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| Allow me to begin with the thought that any discussion on strengthening fiscal responsibility necessitates a reflection on morals and ethics. Society measures your professional activities, as Certified Public Accountants (CPA), against a high benchmark, laid out by a plethora of codes, rules, and norms. Yet, as government officers, you also hold the special role of gatekeepers of truth and transparency in good governance. Public trust in the government depends on the integrity of information regarding its performance. Many times over, governments forfeited the trust of the governed when the truth about their governance got buried beneath a mosaic of lies. Moral Courage for the Gatekeepers of Transparency*
by
Chief Justice Reynato S. Puno
Supreme Court
Allow me to begin with the thought that any discussion on
strengthening fiscal responsibility necessitates a reflection on morals and
ethics. Society measures your professional activities, as Certified Public
Accountants (CPA), against a high benchmark, laid out by a plethora of
codes, rules, and norms. Yet, as government officers, you also hold the
special role of gatekeepers of truth and transparency in good governance.
Public trust in the government depends on the integrity of information
regarding its performance. Many times over, governments forfeited the trust
of the governed when the truth about their governance got buried beneath a
mosaic of lies. Not a few governments rose or fell on the issue of fiscal
responsibility. Those in charge of fiscal responsibility often take an
acrobatic walk on top of a thin wall, a wall that determines the morally inept
from the ethically sound. More often than not, those who take the difficult
walk are the CPAs and financial officers.
Yours is a daunting task. For, sad to state, we live and work in
ethically bereft cultures. In her book The Seven Signs of Ethical Collapse,
business ethics Professor Marianne M. Jennings tells us of the seven factors
that have often caused the ethical collapse of an organization, government
and non government alike. They include the inordinate desire to maintain a
*Delivered before the Government Association of Certified Public Accountants (GACPA), Century Park
Hotel, Manila, July 22, 2009.
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favorable public image, fear and silence of its members against
wrongdoings, a “bigger-than-life” Chief Executive Officer (CEO), young
and inexperienced executives, a weak board of directors, conflicts of interest
and self-dealing, and an unusual and misleading commitment to good
deeds.1 Today, I would like to focus on two of these causes of ethical
collapse: the preoccupation and pressure to maintain a favorable public
image and the culture of fear and silence to protect irregularities within the
organization.
The chronicle of corporate scandals (especially those publicly listed)
shows that one of their primary causes is the compelling desire to project to
the public their performance. They resort to the bleaching of facts to
outright deception and the deception is usually done through the
manipulation of numbers. The hocus pocus would have been impossible
without the connivance of certain professionals. Enron, WorldCom, Tyco,
and HealthSouth are but a few examples of giant companies that collapsed
due to the fudging of facts ordered by their executives. But a closer look
into this unethical practice reveals something even more disturbing than the
CEO with horse blinders: the acquiescence, if not participation, of financial
officers and accountants. Instead of representing the true financial state of
the organization, they became contortionists, experts in breaking the tables
of truth. The public is given the illusion of an organization performing
better than they do in reality. Wealth is fabricated out of deceptive numbers
1 See Id.
3
and words but the bubbles they create do not last. Always, the end is
tragedy: companies collapsed and governments tumble down.
The now defunct energy titan Enron is a prime example of unethical
manipulation of numbers to project a favorable image of the company and
the abuse of accounting practices to deceive the public. All of you are
familiar with the Financial Accounting Standards. Investigations showed
that the “mark-to-market” method of accounting gave Enron a lot of wiggle
space in bloating its earnings.2 The Financial Accounting Standard allowed
energy traders to include in current earnings profits they expected to earn on
energy contracts.3 Enron posted noncash earnings they expected to realize
still in the future. These comprised 80% of the total earnings reported.4 In
other words, Enron recorded revenues for energy contracts that were years
away from being earned. Ingrained in Enron’s culture was the relentless
pressure exerted on employees to meet numbers that would artificially
inflate its earnings and, consequently, boost its stock price. This culture of
greed fostered an environment in which the immoral goal was projecting
exponential growth through abuse of accounting rules.5 There was,
however, no way those doctored numbers could hold Enron on top of the
corporate world. It was bound to collapse and it did with shock waves that
shook the financial world.
