Ethical leadership needed to earn public’s trust

Sharon Allen was elected as board chairman at Deloitte & Touche USA in 2003, a time that was a crucible for public accounting as major corporate scandals broke in quick succession and swung like wrecking balls across the accounting industry’s reputation.

“It was a perfect storm in terms of changes that were taking place in our profession on the auditing side,” agreed Allen, who has been with Deloitte for nearly 34 years and is the first woman elected as board chairman.

Deloitte & Touche USA, a member firm of Deloitte Touche Tohmatsu, has about 30,000 employees working in 80 cities nationwide.

Even on Nov. 1, 2006, as Allen prepared to speak about leadership and ethics to Notre Dame students in Mendoza College of Business’ Jordan Auditorium, the scandals were still in the headlines. Just the week before, former Enron CEO Jeffrey Skilling was sentenced to 24 years for his part in the energy company’s demise. The day before Allen’s visit, a jury found former Cendant Corporation Chairman Walter Forbes guilty in a massive fraud scheme that cost the travel and real estate company and its investors more than $3 billion.

Despite these most recent legal actions, Allen pointed to changes in industry practices that are helping to restore public trust.

To begin with, the vast majority of public accountants – even those employed by Arthur Andersen, which dissolved as a result of Enron – always remained committed to fulfilling their responsibilities ethically, said Allen. But the well-publicized scandals have resulted in the accounting industry being painted with the same broad brush, she added.

The passage of Sarbanes-Oxley Act also helped to tighten policies and rebuild the confidence of capital market investors in public accountants. Sarbanes-Oxley, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly referred to as SOX, is broad, but its main purpose is to establish stricter standards for all U.S. public accounting firms, as well as public company boards and management.

The legislation also led Deloitte to do some self-examination. “To be honest, we did recognize that there were some changes that we believe made a difference in how we dealt with situations and perhaps prevented that type of situation to develop at Deloitte,” said Allen.

But the legislation is not a complete ethics fix.

“One thing I have learned over the years is that you cannot legislate ethics,” said Allen. “The most successful organizations and the most successful employees put greater focus on culture rather than rules.”

During her talk to undergraduate and graduate business students, Allen emphasized changes in corporate culture that encourage individuals to make the right decision when they get in “the gray areas.”

At the most obvious level, the efforts to reinforce an ethics-centered culture at Deloitte & Touche include simply articulating the importance of integrity. Allen said the board recently reconfigured its order of core values to put ethics on top of the list. The company also has mandatory ethics training for employees. It instituted a number of policies aimed at fostering a consultative atmosphere, so the individual accountant is expected to seek the advice of others on thorny issues. This includes the establishment of an “integrity help line,” which an employee can call for advice or report a violation on a confidential basis.

“No one person at any level of our organizations needs to face a difficult decision by themselves,” said “Allen. “When there are more people involved in assessing the facts and alternatives, frankly it is more likely that we will arrive at the right answer and not be so tempted to follow the wrong motivators.”

Allen’s lecture, “Leadership and Ethics,” was offered at part of the Berges Lecture Series in Business Ethics, which is co-sponsored by the Institute for Ethical Business Worldwide, Mendoza College of Business and the Center for Ethics and Religious Values in Business. Allen also was named to the 2006 Forbes magazine “World’s Most Powerful Women” list.

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