Managers have a fiduciary responsibility (or duty of faithful service) in this respect and their behaviour must always reflect it.
Managers need not be actually corrupt in order to fail in their fiduciary duty. The CEO who sets in motion a takeover bid that will enhance their prestige; the head of department who ’empire builds’; and the IT manager who buys an unnecessarily sophisticated enterprise resource management system are all failing in their fiduciary duty even though they receive no material benefit themselves.
2.3 Business objectives and management discretion
There are differing views about the extent to which external pressures modify business objectives and form boundaries to the exercise of management discretion.
- The stakeholder view of company objectives is that many groups of people have a stake or legitimate interest in what the company does. Shareholders own the business, but there are also suppliers, managers, workers and customers. A business depends on appropriate relationships with these groups, otherwise it will find it hard to function. Each of these groups has its own objectives, so that a compromise or balance is required.
3 The ethical environment Ethics and morality are about right and wrong behaviour. Western thinking about ethics tends to be based on ideas about duty and consequences. Unfortunately, such thinking often fails to indicate a single clear course of action. Ethical thinking is also influenced by the concepts of virtue and rights.
The consensus theory of company objectives was developed by Cyert and March (1992). They argued that managers run a business, but do not own it, and they do not necessarily set objectives for the company, but rather they look for objectives which suit their own inclinations. Objectives emerge as a consensus of the differing views of shareholders, managers, employees, suppliers, customers and society at large, but (in contrast to the stakeholder view) they are not all selected or controlled by management.
Whereas the political environment in which an organisation operates consists of laws, regulations and government agencies, the social environment consists of the customs, attitudes, beliefs and education of society as a whole, or of different groups in society; and the ethical environment consists of a set (or sets) of well-established rules of personal and organisational behaviour.
- Ethical principles
Much of the practical difficulty with ethics lies in the absence of an agreed basis for decision-making. Effective legal systems are certain in their effects on the individual. While the complexity of such matters as tax law can make it difficult to determine just what the law says in any given case, it is still possible to determine the issue in court. Once the law is decided it is definite and there is little scope for argument.
The certainty of legal rules does not exist in ethical theory. Different ideas apply in different cultures. The two main important ideas in the Western ethical tradition are duty and consequences.
- Ethics based on consequences
This approach judges actions by reference to their outcomes or consequences. Utilitarianism, propounded by Jeremy Bentham (1823), is the best-known version of this approach and can be summed up as choosing the action that is likely to result in the greatest good for the greatest number of people.
Egoism states that an act is ethically justified if decision makers freely decide to pursue their own shortterm desires or their long-term interests. The subject to all ethical decisions is the self.
It has been argued that an egoistic pursuit of individual self-interest produces a desired outcome for society through free competition and perfect information operating in the marketplace. Producers of goods, for example, have to offer value for money, since competition means that customers will buy from competitors if they don’t. Egoism can also link in with enlightened self-interest, such as a business investing in good facilities for its workforce to keep them content and hence maintain their loyalty.
3.2.2 Criticisms of egoism
One criticism of pure egoism is that it makes short-term selfish desires equivalent to longer-term, more beneficial, interests. A modified view would give most validity to exercising those short-term desires that were in long-term interests. A more serious criticism has been that the markets do not function perfectly, and that some participants can benefit themselves at the expense of others and also the wider environment – that it is unsustainable. Most fundamentally egoism is argued to be the ethics of the thief as well as the short-termist.
Pluralism accepts that different views may exist on morality, but suggests a consensus may be able to be reached in certain situations. A pluralist viewpoint is helpful in business situations where a range of perspectives have to be understood in order to establish a course of action. It emphasises the importance of morality as a social phenomenon. Some rules and arrangements need to be established for us to live together and we therefore need a good understanding of the different moralities that we will encounter.
However, a consensus may not always be possible, and this is a key message of this section of the text. Irreconcilable ethical disputes tend to arise when absolutists argue with relativists, or if you have a deontological viewpoint opposed to a teleological viewpoint. For example, during the recent debate in the UK about embryology, deontological arguments on the sanctity of life were opposed to teleological arguments about the scientific benefits of experimentation on embryos.
3.3 Ethics based on duty
We use duty as a label for the ethical approach technically called deontology (which means much the same thing as ‘duty’ in Greek). This set of ideas is associated with the German thinker Immanuel Kant (1780) and is based on the idea that behaviour should be governed by absolute moral rules that apply in all circumstances.
3.3.1 Ethical relativism
Relativism is the view that a wide variety of acceptable ethical beliefs and practices exist. The ethics that are most appropriate in a given situation will depend on the conditions at that time.
The relativist approach suggests that all moral statements are essentially subjective and arise from the culture, belief or emotion of the speaker.
3.3.2 Strengths of relativism
- Relativism highlights our cognitive bias in observing with our senses (we see only what we know and understand) and our notational bias (what we measure without using our senses is subject to the bias of the measurement methods used).
- Relativism also highlights differences in cultural beliefs. For example, all cultures may say that it is wrong to kill innocents, but different cultures may have different beliefs about who innocents actually are.
- It can be argued that differing absolutist beliefs result in moral conflict between people. (Relativist) ethics should act to resolve such conflicts.
- In the global economy, where companies conduct businesses in many different countries and cultures, adopting a relativist approach presumes more flexibility and therefore greater success.
3.3.3 Criticisms of relativism
- Put simply, strong relativism is a based on a fundamental contradiction. The statement that ‘All statements are relative’ is itself an absolute, non-relative statement. However, it is possible to argue that some universal truths (certain laws of physics) exist, but deny other supposedly objective truths.
- A common criticism of relativism, particularly by religious leaders, is that it leads to a philosophy of ‘anything goes’, denying the existence of morality and permitting activities that are harmful to others.
- Alternatively some critics have argued for the existence of natural moral laws (discussed below). These are not necessarily religious laws. The atheist scientist Richard Dawkins has argued in favour of natural laws.
- Ideas such as objectivity and final truth do have value – consider for example the ethical principle that we shall discuss later for accountants to be objective.
- If it’s valid to say that everyone’s differing opinions are right, then it’s equally valid to say that everyone’s differing opinions are wrong.
3.3.4 Ethical absolutism
Absolutist approaches to ethics are built on the principle that objective, universally applicable moral truths exist and can be known. There is a set of moral rules that are always true.
Many absolutists would accept that some ethical truths may differ between different cultures. However, they would also believe in certain basic truths that should be common to all cultures (for example ‘thou shall not kill’).
3.3.5 Strengths of absolutism
- Fundamentally the statement that absolute truth does not exist is flawed. If it does not exist, then the statement that it does not exist cannot be true.
