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Of Ethics And Flapdoodles

Not long ago, The Wall Street Journal published an article about two former academics who were busy creating a new unit at accounting firm KPMG Peat Marwick that would help the firm’s clients create “the moral organization.” According to the Journal, if other accounting firms followed suit, there might soon come a day when accounting …

Not long ago, The Wall Street Journal published an article about two former academics who were busy creating a new unit at accounting firm KPMG Peat Marwick that would help the firm’s clients create “the moral organization.” According to the Journal, if other accounting firms followed suit, there might soon come a day when accounting firms would be called in not only to pore over a company’s books to measure its financial health, but also to perform something called an “ethics audit” to determine its moral health.

“Ethics process management” is the brainchild of Dr. Timothy Bell, formerly an accounting professor at the University of Texas, and D r. Lawrence Ponemon, previously an accounting professor and ethicist at the State University of New York at Bingham ton. Both are the recipients of KPMG Peat Marwick fellowships aimed at helping them to “productize” corporate morality; that is, to treat ethical behavior as something that actually can be measured and quantified. Using focus groups, seminars, “process maps,” and “gap analysis,” Ponemon and Bell feel that an ethics auditing team could pinpoint where a company was having an ethics breakdown, and suggest workable solutions. The professors have even designed an “ethics vulnerability risk assessment,” a statistical breakdown of internal ethics lapses in such areas as sexual harassment, pollution, antitrust violations, overseas payments, racial problems, or falsification of financial data.

Ethics process management is a direct the 1980s by the Council on Economic Priorities in New York. Staffed entirely by certifiably good people, the CEP not only publishes an ethical supermarket shopping guide for morally superlative consumers, but also performs “social audits” on companies such as Ben & Jerry’s Homemade.

What makes Bell and Ponemon’s innovation so newsworthy is that for the first time in history, the ethics auditing procedure would be carried out not by operatives in professional goody-two-shoes organizations such as the CEP, but by employees of Bix Six accounting firms. That is, by the same large accounting firms that have been sued for enormous sums of money by disgruntled shareholders due to auditing problems back in the 1980s during the S&L scandal. Hiring a large, eminently suable accounting firm to perform an ethics audit on one’s company does create the potential for numerous situations where the pot quite literally would be calling the kettle black. But it would be the first time in American history that the pot actually would get paid to call the kettle black.

Since every force in the universe eventually begets a countervailing force, there seems to be a wonderful business opportunity here for some enterprising accounting firm to create a competing service called the “flapdoodle audit.” This is a process whereby an accounting firm would determine to what extent the organization had fallen prey to an epidemic of hokum, bunkum, twaddle, tish-tosh, and horse-bleep. The flapdoodle auditing team might come to a major newspaper and find that the company had been requiring its senior managers to attend sensitivity training sessions where senior editors had to crawl on the floor and wear signs around their necks so they’d know what it felt like to be the object of racial or sex discrimination. After an extensive flapdoodle vulnerability risk assessment, the auditors would issue a report indicating that the firm suffered from serious lapses of intelligence and was behaving in a politically correct but idiotic fashion. The auditors might even devise a quackery quotient or a nincompoop nexis that would calibrate the extent to which the company had fallen prey to rampant lunacy.

One other serious question remains: When lambasted for signing off on the annual reports of companies that have lied about their true financial well-being, accounting firms always protest that if a company is determined to lie about its actual condition, there is little the auditors can do about it. Knowing that financial audits sometimes provide a misleading picture of the health of the firm whose books are examined, must we not then assume that ethics audits would fall similarly wide of the mark? For example, might not it be possible for unethical corporations to advise their really sleazy employees to stay home the week the ethics auditors come in?

For this reason, American corporations must make it clear they have no interest in being ethically audited, and certainly not being audited by a couple of ivory-tower ding-dongs keen to market yet another crackpot idea. What KPMG Peat Marwick really ought to do is this: Immediately call in the flapdoodle auditors and tell them to have a nice long talk with Dr. Lawrence Ponemon and Dr. Timothy Bell. Based on a preliminary flapdoodle vulnerability risk assessment conducted by yours truly, the quackery quotient seems to be at an all-time high in this accounting firm’s inner sanctum.


Joe Queenan is a regular contributor on business issues, corporate culture, and financial follies to Barron’s and The Wall Street Journal.

About Joe Queenan

Joe Queenan is a regular contributor on business issues, corporate culture, and financial follies to Barron's and The Wall Street Journal.