2 Id. at 26-7.
3 Id.
4 Id.
5 See id. at 28.
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Other corporate giants experienced the same fate as Enron.
WorldCom’s representation of an incredible eleven billion dollars stemmed
from a clever merger accounting system. WorldCom acquired one company
after another, adding to the complexity of an accounting system that would
in effect allow them to inflate their earnings. The merger accounting system
caused confusion for analysts, who could not figure out why its earnings
were growing. Other companies had unexplainable double-digit growth in
their earnings. Investigations revealed that executives --pushed to the brink
of a legal and ethical fall -- maneuvered numbers in, out, and around their
books without any sound basis for doing so.
A further study of this ethical shortcut done due to the desire to
project a good performance shows that it plagues government as well. For
instance, a similar culture of pressure pervaded the National Aeronautics
System Administration (NASA), and the result was tragedy. Government
reports following the crash of the space shuttle Columbia revealed that
budget and schedule constraints pressured NASA employees to make
decisions sacrificing safety considerations.6 Similar to the work
environments as Enron and WorldCom, this pressure forced employees to
ditch prudence and diligent calculation in order to look good to the people.7
The pressure at NASA led to the same tragedy -- but instead of a decline in
stock value, lives were lost.
6 Id. at 43-44.
7 See id.
5
The second frequent cause of ethical collapse is the culture of fear and
silence cultivated in an organization. Oftentimes, the personalities of those
who lead the organization are intimidating, results-oriented,
uncompromising and unforgiving. Any form of dissidence or criticism is
outrightly punished.8 On the other hand, those who work with blind loyalty
to achieve the myopic goals of growth are rewarded.9
Instilling fear and silence among the subordinates can be blatant or
subtle. Dismissals, reprimands, warnings, and the filing of cases are among
the blatant ways of keeping followers on line. But there also many subtle
ways. Former Tyco CEO Dennis Kozlowski used to present awards to the
“worst warehouse manager” in their annual banquets. The public
humiliation had a terror effect on employees. Similarly, Enron had its subtle
ways of communicating fear to its employees. During a farewell event of
one of its executives, former CEO Jeffrey Skilling starred in a humorous
skit, in which he called an accountant a “spoilsport” for objecting to a
“hypothetical future value accounting” that would add “ka-zillion dollars to
the bottom line.”10 Though in jest, the immoral desire of the highest officer
was made known to all.
Business experts say that moral transgressions often originate from
gray areas where the limits set by law are blurred. This brings us to the
relationship of law to ethics. Just like most of the other professionals,
8 Id. at 61-79.
9 Id. at 28.
10 Id. at 64.
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accountants have laws, rules and regulations for their guidance. But legal
norms do not guarantee ethical conduct. More than in private corporations,
it is in the government where ethics should reign supreme. In private
corporations, the officers are primarily tasked to earn profits for their
stockholders. This is not true in government, where the mission of officials
-- both the elected and the unelected -- is to serve the general interest of the
greatest number of people. Private corporations are concerned with
accumulation of wealth for the benefit of a few; government is concerned
with the wise use of wealth to promote the economic prosperity of all the
people. Good governance can be achieved only when there is fiscal
responsibility and it requires transparency. You are the gatekeepers of
transparency and there is a moral dimension to your work that cannot be
overlooked: you need not become magicians of numbers to make our leaders
smell like roses; you need to discharge your duty without fear or favor and
your only loyalty is to the people.
I had previously bewailed that ours is a country coping with an
epidemic of ignorance and this epidemic has to be halted if our people have
to participate more meaningfully and intelligently in checking misfeasance
and malfeasance in government. Our laws try to curb corporate fraud to
protect company shareholders and one mechanism to do this is the
strengthening of their right to information. In the same vein, we are all
shareholders in the government; our taxes run the government and it is our
right to know that these taxes are spent for the people’s welfare. Yours is
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the duty to safeguard the people’s money. That duty becomes more
sacrosanct at times of economic difficulties, when more and more of the
people are falling below the poverty line. Fiscal responsibility is
responsibility to protect from bad government not only the present
generation but the generation yet unborn and it cannot be trumped by
unethical practices. You hold the key to the establishment of the kind of
government we erected in our Constitution, a government where a public
office is a public trust, a government that is ruled by the people and not a
government that misrules the people.
Thank you and mabuhay po kayo!
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