- Absolutism lays down certain unambiguous rules that people are able to follow, knowing that their actions are right.
3.3.6 Criticisms of absolutism
- Absolutist ethics takes no account of evolving norms within society and the development of ‘advances’ in morality; for example, development of the belief that slavery is wrong.
- From what source should absolutist ethics be derived? Should it be religion, universal laws, human nature? Whatever source is used, it is then possibly subject to human interpretation with the result that different views may exist on the same issue and there will never be universal agreement.
- What happens when two absolutist positions appear incompatible? For example, is it permissible to tell a lie in order to save an innocent life?
- A theory can be true according to a relative framework as well as true according to an absolute framework. What differs is the nature of the framework and not the truth of the statement.
3.4 Rights and virtues
The idea that individuals have natural inherent rights that should not be abused is a further, longestablished influence on Western ethical thinking and one that has led to the development of law to protect certain ‘human rights’.
Virtue ethics continues to exert a subtle influence. The idea is that, if people cultivate virtue, their behaviour is likely to be inherently ethical. Today it is suggested that managers should attempt to incorporate such virtues as firmness, fairness, objectivity, charity, forethought, loyalty, and so on into their daily behaviour and decision-making.
QUESTION Categorical imperative
Is the statement below correct or incorrect?
‘In Kant’s approach to ethics, it is important to consider the consequences of an action in order to determine whether it is right or wrong.’
This statement is incorrect. Kant believes that certain rules must be obeyed no matter what the consequences may be.
3.5 Social attitudes
Social attitudes, such as a belief in the merits of education, progress through science and technology, and fair competition, are significant for the management of a business organisation. Other beliefs have either gained strength or been eroded in recent years.
- There is a growing belief in preserving and improving the quality of life by reducing working hours, reversing the spread of pollution, developing leisure activities, and so on. Pressures on organisations to consider the environment are particularly strong because most environmental damage is irreversible and some is fatal to humans and wildlife.
- Many pressure groups have been organised in recent years to protect social minorities and underprivileged groups. Legislation has been passed in an attempt to prevent racial discrimination and discrimination against women and disabled people.
- Issues relating to the environmental consequences of corporate activities are currently debated, and respect for the environment has come to be regarded as an unquestionable good.
The ethical environment refers to justice, respect for the law and a moral code. The conduct of an organisation, its management and employees will be measured against ethical standards by the customers, suppliers and other members of the public with whom they deal.
3.6 Ethical problems facing managers
Managers have a duty (in most enterprises) to aim for profit. At the same time, modern ethical standards impose a duty to guard, preserve and enhance the value of the enterprise for the good of all touched by it, including the general public. Large organisations tend to be more often held to account over this than small ones.
In the area of products and production, managers have responsibility to ensure that the public and their own employees are protected from danger. Attempts to increase profitability by cutting costs may lead to dangerous working conditions or to inadequate safety standards in products. In the United States, product liability litigation is so common that this legal threat may be a more effective deterrent than general ethical standards.
Another ethical problem concerns payments by companies to government or municipal officials who have power to help or hinder the payers’ operations. Walton (1978) refers to the fine distinctions which exist in this area.
- Extortion. Foreign officials have been known to threaten companies with the complete closure of their local operations unless suitable payments are made.
- Bribery. This refers to payments for services to which a company is not legally entitled. There are some fine distinctions to be drawn; for example, some managers regard political contributions as bribery.
- Grease money. Multinational companies are sometimes unable to obtain services to which they are legally entitled because of deliberate stalling by local officials. Cash payments to the right people may then be enough to oil the machinery of bureaucracy.
- Gifts. In some cultures (such as Japan) gifts are regarded as an essential part of civilised negotiation, even in circumstances where to Western eyes they might appear ethically dubious. Managers operating in such a culture may feel at liberty to adopt the local customs.
Business ethics are also relevant to competitive behaviour. This is because a market can only be free if competition is, in some basic respects, fair. There is a distinction between competing aggressively and competing unethically.
3.7 Social responsibility and businesses
Arguably, institutions like hospitals, schools and so forth exist because health care and education are seen to be desirable social objectives by government at large, if they can be afforded.
However, where does this leave businesses? How far is it reasonable, or even appropriate, for businesses to exercise ‘social responsibility’ by giving to charities, voluntarily imposing strict environmental objectives on themselves and so forth?
Social responsibility action is likely to have an adverse effect on shareholders’ interests.
- Additional costs such as those of environmental monitoring
- Reduced revenues as a result of refusing to supply certain customers
- Diversion of employee effort away from profitable activities
- Diversion of funds into social projects
However, it is possible to argue that being socially responsible is in shareholders’ interests, possibly over the longer term.
Corporate social responsibility is examined in more detail in Chapter 7.
3.8 Specific environmental responsibilities
Businesses are widely regarded as having a duty to safeguard the natural environment. There are six areas for action.
- Environmental auditing to monitor such things as legal compliance, waste treatment, and emissions
- Economic action: charges for environmental damage should be made internally to give managers an incentive to avoid it
- Accounting action: a separate set of accounts incorporating shadow prices to represent environmental costs is prepared
- Ecological approach: aspects of the business such as a product or a location are selected for examination to ascertain their environmental impact
- Production is managed to minimise inputs of materials and energy
- Quality management is applied using the principle of continuous improvement in environmental performance
3.9 Examples of social and ethical objectives
Companies are not passive in the social and ethical environment. Many organisations pursue a variety of social and ethical objectives.
- A minimum wage, perhaps with adequate differentials for skilled labour
- Job security (over and above the protection afforded by legislation)
- Good conditions of work (above the legal minima)
- Job satisfaction
- Promotion of diversity and equal opportunities
- A healthy and safe workplace
- Customers may be regarded as entitled to receive a safe product of good quality at a reasonable price.
- Suppliers may be offered regular orders and timely payment in return for reliable delivery and good service.
- Society as a whole
- Control of pollution and use of sustainable resources
- Provision of financial assistance to charities, sports and community activities
- Not producing undesirable goods
|4||Ethics in organisations|
|Ethical conduct by all members should be a major concern for management. Inside the organisation, a compliance-based approach highlights conformity with the law. An integrity-based approach suggests a wider remit, incorporating ethics in the organisation’s values and culture. Organisations sometimes issue codes of conduct to employees. Many employees are bound by professional codes of conduct.|
People that work for organisations bring their own values into work with them. Organisations contain a variety of ethical systems.
Companies have to follow legal standards, or else they will be subject to fines and their officers might face similar charges. Ethics in organisations relates to social responsibility and business practice.
