Working within the gray areas.

• Author: Gentile, Mary C.
• Position: ETHICS

Ethics in financial transactions and among financial executives is often invoked as an essential condition of effective and sustainable enterprise management. On the other hand, the reality of day-today business pressures suggests that financial executives run into questionable areas all the time and may even ponder the relevance of ethical reasoning to the real world of business.

Just because financial executives know the appropriate laws, regulations and policies does not mean they are confident about applying them when organizational pressures push them to step across the line.

And just because they practice and even master the various tools for thinking through and weighing the ethics and appropriateness of their alternatives, that doesn't mean they are competent to act on the conclusions to which those reasoning tools have led them--in regards to financial reporting, selection and use of financial analytics to measure performance, or around the proper method and amount of communication to customers, clients and shareholders.

This lack of confidence and competence in ethical practice has real-world consequences for individual managers, companies, customers and nations. Recent lapses of ethics, professionalism and even legality have assumed high profiles.

Consider the promotion of dubious or downright deceptive financial products (the ABACUS CDO at Goldman Sachs, for example); the sometimes questionable reporting of financial performance to shareholders and regulators; or the negligence in monitoring the liabilities of debt holders--the recently exposed mortgage foreclosure abuses, for instance.

Revelations of these practices have focused a bright light on the development and management of financial managers and executives, as well as on the organizational culture, policies and leadership practices that can influence the ethical choices employees make. These mistakes and excesses have also led to new regulatory requirements and restrictions.

Increasingly, the costs of making the unethical choice are evident, for individuals, organizations and for the wider system of trust that facilitates the efficient functioning of markets.

But despite the obvious costs associated with the transgressions noted above, many financial executives will protest that the "bright lines" are not always evident and that they are still unsure when and how to address the gray areas, that is, the times when the right thing to do is just not that clear.

The costs of such actions are measured in the...