The once trendy notion that business ethics could be safely relegated to the bottom of the corporate "things to do" list has lost its relevance, primarily due to the large number of global high-profile corporate failures and accounting scandals. Ethical failures have become facts of the new century, not just textbook possibilities, and the KPMG seminal breach of ethics in SA adds one more indictment to this despicable global saga.

These scandals are quite a record for an industry that, at least until recently, managed to retain an image as staid and dependable. Concern has also mounted of late about whether auditors are truly independent of their clients. Accounting firms have come to rely more on consulting work than on traditional audits for their revenue, raising questions about their ability to stand up to clients if improper account practice is suspected.

There has also been public disquiet about the role professional auditors and audit firms have played in these corporate scandals. While the story behind these corporate failures is always complex, a lack of ethical behaviour by many individuals is a big part of it.

For the audit profession, these developments have again highlighted the gap between public expectations and the reality of the role of the auditor. The reports of these high-profile misdemeanours are as discouraging as they are elucidating; they have left ordinary citizens feeling cynical, pessimistic and even helpless regarding the state of business leadership in South African society.

Such corporate failures and accounting scandals shake the foundations of investor confidence in the transparency, integrity and accountability of corporations and capital markets. The damage, both economic and social, has been incalculable, and the implications are far-reaching for corporate management, company directors, audit firms and the investing public.

Confidence in the capital markets depends on confidence that the reporting and regulatory process will deliver accountability and transparency. This, in turn, depends on integrity – and integrity depends on one’s core ethical beliefs and behaviour.

The KPMG scandal has acted as a wake-up call that confidence in gatekeepers and financial markets cannot be taken for granted. The loss of confidence in the integrity of the gatekeepers of the public trust has affected the country’s market trust

In the KPMG scandal, the effects are even more widespread and damaging, especially when one considers the billions of rand earmarked for national infrastructure projects that have gone "astray" – mostly in the pockets of a new elite class known as "tenderpreneurs" — or in simple terms, thieves. This fiasco has denied thousands of indigent unemployed hopefuls the real prospect of procuring jobs to improve their lives.

An array of factors contributed to KPMG debacle, but one thing is for certain – the billions of rand in corporate value lost were due in significant part to unscrupulous management and boards of directors at state-owned enterprises that failed to meet their fiduciary responsibilities.

Through complicity, KPMG as auditors also played a major role in these events.

For the audit profession, these developments have again highlighted the gap between public expectations and the reality of the role of the auditor. KPMG failed in this responsibility because its independence from the management of Gupta family-related and other accounts was compromised.

The biggest challenge ahead for KPMG and the auditing profession is to identify how ethical behaviour can be – and be seen to be – restored, as it is this that will be the basis for the reconstruction of public trust in the profession and in the practice of auditing. KPMG owes it to those innocent colleagues who have not only been tainted by this event, but whose jobs and lives are in a precarious situation through no fault of their own.

KPMG must do the right thing and reveal the truth — the whole truth and nothing but the truth. The KPMG scandal raises fundamental issues about morality in high places that will never quite go away, no matter what may be done to prevent any recurrence. Whereas the technical remedies adopted may tighten outside controls and inside behaviour, they still rely on the enforcement of professional standards of conduct and the integrity of individual practitioners.

While the search for the ideal may seem futile, the more society tackles deviance and corruption, the closer it gets to good governance and the clean hands that are crucial in building confidence in all public institutions and maintaining civilised social relations. Central to ensuring an honest and trustworthy society is the profession of accounting and the activities of financial auditors.

The auditing and accounting professions must be seen to be doing the right thing, especially in terms of their moral side and their role in combating misconduct by upholding ethical financial transactions, enforcing norms of professional conduct, strengthening public accountability, and exposing wrongdoing by all guardians of public trust.

The KPMG scandal has acted as a wake-up call that confidence in gatekeepers and financial markets cannot be taken for granted. The loss of confidence in the integrity of the gatekeepers of the public trust has affected the country’s market trust.

Indeed, repeated assaults on the integrity of markets will damage trust in the South African financial markets, causing great uncertainty, increased risk and rises in the cost of capital.

The downward shift in ethical standards means that we cannot simply rely on more aggressive enforcement by regulators and prosecutors. A more fundamental response to the paradigm shift in ethical standards is needed as well. In dealing with the loss of trust in financial markets, it is necessary to go beyond the recent spectacular irregularities at KPMG and others.

KPMG’s fall from grace is not the end of self-indulgence. It is simply a milestone.

While lying and deceit will always exist, there is a heightened awareness on the part of boards and investors. Without a doubt, corporate cultures must reward ethical conduct and penalise wrongdoing at every turn. Integrity matters.

Punishment serves as a deterrent. But a clear-cut mission and a corporate code of ethics is crucial. It’s the foundation on which boards, managers and workers rely when they reach a fork in the road. It’s the principle they use when deciding whether to emphasise short-term gain or long-term stability.

The key to creating a just and ethical corporate culture therefore is to breed fair and lasting business principles. Indeed, auditing firms will be measured by the traditions they build and the way in which they manage their ethical relationships with all stakeholders.

After all, integrity is essential and irreplaceable and is the most valuable asset for any corporate endeavour.

As Socrates advised: "The way to gain a good reputation is to endeavour to be what you desire to appear." This does not just apply to business leaders, it applies to everyone, including those in any position of responsibility. Socrates suggests a good reputation is impossible without endeavour, which may require a lengthy journey for all involved.

• Soni is director of research and innovation at Regent Business School. He writes in his personal capacity.

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