- Personal ethics. These derive from a person’s upbringing, religious or non-religious beliefs, political opinions, personality, and so on.
- Professional ethics. These include ACCA’s code of ethics and medical ethics.
- Organisation cultures (eg ‘customer first’). We discussed culture in an earlier chapter; culture, in denoting what is normal behaviour, also denotes what is the right behaviour in many cases.
- Organisation systems. Ethics might be contained in a formal code, reinforced by the overall statement of values. A problem might be that ethics does not always save money, and there is a real cost to ethical decisions. Besides, the organisation has different ethical duties to different stakeholders. Who sets priorities?
Ethical problems can be approached from several directions, as we have attempted to show.
Unfortunately, this means that difficult problems rarely have clear solutions and it is usually possible for the opportunist manager to find authority to support any decision. The Chartered Certified Accountant must make an effort to do the right thing bearing in mind the variety of ethical assumptions that other people may make; the varying expectations of legitimate stakeholders; and the attitudes of legislators and pressure groups.
4.1 Leadership practices and ethics
The role of culture in determining the ethical climate of an organisation can be further explored by a brief reflection on the role of leaders in setting the ethical standard. A culture is partly a collection of symbols and attitudes, embodying certain truths about the organisation. Senior managers are also symbolic managers; inevitably they decide priorities. They set an example, whether they like it or not.
Organisations of any kind must adopt values that will promote adherence to ethical principles, thereby maintaining the confidence of stakeholders. Senior leadership must endorse organisational values that promote ethical conduct, such as the following:
- Openness – being full and complete in the provision and disclosure of information
- Trust – relying on the judgments and information provided by others, and being trustworthy in turn
- Honesty – telling the truth, and being prepared to give information on which others can depend
- Respect – treating others with dignity and adopting a professional manner
- Empowerment – ensuring that those who are entrusted with responsibilities have the authority to carry out their tasks
- Accountability – taking full responsibility for outcomes
4.2 A corporate code of ethics
Corporate codes of ethics are published by organisations in order to communicate values to stakeholders. As well as stating the core principles governing how their commercial objectives are to be pursued, such codes might include statements specifically in relation to:
- Customers, whose purchases may be influenced by ethical considerations
- Shareholders, whose investment decisions may be influenced by ethical factors
- Employees, who need to know what is expected of them
- Suppliers, who need to understand the expectations of their customers, and who also should be treated ethically
- Lobby groups, who may have an interest in organisational practices
- Local communities, which may need reassurance that the organisation will act as a ‘good citizen’
4.3 The Seven Principles of Public Life
The UK Government’s Committee of Standards in Public Life (1995) set out seven principles that individuals employed in the public sector must follow.
Individuals should act solely in the public interest and not for personal gain or that of friends and family.
Individuals should avoid actions which would place them under financial or other obligations whereby the person holding their obligation could influence their public duties.
All choices, especially those regarding awarding contracts, rewarding or providing benefits to others and making public appointments must be made purely on merit.
Individuals are responsible for their own actions and are accountable to others. They must subject themselves to whatever scrutiny comes with their office.
Individuals must be open about their decisions and actions. Information regarding the reasons for their decisions must be freely available. Restrictions on information are only permitted when it is in the wider public interest.
Where individuals have private interests which relate to their public ones, they should declare them and seek to resolve any conflict to protect the public interest.
Individuals must promote and respect the other six principles through leadership and example.
Accountants must also follow these principles. Where they appear to be in a situation which conflicts with their legal, regulatory or other ethical frameworks they must ensure their concerns are heard.
4.4 Two approaches to managing ethics
There are two suggested approaches to the management of ethics in organisations.
4.4.1 Compliance-based approach
A compliance-based approach is primarily designed to ensure that the company acts within the letter of the law, and that violations are prevented, detected and punished. Some organisations, faced with the legal consequences of unethical behaviour, take legal precautions such as those below.
- Compliance procedures to detect misconduct
- Audits of contracts
- Systems for employees to report criminal misconduct without fear of retribution
- Disciplinary procedures to deal with transgressions
4.4.2 Integrity-based programmes
An integrity-based approach combines a concern for the law with an emphasis on managerial responsibility for ethical behaviour. Integrity strategies strive to define companies’ guiding values, aspirations and patterns of thought and conduct. When integrated into the day-to-day operations of an organisation, such strategies can help prevent damaging ethical lapses, while tapping into powerful human impulses for moral thought and action.
Whistleblowing is the disclosure by an employee of illegal, immoral or illegitimate practices on the part of the organisation. This may appear to be in the public interest, but confidentiality is very important in the accountants’ code of ethics. Whistleblowing frequently involves financial loss for the whistleblower. (a) Whistleblowers may lose their jobs.
(b) A whistleblower who is a member of a professional body cannot, sadly, rely on that body to take a significant interest, or even offer a sympathetic ear. Some professional bodies have narrow interpretations of what is meant by ethical conduct. For many, the duties of commercial confidentiality are felt to be more important.
|5||Accountants and ethics|
|As an accountant, your values and attitudes flow through everything you do professionally. They contribute to the trust the wider community puts in the profession and the perception it has of it.|
Key reasons for accountants to behave ethically
- Ethical issues may be a matter of law and regulation and accountants are expected to apply them.
- The profession requires members to conduct themselves and provide services to the public according to certain standards. By upholding these standards, the profession’s reputation and standing is protected.
- An accountant’s ethical behaviour serves to protect the public interest.
5.1 Approaches to accountancy ethics
Professionals will have their own idea of what behaviour is ethical and what is not. Although there will be differences, collectively there are common views and values that shine through.
|6||A code of ethics for accountants|
|The International Federation of Accountants (IFAC) is an international body representing all the major accountancy bodies around the world. Its mission is to develop the high standards of professional accountants and enhance the quality of services they provide.|
To help individuals judge whether or not they are acting ethically in particular circumstances, guidance should be given (usually by a governing body) that clarifies the matter. Such guidance is usually known as a ‘Code of ethics’ or ‘Code of conduct’.
6.1 IFAC and the ACCA
To enable the development of high standards, IFAC’s ethics committee established a code of ethics. The code indicates a minimum level of conduct that all accountants must adhere to. As a member of IFAC, ACCA released its own code of ethics, designed to align to the IFAC code. The IFAC code is now administered by the International Ethics Standards Board for Accountants (IESBA). The material contained in this section is from the ACCA’s 2018 Rulebook that contains the Code of Conduct and Ethics (ACCA, 2018).
6.1.1 Fundamental principles of the ACCA Code of Ethics and Conduct
When you become a member of the ACCA, you agree to be bound by the ACCA’s Code of Ethics and Conduct. Members are required to comply with the following fundamental principles.
