Chapter 8 Discussion Questions
Suggested Discussion and Solutions
1. Choose someone from the business or accounting world who you think is an
authentic leader and explain why you believe that to be true.
An obvious choice is Warren Buffet. The following was taken from an article about his
leadership skills.1
Who could not be inspired by Warren Buffett, who has promised 99% of his wealth to
charity? That wealth is worth about $40 Billion.
1. Love what you do.
“There comes the time when you ought to start doing what you want. Take a job that you
love. You will jump out of bed in the morning. I think you are out of your mind if you keep
taking jobs that you don’t like because you think it will look good on your resume. Isn’t
that a little like saving up sex for your old age?” – Warren Buffett. Buffet is convinced that
2. Learn how to communicate effectively.
“You’ve got to be able to communicate in life and it’s enormously important. Schools, to
some extent, under emphasize that. If you can’t communicate and talk to other people and
3. Choose your business associates wisely.
“It’s better to hang out with people better than you. Pick out associates whose behavior is
better than yours and you’ll drift in that direction.” – Warren Buffett
4. Don’t micro manage.
“Hire well, manage little.” – Warren Buffet
5. Plan for the future.
“The primary job of a board of directors is to see that the right people are running the
business and to be sure that the next generation of leaders is identified and ready to take
over tomorrow.” – Warren Buffet
Buffett already knows that his job will be divided into three, once he decides to step down.
6. Transparency is highly appreciated.
“If anything, taxes for the lower and middle class and maybe even the upper middle class
should even probably be cut further. But I think that people at the high end—people like
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7. Patience is a virtue.
“No matter how great the talents or efforts, some things just take time. You can’t produce a
baby in one month by getting nine women pregnant.” – Warren Buffett
8. Manage your time wisely.
“You’ve gotta keep control of your time and you can’t unless you say no. You can’t let
people set your agenda in life.” – Warren Buffett
9. Be prepared to take risks and learn from mistakes.
“Risk comes from not knowing what you are doing.” – Warren Buffett
Buffett has followed basic principles when looking at the risk factor. He prefers to avoid
10. Treat everyone equally.
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2. Why might a moral person who is not viewed as a moral manager fail to establish an
ethical culture in an organization?
The manager may not be viewed as an ethical leader making it less likely that she can build
an ethical culture. It has been claimed that part of the role of leadership includes creating
the “moral organization,” promoting development in others, and institutionalizing values
within the organization’s culture. Trevino et al. discuss building ethical leadership through
two pillars of character: moral person and moral manager. The executive as a moral person
is characterized in terms of individual traits such as honesty and integrity. As a moral
manager, the executive (i.e., CEO) creates a strong ethics message that gets employees’
attention and influences their thoughts and behaviors. Both are necessary for moral
leadership. To be perceived as an ethical leader, it is not enough to just be an ethical
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3. Distinguish between authentic leadership, transformational leadership, and servant
leadership. Are all necessary to change individuals and social systems within an
organization?
Authentic leaders are focused on building long-term shareholder value, not in just beating
quarterly estimates. Authentic leaders are individuals who are deeply aware of how they
think and behave and are perceived by others as being aware of their own and others’
values/moral perspectives, knowledge, and strengths; aware of the context in which they
operate; and confident, optimistic, resilient, courageous, and of high moral character.
Authentic leaders acknowledge the ethical responsibilities of their roles, can recognize and
evaluate ethical issues, and take moral actions that are thoroughly grounded in their beliefs
and values.
Authentic leaders hold altruistic values and are concerned with achieving a common good for
the group or organization for which they are responsible. Authentic leadership produces a
number of positive ethical effects in followers that significantly influence the creation of an
ethical organization environment and helps to promote values-based decision-making.
Followers are likely to emulate the example of authentic leaders who set a high ethical
standard. They are empowered to make ethical choices on their own without the input of the
leader. They become moral agents of the organization.
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Servant leadership advocates a perspective that leaders have a responsibility to serve their
followers by helping them achieve and improve by modeling leaders’ ethical values,
attitudes, and behaviors that influence organizational outcomes through the fulfillment of
followers’ needs. The basic premise of servant leadership is leaders should put the needs of
followers before their own needs. Servant leaders use collaboration and persuasion to
influence followers rather than coercion and control. They understand their stewardship role
and are accountable for their actions. Servant leadership helps to create an ethical, trusting
organizational climate.
Moreover, this definition takes into consideration the importance of moral perspectives and
underscores the notion that ethical behavior is to some extent defined by how it is construed
within the context of social prescriptions.
4. Identify three reasons why there may be ethical leadership failures and explain why
failed leadership occurs.
