- Black went on to pursue a distinguished career which included being a past president of the Institute of Chartered Accountants in Australia and being awarded the Order of Australia for his services to the profession
- Over the past decade, he helped guide the profession’s Code of Ethics (APES 110)
- Black says there’s been a big change in community expectations regarding business ethics in the three or so decades since he entered the profession
By Tony Malkovic
Photography by Cameron Ramsay
A slew of media reports on the Panama Papers and claims that offshore tax evasion costs Australia some A$50b a year has put the spotlight on business ethics. So what’s the key to doing business morally right and socially responsibly — without ruining your career and company?
Stuart Black FCA knows that life, like business, is all about making choices. And he’s made some good ones in his long career as a chartered accountant and company director.
One such is the decision he made when enrolling at university in Sydney in the early 1970s with plans to be a geologist. With the mining industry in a slump at the time, he decided at the last minute to study accounting instead.
When he went for his first accounting job, the company made the right choice — but possibly for the wrong reason. “It turned out they needed a prop for the upcoming rugby game against Coopers & Lybrand and I got the job if I could start that week,” Black recalls.
“It was lot easier then than it is for graduates today.”
Black went on to pursue a distinguished career which included being a past president of the Institute of Chartered Accountants in Australia and being awarded the Order of Australia for his services to the profession.
In 2006, he became the inaugural chair of the Australian Accounting Professional and Ethical Standards Board (APESB) and has played a pivotal role in helping set professional standards.
Over the past decade, he helped guide the profession’s Code of Ethics (APES 110). He recently stepped down as a director of the APESB.
Black says there’s been a big change in community expectations regarding business ethics in the three or so decades since he entered the profession.
“Back in the 1970s when I started, there was clearly a view that people should try to minimise their tax, for example, that confidentiality of clients was unbreakable, and there wasn’t a lot of emphasis on outside parties,” he says.
“The concept of corporate social responsibility wasn’t seen as quite so important.”
The major change since those days, he says, is business going global.
“Companies were simpler, they didn’t have large international operations,” he says.
“The questions we face now of profit transfer offshore by international companies really wasn’t a major thing that was capturing the public’s imagination.
“As an accountant back then, society almost thought that the tax advisers’ job was to minimise tax.
“You were encouraged to find loopholes, within the bounds of law, to minimise tax. That was what you were paid for and rewarded for.”
Black believes there are four key areas where the profession and business community are currently facing ethical challenges.
Many of the tax planning avenues that would have been common place in the 1970s and 1980s would be considered tax evasion, or at least morally indefensible today, he says.
Back then, Australia’s richest person, media magnate Kerry Packer, created headlines with his thoughts on paying tax.
“If anybody in this country doesn't minimise their tax they want their heads read, because as a government I can tell you you're not spending it that well that we should be donating extra,” he thundered to a parliamentary hearing.
Black reckons it was probably a popular sentiment.
“I think the vast majority of Australians would have agreed with his quote at that time.”
People’s views of what they consider ethical have become more flexible.
Pay your share
But, a quarter of a century on, things have changed. Or have they?
Corporate social responsibility and outrage over offshore tax avoidance are now on the agenda — but Black says self-interest is still a factor.
“People’s views of what they consider ethical have become more flexible,” he says.
“I think society as a whole has become more driven by money and looking after yourself.”
People might have differing values: there are different approaches to loyalty, people seem to focus on short-term gains, and they’re under pressure to find a job and succeed.
“I think with more competition, they feel they have to get tougher and maybe they have to bend the rules,” Black suggests.
“But the people involved never see things as ethical shortcuts. As I often say to people, I’ve yet to find someone who says ‘I’m unethical’.
“But they do have this tremendous ability to justify what they’re doing.
“It’s a bit like someone involved in fraud, they’ll usually swear black and blue they’re not defrauding anyone.”
Black likens debates over tax minimisation to rows in sport over performance-enhancing drugs.