- Professional behaviour
- Professional competence and due care
The Code can be found in Section 3 of the ACCA 2018 Rulebook (ACCA, 2018). It is quite long but you should try to read it (or at least skim read it). It will give you an insight into issues that may arise in questions in your exam.
For example, there is a section on receiving gifts from clients which states that a gift ‘gives rise to threats to compliance with the fundamental principles’. It goes on to suggest that objectivity may be threatened and that gifts and hospitality should only be accepted if the value of the benefit is modest. Hopefully it is clear to you that this could easily be the subject of a question in your exam.
Jayne, Will and Lesley work as auditors for a client called TV Co and Jayne is the senior auditor. TV Co manufactures large expensive televisions. The director of TV Co offers Jayne one of the newest, most expensive televisions as a thank you gift for doing the audit. If Jayne accepts the television, which one of the fundamental principles may be threatened?
A Professional competence C Objectivity B Confidentiality D Reliability
C Objectivity. This should have been easy for you because you have just read Section 6.1.1. Look at the question and the options again. Did you notice that the question asked for a fundamental principle and that only options A, B and C were fundamental principles? Option D is a personal quality. This means that option D could be ruled out straight away. You need to develop this skill at reading questions and options by practising lots of questions.
6.2 Personal qualities expected of an accountant
In meeting the fundamental principles, certain qualities are expected you. As a student of ACCA (and a future member) you need to develop the following qualities to ensure you meet the fundamental principles.
|The personal qualities that an accountant should demonstrate are:
• Reliability Courtesy
• Responsibility Respect
|Reliability||When taking on work, you must ensure that it gets done and meets professional standards.|
|Responsibility||In the workplace you should take ‘ownership‘ of your work.|
|Timeliness||Clients and work colleagues rely on you to be on time and produce work within a specified time frame.|
|Courtesy||You should conduct yourself with courtesy and consideration towards clients and colleagues.|
|Respect||As an accountant, you should respect others by developing constructive relationships and recognising the values and rights of others.|
6.3 Professional qualities expected of an accountant
|The professional qualities an accountant should demonstrate are:
• Independence Accountability
• Scepticism Social responsibility
|Independence||You must be able to complete your work without bias or prejudice and you must also be seen to be independent.|
|Scepticism||You should question information given to you so that you form your own opinion regarding its quality and reliability.|
|Accountability||You should recognise that you are accountable for your own judgements and decisions.|
|Social responsibility||Accountants have a public duty as well as a duty to their employer or client. Audit work, accountancy work and investment decisions may all affect the public in some way.|
6.4 Conflicts of interest
There is a section in the ACCA’s Code of Ethics and Conduct (ACCA, 2016) dedicated to the subject of conflicts of interest. ACCA members need to be aware that a conflict between members’ and clients’ interests might arise if members compete directly with a client, or have a joint venture with a company that is in competition with the client.
The rules state that members and firms should not accept or continue engagements in which there are, or are likely to be, significant conflicts of interest between members, firms and clients.
Members should evaluate the threats arising from a conflict of interest and, unless they are insignificant, they should apply safeguards. The test of whether a threat is significant is whether a reasonable and informed third party, having knowledge of all relevant information, would consider the conflict of interest as likely to affect the judgement of members and firms.
Disclosure (ie informing all known relevant parties of the possible conflict of interest) is the most important safeguard. There are other solutions depending on the situation, such as using a separate team of people or signing confidentiality agreements.
6.5 Self-interest threat
The ACCA Code of Ethics and Conduct (ACCA, 2016) highlights a great number of areas in which a selfinterest threat to independence might arise.
Financial interests exist where an audit firm has a financial interest in a client’s affairs; for example, the audit firm owns shares in the client, or is a trustee of a trust that holds shares in the client.
A financial interest in a client constitutes a substantial self-interest threat. According to the ACCA, the parties listed below are not allowed to own a direct financial interest or an indirect material financial interest in a client.
- The assurance firm
- Partners in the same office as the engagement partner (and their immediate families)
- A member of the assurance team
- An immediate family member of a member of the assurance team The following safeguards will therefore be relevant.
- Disposing of the interest
- Removing the individual from the team if required
- Keeping the client’s audit committee informed of the situation
- Using an independent partner to review work carried out if necessary
6.5.2 Close business relationships
Examples of when a firm and client have an inappropriately close business relationship include:
- Having a material financial interest in a joint venture with the assurance client
- Arrangements to combine one or more services or products of the firm with one or more services or products of the assurance client and to market the package with reference to both parties
- Distribution or marketing arrangements under which the firm acts as distributor or marketer of the assurance client’s products or services or vice versa
Again, it will be necessary to judge the materiality of the interest and therefore its significance. However, unless the interest is clearly insignificant, an assurance provider should not participate in such a venture with a client. Appropriate safeguards are therefore to end the assurance provision or to terminate the (other) business relationship.
6.5.3 Employment with client
It is possible that staff might transfer between a firm and a client, or that negotiations or interviews to facilitate such movement might take place. Both situations are a threat to independence.
- An audit staff member might be motivated by a desire to impress a future possible employer (objectivity is therefore affected).
- A former partner turned finance director has too much knowledge of the audit firm’s systems and procedures.
The extent of the threat to independence depends on various factors, such as the role the individual has taken up at the client, the extent of their influence on the audit previously, the length of time that has passed between the individual’s connection with the audit and the new role at the client.
Various safeguards might be considered.
- Considering modifying the assurance plan
- Ensuring the audit is assigned to someone of sufficient experience compared with the individual who has left
- Involving an additional professional accountant not involved with the engagement to review the work done
- Carrying out a quality control review of the engagement
In respect of audit clients, ethical guidance states that a partner should not accept a key management position at an audit client until at least two years have elapsed since the conclusion of the audit they were involved with. An individual who has moved from the firm to a client should not be entitled to any benefits or payments from the firm unless these are made in accordance with predetermined arrangements. A firm should have procedures setting out that an individual involved in serious employment negotiations with an audit client should notify the firm and that this person would then be removed from the engagement.
6.5.4 Partner on client board
A partner or employee of an audit/assurance firm should not serve on the board of an assurance client. It may be acceptable for a partner or an employee of an assurance firm to perform the role of company secretary for an assurance client, if the role is essentially administrative (however don’t forget the increased emphasis on the role of the company secretary in governance reports, aiming to enhance the secretary’s role to go beyond routine administrative tasks).
