Risk & Economy » Regulation » Importance of being honest

As part of the ICAEW’s ‘Information for Better Markets’ initiative, the
institute has produced a new report, Reporting with Integrity, the purpose of
which is to look at what integrity is and why it is important for economic
activity in general and for business reporting in particular. It says that while
the importance of integrity is widely acknowledged, there is no generally
accepted understanding of what it means.

The report starts by highlighting five key aspects of integrity: moral
values; motives; commitments; quality; and achievements. To explain how these
come together, the report says: “An individual of integrity is guided by moral
values and motives which are translated into commitments. Such an individual
draws on qualities such as rationality and open mindedness to assess what the
right thing to do is from a wider community perspective. An individual’s
commitments in pursuit of doing the right thing are also likely to require
personal qualities, including perseverance and courage, if they are to lead to
the hard-won achievements expected of individuals of integrity.”

Around 20 questions are listed on which comment is invited by 30 November

Philosophy of ethics
At times very philosophical in its approach, the first part of the report seeks
to examine how integrity (actual and perceived) inspires trust, and makes the
point that markets depend on high quality information. “Reliable information
flows underpinned by integrity are necessary to allocate resources efficiently
through markets,” says the report. It adds, quoting a 1970 article from The
Quarterly Journal of Economics, that “The cost of dishonesty, therefore, lies
not only in the amount by which the purchaser is cheated; the cost must also
include the loss incurred from driving legitimate business out of existence.”

As it is obviously so difficult to define what is meant by integrity, it’s
fair to ask, why bother? “Some would also argue that it is not necessary to
articulate precisely what is meant by integrity since its absence is painfully
obvious,” the report acknowledges.

Admit mistakes
But it insists that a more analytical approach to integrity would result in not
only a better understanding of what integrity is but also:

• A greater ability to distinguish between weak and strong claims to
integrity; and

• A better grasp of how to uphold integrity and how to uphold the public

A person of integrity is thought to be one who will be likely to be honest
and truthful; be fair; comply with laws; promote community interests; be open
and adaptable; take corrective action; and show consistency. The point about
taking corrective action is interesting: misjudgement, misunderstanding,
inadequate information or simple human error will cause people to make mistakes.
But people of integrity will be willing to admit they were wrong and take
corrective action. “While integrity accommodates making mistakes, it does not
accommodate recognising a mistake and not trying to rectify it.”

Having said that, a person of integrity is normally associated with
“consistent, credible and predictable patterns of behaviour”, the report says.
However, it explains how it is possible for people to consistently demonstrate
integrity in their public life, but not in their private life.

“People have a tendency to compartmentalise themselves according to roles or
spheres of personal, professional and social activities. While individuals
constantly move from one sphere of activity to another, each sphere of activity
is relatively autonomous from others and has its own norms and values.”

It adds: “Although consistency is an important behavioural trait associated
with integrity, it is a matter of debate whether integrity is required in all
roles and activities of a person’s life. Perhaps the real issue is not whether a
person acts with integrity in their personal, business and social activities,
but whether a person is perceived to be hypocritical by claiming to pursue their
espoused principles, ideals and commitments in areas of activity where this is
not true.”

Organisations and accountants
Organisations of integrity are more than collections of people who individually
have integrity. There are five drivers of organisational integrity: leadership;
strategy; policies; information; and culture.

The role accountants play was summed up by the Prince of Wales in a speech to
the ICAEW in 2005. “The essence of an accountant’s professional contribution is
not knowledge of figures and finance, important as this is, but integrity: the
integrity to provide the meaningful, accurate and timely information needed for
the financial decision-making that underpins the success of our economy, the
integrity of the independent audit which is fundamental to business trust and
confidence and the integrity and impartiality of the business advice offered by
firms and individuals,” he said.

In the chapter on promoting integrity in reporting, the report quotes from a
book by Professor David Flint who wrote in 1982 – long before Enron, Polly Peck,
codes of ethics, or half-inch thick accounting standards – “…accounts which are
required to give a true and fair view should comply with specific statutory
requirements of disclosure and presentation…; they should ordinarily be prepared
in accordance with normal accounting practice and in compliance with Statements
of Standard Accounting Practice, recognising, however, that these are a means to
an end and not the end itself.”

For details on the ICAEW’s Information for Better Markets reports, go to