“They (sportspeople) justify it by saying it’s not an unfair advantage: ‘Everyone else is doing it, so why shouldn’t I?’"
In business, the situation is complicated by the fact that as lawmakers try to close tax loopholes, they often create a cost burden for the other 99 per cent of taxpayers who do the right thing.
“This is one reason why our tax act is the mess it is now.”
Black says the area of financial services is another ethics flashpoint.
He says a whole new industry has grown from what was traditionally considered part of an accountant’s or bank manager’s role.
But it’s one that is severely conflicted when it came to people providing investment or insurance advice as well as flogging products they earn commission on.
“And the industry became so large it has fought tooth and nail to maintain those old systems, which in my opinion are characterised by flawed remuneration structures,” says Black.
The industry has moved to more disclosure as an answer.
“But I don’t think the disclosure has gone far enough in the area of voluntary informed consent,” says Black.
“You get a product disclosure statement but how many people ever read a PDS? Or, if they do, can understand it?
“They’re moving in the right direction, they’re moved away from commissions to a fee-for-service, but a lot of people still use an asset-based model which is a fee based on funds under management.”
That can be problematic where, say, an adviser has a client with money that can be used to either pay off the family home or invest in a portfolio.
“One creates far more money for the adviser than the other,” he says.
The federal government (via ASIC) has embarked upon its Future of Financial Advice reforms but there’s a lot to tackle.
“I’m not sure the government’s answers will have a code of conduct that will be effective in improving ethics without addressing remuneration models,” he says.
“It’s talk. It’s going to be difficult to do in practice until you tackle the fundamental problems underneath.”
Since its formation in 2006, the APESB has refined the Code of Ethics for Professional Accountants and other professional standards for the accounting profession in Australia.
A key focus now is harmonising Australian standards with those in other parts of the world, especially in relation to non-compliance with laws and regulations (NOCLAR).
NOCLAR involves imposing an obligation on accountants to disclose, in certain circumstances, a client’s breaches of legislation.
In effect, an ethical dilemma will arise for accountants, either in practice or business, who’d be required to break client confidentiality and disclose breaches of legislation to the relevant authorities.
“It is another example of the stretch of ethics beyond a legal obligation to a client to an obligation to external parties. That is likely to cause difficulties in complying in practice,” says Black.
Wherever there’s money there are ethical considerations, Black says.
“Greed is a very human emotion which is very hard to suppress,” he explains.
“And remuneration is the number one thing that drives people to make wrong decisions.
“Whether it’s overstating profits in a company’s accounts because it gets them over a hurdle for their bonus or whether it’s selling someone a service or product they don’t need — it’s often driven by a remuneration model.”
And in many companies, things can be a matter of follow the leader.
“If you have leaders in organisations who have those wrong views, it’s surprising how quickly those views get put through the organisation,” he points out.
Black says the Code of Ethics emphasises accountants’ responsibility to act in the public interest but acknowledges the public interest is very hard to define.
He says it’s based on five fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. These provide an excellent framework for ethical decision making.
“The Code works reasonably well for members in public practice but because of the differences in business, it’s really hard to apply many of the principles easily in business,” he says.
That’s because in public practice, if a client isn’t ethical, you can always say ‘I won’t do your work’ and you can focus on your other clients.
“But it’s a completely different story if you’re in business,” Black says.
“If you’ve got a mortgage and kids at school and all those things, it takes a lot of moral courage to tell your employer: ‘I don’t like it, I’m leaving’.”
It can be even trickier if you become a whistleblower.
“People who have blown the whistle in corporate situations are likely to be sued for breach of contract and to boot have found it very hard to get a job anywhere else,” he says.
“In ethics, the moral side of things is seen to be black and white — but ethics is rarely black and white. It asks you to do the impossible sometimes.
“The challenge for those in business is to discover ways to do what is morally right and socially responsible without ruining your career and company.”
In other words, to make good choices.
Tony Malkovic is an award-winning freelance journalist.
This article was first published in the October 2016 issue of Acuity magazine.