6.5.5 Family and personal relationships
Family or close personal relationships between assurance firm and client staff could seriously threaten independence. Each situation has to be evaluated individually. Factors to consider are:
- The individual’s responsibilities on the assurance engagement
- The closeness of the relationship
- The role of the other party at the assurance client
When an immediate family member of a member of the assurance team is a director, an officer or an employee of the assurance client in a position to exert direct and significant influence over the assurance engagement, the individual should be removed from the assurance team.
The audit firm should also consider whether there is any threat to independence if an employee who is not a member of the assurance team has a close family or personal relationship with a director, an officer or an employee of an assurance client.
A firm should have quality control policies and procedures under which staff should disclose if a close family member employed by the client is promoted within the client.
6.5.6 Gifts and hospitality
Unless the value of the gift/hospitality is clearly insignificant, a firm or a member of an assurance team should not accept it.
6.5.7 Loans and guarantees
The advice on loans and guarantees falls into two categories.
The client is a bank or other similar institution Other situations
If a lending institution client lends an immaterial amount to an audit firm or member of assurance team on normal commercial terms, there is no threat to independence. If the loan were material it would be necessary to apply safeguards to bring the risk to an acceptable level. A suitable safeguard is likely to be an independent review (by a partner from another office in the firm).
Loans to members of the assurance team from a bank or other lending institution client are likely to be material to the individual but, provided that they are on normal commercial terms, these do not constitute a threat to independence.
However, an audit firm or individual on the assurance engagement should not enter into any loan or guarantee arrangement with a client that is not a bank or similar institution.
6.5.8 Overdue fees
In a situation where there are overdue fees, the auditor runs the risk of, in effect, making a loan to a client, whereupon the guidance above becomes relevant.
Audit firms should guard against fees building up and being significant by discussing the issues with the audit committee or others involved in governance and, if necessary, the possibility of resigning if overdue fees are not paid.
6.5.9 Percentage or contingent fees
Ethical guidelines state that a firm should not enter into any fee arrangement for an assurance engagement under which the amount of the fee is contingent on the result of the assurance work or on items that are the subject matter of the assurance engagement. It would also usually be inappropriate to accept a contingent fee for non-assurance work from an assurance client.
6.5.10 High percentage of fees
A firm should be alert to the situation arising where when the total fees generated by an assurance client represent a large proportion of a firm’s total fees. Factors such as the structure of the firm and the length of time it has been trading will be relevant in determining whether there is a threat to independence. It is also necessary to beware of situations where the fees generated by an assurance client are a large proportion of the revenue of an individual partner.
Safeguards in these situations might include:
- Discussing the issues with the audit committee
- Taking steps to reduce the dependency on the client
- Obtaining external/internal quality control reviews
- Consulting a third party such as ACCA
Ethical guidance states that the public may perceive that a member’s objectivity is likely to be in jeopardy where the fees for audit and recurring work paid by one client or group of connected clients exceed 15% of the firm’s total fees. Where the entity is listed or public interest, this figure should be 10%.
It will be difficult for new firms establishing themselves to keep within these limits and firms in this situation should make use of the safeguards outlined.
When a firm quotes a significantly lower fee level for an assurance service than would have been charged by the predecessor firm, there is a significant self-interest threat. If the firm’s tender is successful, the firm must apply safeguards such as:
- Maintaining records such that the firm is able to demonstrate that appropriate staff and time are spent on the engagement
- Complying with all applicable assurance standards, guidelines and quality control procedures
Recruiting senior management for an assurance client, particularly those able to affect the subject matter of an assurance engagement creates a self-interest threat for the assurance firm.
Assurance providers must not make management decisions for the client. Their involvement could be limited to reviewing a shortlist of candidates, providing that the client has drawn up the criteria by which they are to be selected.
6.6 Self-review threat
The key area in which there is likely to be a self-review threat is where an assurance firm provides services other than assurance services to an assurance client (providing multiple services). There is a great deal of guidance in the ACCA rules about various other services accountancy firms might provide to their clients, and these are dealt with below.
The distinction between listed companies, or public limited companies, and private companies is perceived to be an important issue in the question of providing other services to clients.
Public interest companies are those that for some reason (size, nature, product) are in the ‘public eye’. Auditors should treat these as if they are listed companies.
6.6.1 Recent service with an assurance client
Ethical guidance focuses on individuals who have been a director or officer of the client, or an employee in a position to exert direct and significant influence over the subject matter information of the assurance engagement in the period under review or the previous two years to the assurance team.
If an individual had been closely involved with the client prior to the time limits set out above, the assurance firm should consider the threat to independence arising and apply appropriate safeguards, such as:
- Obtaining a quality control review of the individual’s work on the assignment
- Discussing the issue with the audit committee
6.6.2 General services
For assurance clients, accountants are not allowed to:
- Authorise, execute or consummate a transaction
- Determine which recommendations should be implemented
- Report in a management capacity to those charged with governance
Having custody of an assurance client’s assets, supervising client employees in the performance of their normal duties, and preparing source documents on behalf of the client also pose significant self-review threats which should be addressed by safeguards. These could be:
- Ensuring non-assurance team staff are used for these roles
- Involving an independent professional accountant to advise
- Quality control policies on what staff are and are not allowed to do for clients
- Making appropriate disclosures to those charged with governance
- Resigning from the assurance engagement
6.6.3 Preparing accounting records and financial statements
There is clearly a significant risk of a self-review threat if a firm prepares accounting records and financial statements and then audits them. On the other hand auditors routinely assist management with the preparation of financial statements and give advice about accounting treatments and journal entries.
Therefore, assurance firms must analyse the risks arising and put safeguards in place to ensure that the risk is at an acceptable level. Safeguards include:
- Using staff members other than assurance team members to carry out work
- Obtaining client approval for work undertaken
The rules are more stringent when the client is listed or public interest. Firms should not prepare accounts or financial statements for listed or public interest clients, unless an emergency arises.
For any client, assurance firms are also not allowed to:
- Determine or change journal entries without client approval
- Authorise or approve transactions
- Prepare source documents
6.6.4 Valuation services
A valuation comprises the making of assumptions with regard to future developments, the application of certain methodologies and techniques, and the combination of both in order to compute a certain value, or range of values, for an asset, a liability or for a business as a whole.
If an audit firm performs a valuation which will be included in financial statements audited by the firm, a self-review threat arises.
Audit firms should not carry out valuations on matters that will be material to the financial statements.
If the valuation is for an immaterial matter, the audit firm should apply safeguards to ensure that the risk is reduced to an acceptable level. Matters to consider when applying safeguards are the extent of the audit client’s knowledge of the relevant matters in making the valuation and the degree of judgement involved, how much use is made of established methodologies and the degree of uncertainty in the valuation. Safeguards include:
- Second partner review
- Confirming that the client understands the valuation and the assumptions used
- Ensuring the client acknowledges responsibility for the valuation Using separate personnel for the valuation and the audit
6.6.5 Taxation services
The provision of taxation services is generally not seen to impair independence.
