Tips on Navigating Ethical Dilemmas

Earlier this week I attended the annual conference of the Association of Certified Fraud Examiners, where some 4,000 people gathered to talk all things fraud and how to prevent it. Several sessions, however, looked at the larger issue of the ethical dilemmas employees often face when encountering examples of fraud. Let’s pull on that thread.

After all, fraud and ethical dilemmas are closely intertwined. Some employees might go through an ethical dilemma before they commit a fraud, where the ethics and compliance team has an opportunity to intercept the wrongdoing before it happens. Other employees might discover a fraud but go through an ethical dilemma about whether to report it, so understanding the nature of those dilemmas is crucial for a strong speakup culture.

Plus, compliance officers themselves often go through ethical dilemmas as you encounter frauds or other corporate misconduct. What happens if you report something to senior management and they take no action? How do you evaluate what to do next, and what your decision means for you both personally and professionally? 

Those were the themes debated in the ACFE sessions. I took lots of notes to share with the rest of the class. 

First was a superb session led by Bethmara Kessler, a former anti-fraud and compliance executive at Campbell Soup, Warner Music, Limited Brands, and elsewhere. Kessler’s main point was that navigating your way through an ethical dilemma is not about going through a checklist of questions to arrive at the correct decision. 

Ethical dilemmas are more complex. A person confronting one might have various interests competing against each other in your conscience as you struggle with what to do. So resolving the dilemma is more about having the right mental tools to assess those competing interests in a thoughtful, objective way.

A Practical Example of an Ethical Dilemma

Kessler gave the example of a rank-and-file employee who discovers that his close colleague at work, someone our hypothetical employee has known for years as a good friend, is embezzling money to help defray personal expenses during some difficult time (divorce, sick child, something like that). What should that hypothetical employee do?

At first glance it’s easy for a compliance officer to say, “Report it” — but let’s hold our ethical horses. Is it more ethical to report the embezzlement anonymously, which deceives your friend but preserves the friendship, while also honoring your duty of trust to the company? Is it more ethical to tell the embezzler to disclose his fraud himself within 24 hours, or you will? 

What about counseling the embezzler to stop, but not reporting it at all? Because let’s be honest: most companies prefer to hush up frauds if possible, rather than go through the messy process of disclosing to investors and law enforcement. If senior management can make that decision on behalf of the company, why can’t our hypothetical employee? 

Kessler’s point was that ethical dilemmas can be far more complicated for employees than first appears, and ethics and compliance officers would be foolish to ignore it. 

Compliance officers themselves — or corporate controllers, internal auditors, and other gatekeepers — have even more complicated tensions when you encounter an ethical dilemma yourself. Say you discover a material error in the company’s financial reporting; you report it to management, which fixes the underlying control weakness and blurs away the error in the next period as an “adjustment” to the prior period. Did the company behave unethically? Are you behaving unethically if you take no further action? Are you behaving illegally, even, if you know the company didn’t voluntarily self-disclose its error to regulators and you kept quiet? 

Then again, did the company behave unethically? What if reporting the error to regulators, with all the attendant costs for an investigation costs, shareholder litigation, and whatnot, costs eight times the value of the error itself? Shareholders pay for that. So isn’t management upholding its duty to shareholders, even if it’s not upholding its duty to regulators? 

Angels could dance on the head of this hypothetical pin all day long. Kessler simply demonstrated that ethical dilemmas can be nuanced enough to make a person’s head spin. Compliance officers need to develop ethics messaging, training, and other tools to help employees work through those difficult scenarios.

Parsing the Ethics Issues

Kessler also provided some great questions that compliance officers should ponder, both to better understand an individual’s perspective as he or she works through an ethical dilemma; and how the company can work to provide a strong ethical infrastructure so the person reaches a choice in step with your ethics and compliance goals.

Let’s start with the individual facing the dilemma. He or she is likely to wonder… 

  • Why does this situation make me feel uncomfortable? Does the situation go against my moral values? Does it put multiple stakeholder groups in conflict? Something else? 
  • How do I personally feel about the issue? (Side note: yet another reason why having a diverse management team is important, so managers can better understand how a diverse workforce might perceive an ethical dilemma.) 
  • Is this a big deal for the organization?
  • Is this a big deal for certain stakeholder groups? 
  • Would others think this situation is more wrong than right? 
  • How safe do I feel to come forward or take action? 

That last point about coming forward is, of course, near and dear to every compliance officer’s heart. You want to establish a corporate culture where employees feel comfortable speaking up about misconduct they see, and ideally even speaking up about the pressures and worries they have that might be driving them to consider an unethical act. Then you (or HR, or an employee assistance program of some kind, or whatever) can help them get through their ordeal without resorting to unethical action at all.

Ethics and compliance teams also need to think carefully about the ethical dilemmas employees might face: what the issues specifically are, and why they challenge your employees’ ethical sensibilities. So for example:

  • In what specific contexts might ethical risks arise? 
  • What are the tensions between each situation and your company’s core values? 
  • Who are the stakeholders with something at risk?
  • What are the potential impacts and outcomes, including legal, regulatory, financial, or reputation implications? 

From there, you can start thinking about strategies or precautions to mitigate those ethical risks — that is, to reduce the chance of your employees encountering an ethical dilemma in the first place, or to make the ethical choice easier for them to take when they do encounter one. 

What might those strategies be? We can cover that in another post on another day. For now, kudos to Kessler for helping to illuminate the complicated landscape here. 

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