Posted by: Elmer Brabante | September 29, 2009

Moral Courage for the Gatekeepers of Transparency

Moral Courage for the Gatekeepers of Transparency 


Chief Justice Reynato S. Puno

Supreme Court

Delivered before the Government Association of Certified Public Accountants (GACPA), Century Park

Hotel, Manila, July 22, 2009.


Allow me to 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 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.  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 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.  The Financial Accounting Standard allowed energy traders to include in current earnings profits they expected to earn on energy contracts. Enron posted noncash earnings they expected to realize still in the future. These comprised 80% of the total earnings reported.  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.  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. 

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. 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. The pressure at NASA led to the same tragedy — but instead of a decline in stock value, lives were lost. 

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.  On the other hand, those who work with blind loyalty to achieve the myopic goals of growth are rewarded. 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.”  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, 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 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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