6.6.6 Internal audit services
A firm may provide internal audit services to an audit client in most jurisdictions. However, it should ensure that the client acknowledges its responsibility for establishing, maintaining and monitoring the system of internal controls. It may be appropriate to use safeguards, such as ensuring that an employee of the client is designated as responsible for internal audit activities and that the board or audit committee approve all the work that internal audit does.
6.6.7 Corporate finance
Certain aspects of corporate finance will create self-review threats that cannot be reduced to an acceptable level by safeguards. Therefore, assurance firms are not allowed to promote, deal in or underwrite an assurance client’s shares. They are also not allowed to commit an assurance client to the terms of a transaction or consummate a transaction on the client’s behalf.
Other corporate finance services, such as assisting a client in defining corporate strategies, assisting in identifying possible sources of capital and providing structuring advice, may be acceptable in jurisdictions other than the US, providing that safeguards are in place, such as using different teams of staff, and ensuring no management decisions are taken on behalf of the client.
6.6.8 Other services
The audit firm might sell a variety of other services to audit clients, such as:
- IT services
- Temporary staff cover
- Litigation support
- Legal services
The assurance firm should consider whether there are any barriers to independence. Examples include the firm being asked to design internal control IT systems, which it would then review as part of its audit, or the firm being asked to provide an accountant to cover the chief accountant’s maternity leave. The firm should consider whether the threat to independence could be reduced by appropriate safeguards. Again, the rules in America are stricter than elsewhere.
- Advocacy threat
An advocacy threat arises in certain situations where the assurance firm is in a position of taking the client’s part in a dispute or somehow acting as their advocate. The most obvious instances of this would be when a firm offered legal services to a client and, say, defended them in a legal case or provided evidence on their behalf as an expert witness. An advocacy threat might also arise if the firm carried out corporate finance work for the client; for example, if the audit firm was involved in advice on debt reconstruction and negotiated with the bank on the client’s behalf.
As with the other threats above, the firm has to appraise the risk and apply safeguards as necessary. Relevant safeguards might be using different departments in the firm to carry out the work and making disclosures to the audit committee. Remember, the ultimate option is always to withdraw from an engagement if the risk to independence is too high.
- Familiarity threat
A familiarity or association threat is where independence is jeopardised by the audit firm and its staff becoming overfamiliar with the client and its staff. There is a substantial risk of loss of professional scepticism in such circumstances.
We have already discussed some examples of when this risk arises, because very often a familiarity threat arises in conjunction with a self-interest threat.
Long association of senior personnel with assurance clients
Senior members of staff at an audit firm having a long association with a client is a significant threat to independence. All firms should therefore monitor the relationship between staff and established clients and use safeguards to independence, such as rotating senior staff off the assurance team, involving second partners to carry out reviews and obtaining independent (but internal) quality control reviews.
6.9 Intimidation threat
An intimidation threat arises when members of the assurance team have reason to be intimidated by client staff.
These are also examples of self-interest threats, largely because intimidation may only arise significantly when the assurance firm has something to lose.
6.9.1 Actual and threatened litigation
The most obvious example of an intimidation threat is when the client threatens to sue, or indeed sues, the assurance firm for work that has been done previously. The firm is then faced with the risk of losing the client, bad publicity and the possibility that they will be found to have been negligent, which will lead to further problems. This could lead to the firm being under pressure to produce an unqualified audit report when they have been qualified in the past, for example.
Generally, assurance firms should seek to avoid such situations arising. If they do arise, factors to consider are:
- The materiality of the litigation
- The nature of the assurance engagement
- Whether the litigation relates to a prior assurance engagement
The following safeguards could be considered.
- Disclosing to the audit committee the nature and extent of the litigation
- Removing specific affected individuals from the engagement team
- Involving an additional professional accountant on the team to review work
However, if the litigation is at all serious, it may be necessary to resign from the engagement, as the threat to independence is so great.
6.9.2 Second opinions
Another way that auditors can suffer an intimidation threat is when the audit client is unhappy with a proposed audit opinion, and seeks a second opinion from a different firm of auditors.
In such a circumstance, the second audit firm will not be able to give a formal audit opinion on the financial statements – only an appointed auditor can do that. However, the problem is that if a different firm of auditors indicates to someone else’s client that a different opinion might be acceptable, the appointed auditors may feel under pressure to change their opinion. In effect, a self-interest threat arises, as the existing auditor may feel that they will lose next year’s audit if they do not change this year’s opinion.
There is nothing to stop a company director talking to a second firm of auditors about treatments of matters in the financial statements. However, the firm being asked for a second opinion should be very careful, because it is very possible that the opinion they form could be incorrect anyway if the director has not given them all the relevant information. For that reason, firms giving a second opinion should ensure that they seek permission to communicate with the existing auditor and they are appraised of all the facts. If permission is not given, the second auditors should decline to comment on the audit opinion.
Given that second opinions can cause independence issues for the existing auditors, audit firms should generally take great care if asked to provide one anyway.
|7||Ethics in business|
7.1 Businesses and ethics
Businesses also have ethical values, based on the norms and standards of behaviour that their leaders believe will best help them express their identity and achieve their objectives. Some of these ethical values may be explicit; for example, expressed in a mission statement or in employee training programmes. Others may be unwritten rules and customs that form part of the organisation’s culture: ‘the way we do things around here’.
Business life is a fruitful source of ethical dilemmas because its whole purpose is material gain, the making of profit. Success in business requires a constant, avid search for potential advantage over others and business people are under pressure to do whatever yields such advantage.
The table below summarises three elements to ethics.
|I||Ethics concern an individual‘s professional responsibility to act.|
|DO||Ethics concern the ‘real world’ practical actions an individual can take. It is important to consider how an individual acts and not always what they do.|
|BEST||Ethics concern choices between different courses of action. These may involve taking a course of action which is less unpalatable than another.|
7.1.1 An issue of trust
Whatever the situation, there is a public expectation (especially regarding professionals) that organisations will act ethically. This is known as the ‘Trust me’ model and was the case for many years when most businesses were owned by families. Times have now changed and most companies are now run by directors and mangers rather than fathers and sons and the model changed to ‘Involve me’ as more evidence was needed of their ethical credentials.
In recent times, trust in business has fallen and increasingly more evidence is required to demonstrate it. The ‘Show me’ stage required some demonstration of trust, ‘Prove to me’ required independent verification and assurance and the final stage of ‘Obey me’ would exist when the law creates legislation to cure instances of unethical behaviour. We are some way off this point currently.
What caused this trust to disintegrate? Since the 1980s, the UK has seen a procession of corporate disasters including the names of Barings Bank, Polly Peck and Maxwell. The US has seen scandals concerning Worldcom, Enron and Tyco. Europe did not escape and has seen its share of problems with Parmalat while, in Asia, Mitsubishi Motors and Daewoo have had issues too. All these scandals have severely knocked public confidence and trust in major corporations.
In an attempt to counter this lack of trust, many corporations have developed ethical strategies and policies to provide guidance and training for their employees. The strategy is set by the leadership and this will feed into all areas of the business and become part of the cultural DNA of the organisation.
7.1.2 Corporate Responsibility Policies and Reports
An ethical strategy is not always visible to outsiders, and many companies now produce Corporate Responsibility Policies (CRPs) and Corporate Responsibility Reports (CRRs) for their stakeholders to demonstrate their commitment and to manage their relationships in the wider community. They reflect the view that an organisation has responsibilities beyond that of its shareholders.
Corporate (Social) Responsibility policies
Corporate Responsibility policies are also known as Corporate Social Responsibility policies. These are policies in which the organisation decides how to help the local community that it is part of and which charities to support. However, they also deal with the wider community, and policies often focus on reducing the environmental impact the organisation has and where to recruit new employs from. These policies must be consistent with the overall aims of the organisation to ensure support continues even when the organisation faces its own problems, such as a downturn in profit.
- Corporate Responsibility Reports
Many new technological advances allow for the reporting of statistics as carbon footprints and a company’s impact on the environment. These can be added to more conventional assessments such as staff turnover to provide quite a detailed report on the organisation.
Such corporate values also guide staff as to the expectations that employers have regarding their behaviour. The aim is to end up with consistent behaviour across the workforce in terms of personal conduct and professionalism. These policies are enforced on a voluntary basis and results are monitored through audits, surveys and interviews.
|Ethical dilemmas are situations where two ethical values or requirements seem to be incompatible. They can also arise where two conflicting demands or obligations are placed on an individual.
A conflict of interest arises where an individual has a duty to two or more parties. While working, information or other matters may arise that mean they cannot continue work for one party without harming another.
We have discussed the need for accountants to be ethical, and the consequences of being unethical. It is therefore important that they can spot an ethical problem and be able to deal with it effectively and appropriately. Many dilemmas challenge both personal integrity and business skills and therefore a strong ethical understanding is important. We now consider potential situations where accountants have to make ethical decisions, and how they should resolve them.
8.1 Ethical dilemmas and conflicts of interest
Ethical dilemmas are situations where two ethical values or requirements seem to be incompatible. They can also arise where two conflicting demands or obligations are placed on an individual.
A conflict of interest arises where an individual has a duty to two or more parties. While working, information or other matters may arise that mean they cannot continue work for one party without harming another. Conflicts of interest are not wrong in themselves but they will become a problem if a professional continues with a course of action while being aware of, and not declaring, them.
8.2 Situations where ethical dilemmas and conflicts of interest occur
Ethical dilemmas occur as a result of tensions between four sets of values.
- Societal values – the law
- Personal values – values and principles held by the individual
- Corporate values – the values and principles of the organisation where the individual works, often laid down in ethical codes
- Professional values – the values and principles of the professional body that the individual is a member of, often laid down in ethical codes
Where society believes that businesses are not conducting themselves correctly, laws may be introduced to ensure a minimum level of behaviour is followed. Examples of this include laws created to deal with environmental issues, cartels and unfair competition, as well as fraud, insider dealing, bribery and corruption.
Ethical dilemmas involve unclear choices of what is right and wrong. In fact the choice could be what is the least wrong course of action to take. In such circumstances there is little an individual can do but to seek advice and trust their own instincts to make the correct choice.
Remember that laws do not necessarily help an individual to resolve an ethical issue – indeed many members of society feel torn when their personal ethics lead them to feel that following a particular law is immoral. That said, where a professional duty conflicts with statute, ACCA’s advice is clear – the law overrides it every time.
8.2.1 Ethics and contractual obligations
Contractual obligations differ from statute in the sense that an individual enters into a contract voluntarily; there is no voluntary element to statutory obligations.
This means an individual may break contractual obligations without breaking the law. For this reason, professional ethics should be followed even if this is at the expense of a contractual obligation. Logically this means that, given the choice of breaking professional ethics or a term in your contract of employment, you must give the profession priority. The law and employment tribunals will support an employee whose employer required them to break their professional ethics – the problem is that many employees would not want to go to court over such matters.
8.2.2 Examples of ethical tensions
The following are examples of how tensions between sets of values can be created.
- Societal values and corporate values
An individual may be asked by their employer to act in an illegal way, for example to discriminate against a disabled or ethnic employee.
- Personal values and corporate values
An individual may not agree with certain activities of their organisation, such as the use of child labour in foreign factories. While not necessarily illegal, it goes against their own moral beliefs.
- Professional values and corporate values
An individual is put into a position by their employer where they are required to amend a set of accounts to improve the profit figure. Such amendments go against the code of conduct of their accountancy body.
Spotting an ethical dilemma
Accountants will encounter situations throughout their professional life that present them with an ethical dilemma or conflict of interest. The following questions will help develop your ability to identify problems in the future. Use the information given to identify the ethical principles at stake.
You are under time pressure to complete this month’s management accounts. Important sales information is provided by the sales department, usually in good time for you to incorporate it into the final figures. The sales report is delayed this month due to staff sickness and you will not receive the information until a few hours before the accounts are due for presentation to the finance director.
There is an integrity issue here. While you may have time to include the information in the management
accounts, it is unlikely that you will be able to check its accuracy as well. Therefore you risk misinforming the finance director of the month’s sales.
QUESTION Tax advice
During your lunch break, your company’s human resources manager has asked you for some help. She has recently inherited a considerable sum of money and would like you to calculate her inheritance tax and capital gains tax liabilities. She has also asked you for advice on how she should invest the money.
The issues here are professional competence and due care. Unless you are a tax expert, it is unlikely that you would have sufficient competence to calculate the tax liabilities. Giving financial advice can be a minefield, and you may need to be qualified under the financial services regulations before you could do so.
Even if you did have the required competence, it is probable that you could not offer due care, as any advice you give would be on the spot, and you would not have been able to look into the matter in enough detail.
QUESTION Holiday cover
You have been asked to cover the duties of one of your colleagues while they are on holiday. One of their duties is to distribute the management accounts to the department managers a few days before they hold the monthly accounts meeting. Before they left, your colleague told you, ‘Just print off the accounts and put them on each manager’s desk’.
Confidentiality is the issue here. Management accounts are usually only for the eyes of top management, so you should reduce the risk of them getting into the hands of anyone else. Leaving unprotected copies on a desk makes them vulnerable. Ideally they should be handed directly to the manager concerned, or sealed in a confidential envelope if they must be left on their desk.
QUESTION Cunning plan
Your finance director has asked you to join a team planning a takeover of one of your company’s suppliers. An old school friend works as an accountant for the company concerned, the finance director knows this, and has asked you to try and find out ‘anything that might help the takeover succeed, but it must remain secret’.
There are three issues here. Firstly you have a conflict of interest as the finance director wants you to keep the takeover a secret, but you probably feel that you should tell your friend what is happening as it may affect their job.
Second, the finance director is asking you to deceive your friend. Deception is unprofessional behaviour and will break your ethical guidelines. Therefore the situation is presenting you with two conflicting demands. It is worth remembering that no employer can ask you to break your ethical rules.
Finally, the request to break your own ethical guidelines constitutes unprofessional behaviour by the finance director. You should consider reporting him to the relevant body.
QUESTION Bonus time
Your company runs a cost-saving initiative whereby the department head that saves the most cost in the year receives a bonus. Your role is to collect the cost-saving data from each department and to present the results to the finance director.
After the initiative is over, the successful department head presents you with tickets to see your favourite music group in a sold-out concert.
The issue here is objectivity. The other department heads could see the gift as a reward for ‘fixing’ the result, or for ‘special favours’. It may also bias your future work and therefore should be refused.
|9||Resolution of ethical conflicts|
We have seen there are many situations that could cause ethical conflicts, ranging from the trivial to the very serious (such as fraud or illegal acts).The method of resolving them that ACCA sets out for its members and students is laid down in its ethical code (ACCA, 2016); however, many organisations propose an alternative process to evaluate a decision.
Individuals should ask themselves:
Do I feel comfortable with others knowing about my decision, is my decision defensible?
Have I considered all parties who may be affected by the decision and have all factors been taken into account such as mitigating circumstances?
Would a reasonable third party view the decision as fair?
QUESTION Dealing with ethical dilemmas
Which of the following would not be a suitable question to ask yourself when resolving an ethical dilemma?
- Would my colleagues think my solution is reasonable?
- Have I thought about all the possible consequences of my solution?
- Could I defend my solution under public scrutiny? D Does my solution benefit my career?
D The best solution to an ethical dilemma should be taken whether or not it improves your career.
9.1 Raising and dealing with ethical dilemmas
A number of options are available for accountants wishing to raise ethical issues, for example:
- Directly with their accountancy body
- Within their organisation via a help or whistleblower line
- To external organisations such as customers, suppliers or agents
However they choose to proceed, ACCA members and students should ensure it is consistent with ACCA’s Ethical Code (ACCA, 2016).
The following diagram suggests an approach for conflict resolution.
At all stages it is recommended that members document the substance of the issue and all discussions and decisions made.
|There are three main sources of rules that regulate behaviour of individuals and businesses. These are:
– The law
– Non-legal rules and regulations
|N||Organisations are not autonomous; they exist to serve some external purpose, usually manifested in a group such as shareholders in a company or trustees of a charity. In particular, the strategic apex must not lose sight of this accountability. All managers have a duty of faithful service to the external purpose of the organisation and this lies most heavily on the shoulders of those at the strategic apex.|
|N||Ethics and morality are about right and wrong behaviour. Western thinking about ethics tends to be based on ideas about duty and consequences. Unfortunately, such thinking often fails to indicate a single clear course of action. Ethical thinking is also influenced by the concepts of virtue and rights.|
|N||Ethical conduct by all members should be a major concern for management. Inside the organisation, a compliance-based approach highlights conformity with the law. An integrity-based approach suggests a wider remit, incorporating ethics in the organisation’s values and culture. Organisations sometimes issue codes of conduct to employees. Many employees are bound by professional codes of conduct.|
|N||As an accountant, your values and attitudes flow through everything you do professionally. They contribute to the trust the wider community puts in the profession and the perception it has of it.|
|N||The International Federation of Accountants (IFAC) is an international body representing all the major accountancy bodies across the world. Its mission is to develop the high standards of professional accountants and enhance the quality of services they provide.|
|The personal qualities that an accountant should
| demonstrate are:
|– Responsibility – Timeliness||– Respect|
|The professional qualities an accountant should demonstrate are:
– Independence – Accountability
– Scepticism – Social responsibility
|N||Ethical dilemmas are situations where two ethical values or requirements seem to be incompatible. They can also arise where two conflicting demands or obligations are placed on an individual.|
|N||A conflict of interest arises where an individual has a duty to two or more parties. While working, information or other matters may arise that mean they cannot continue work for one party without harming another.|
|Ethical conflicts may arise from:
• Pressure from an overbearing colleague or from family or friends
• Members asked to act contrary to technical and/or professional standards
• Divided loyalties between colleagues and professional standards
• Publication of misleading information
• Members having to do work beyond their degree of expertise or experience they possess
• Personal relationships with other employees or clients
• Gifts and hospitality being offered
- Ethics are a set of …………………………………. …………………………………. that …………………………………. ………………………………….
- What is the name given to guidance issued (usually by a governing body) to individuals to judge whether they are acting ethically in particular circumstances?
- List five personal qualities expected of an accountant.
- ………………………………… (d) C………………………………….
- ………………………………… (e) R………………………………….
- Fiduciary responsibility is a duty of faithful service. Is this true or false?
- Why might social responsibility have an adverse effect on shareholders’ interests?
- One approach to managing ethics is to ensure primarily that the company acts within the letter of the law. What type of approach is this?
- Compliance-based approach C Commercial-based approach
- Integrity-based approach
- Tick true or false for the following. The fundamental principles of the ACCA Code of Ethics and Conduct are
Professional competence and due care
- Moral principles, guide behaviour
- Code of Ethics or Code of Conduct
- (a) Reliability
- (d) Courtesy
- Fiduciary responsibility is the duty of faithful service.
- Social responsibility action may:
- Incur additional costs (for example, environmental monitoring)
- Decrease revenues (if, say, a company refused to supply to certain customers)
- Divert employee effort away from profitable activities
- Divert funds away from the business into social projects
- A The compliance-based approach is designed to ensure that the company acts within the letter of the law and that violations are prevented, detected and punished
- True False
Professional behaviour ü
Professional competence and due care ü
|Now try …|
|Attempt the questions below from the Practice Question Bank