Ethical leadership failure occurs for many reasons. Linda Thornton identifies a variety of
individual and organizational factors. Individual ones include ignoring ethical boundaries
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He opposes the view that leaders characteristically go wrong in acting selfishly because,
having great power, they can get away with it. Instead, to be morally justified it is not
enough for leaders to put collective interests ahead of their own interests because self-
interest is not the problem. Leaders are characteristically oriented to the ends so that they
share with their followers that they face cognitive challenges, which are of two sorts.
group ends and therefore believe that goal achievement justifies moral costs to followers
and outsiders.
The crisis at Pennsylvania State University that was discussed back in Chapter 1 is a
good example of ethical leadership failure. Problems unaddressed escalated with
resulting sexual abuse of children over an extended period of time. Whether it is child
The report by Louis Freeh commissioned by Penn State looked at the University’s culture
and made recommendations in the following areas:
• Governance
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• Administration and general counsel structure, policies and procedures
• University culture stressing values and ethics-based decision making
• Compliance structure, risk and reporting misconduct
The report’s culture section brings values more directly to bear on how Penn State
operates. Recommendations include appointing an ethics officer to serve as counsel to the
president and board on ethics issues and alignment with Penn State Principles;
establishing an Ethics Counsel; appointing a chief compliance officer with whom ethics
initiatives are coordinated; emphasizing and practicing transparency at all levels: and
communicating openly and often with the university community around university issues
and policies.
Joe Paterno (Hall of Fame football coach), Graham Spanier, (president); Tim Curley
(athletic director) and Gary Schultz (vice president) never demonstrated concern for the
safety or welfare of minors, said Freeh. Paterno died in January 2012, Spanier has taken a
new job and Curley and Schultz are awaiting trial on charges of perjury and failure to
report suspected child sex abuse.
As for Sandusky, he was found guilty of 45 of 48 counts of child sex abuse in his trial
ending June 22, 2012.
5. Values-driven leadership as envisioned in the Giving Voice to Values technique
poses the following question: Once I know what is right, how do I get it done and get
it done effectively? Discuss how an authentic leader would go about addressing this
question.
Explaining the behavior of a leader starts with identifying the values that underlie
leadership behavior. As we discussed in Chapter 1, ethical values provide the basis for
ethical decision making by ethical leaders such as honesty, integrity, trust, respect,
Leaders’ behavior is at the center of leadership. Leaders are expected to conduct
themselves ethically. That is, their behavior must align with established standards,
particularly in terms of the organization. So, if an authentic leader is acting in accordance
with his or her values the question that follows is: What is the relationship between
values and ethics? This brings us back to the discussion in Chapter 1.
about organizational problems.3
Authentic leaders are individuals “who are deeply aware of how they think and behave
and are perceived by others as being aware of their own and others’ values/moral
perspectives, knowledge, and strengths; aware of the context in which they operate; and
confident, optimistic, resilient, courageous, and of high moral character. Authentic
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6. Are accountants and auditors moral agents of corporations and society? Explain.
Personal and professional ethics in accounting have roles to play in cultivating
responsible leadership by management of audit firms. The promotion of responsible
leadership is seen within audit firms as a way to improve audit quality. Auditors are
expected to place the public interest ahead of all others and, as such, they are moral
agents of society. They are tasked with looking out for the interests of shareholders and
other stakeholders above all else, not the corporations’ best interests. Ideally, the two
coincide so there is no dissidence faced by the auditors in striving to achieve their public
service ideal.
7. How might moral intensity influence the decisions made by accounting
professionals?
The lack of research on the characteristics of a moral issue initiated Thomas Jones’s
(1991) development of the moral intensity model. Jones argued that the characteristics
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of the moral issue, what he collectively termed moral intensity, influence ethical decision
making. Jones conceptualized his model such that moral intensity might influence each of
the components of Rest’s Four Component model. The six dimensions of moral intensity
A greater degree of harm or benefit results in an increase in moral intensity. Temporal
Immediacy refers to the length of time between the action and its consequences. An
action that results in immediate negative consequences will cause a greater increase in
moral intensity than an action for which the consequences are delayed. Social Consensus
refers to the degree of agreement among a social group that an action is good or bad. This
social group could be society as a whole (e.g., an illegal act is not morally acceptable by
society because a law prohibits it) or a smaller social group, such as an individual’s
academic peers.
A strong Social Consensus that an act is morally wrong increases moral intensity.
Proximity refers to the nearness of the decision maker to the individuals potentially
affected by the consequences. Proximity can be a feeling of physical, cultural, social, or
8. Describe the role of professional judgment in ethical leadership as it pertains to
accountants and auditors.
It is extremely important for accounting professionals to be ethical in their practices due
to the very nature of their profession. The nature of accountants’ work puts them in a
special position of trust in relation to their clients, employers and general public, who rely
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Professional judgment requires independence of thought, objective decision making,
diligence in carrying out professional responsibilities and a healthy dose of skepticism in
attesting to management’s representations in the financial statements.
Judgments are required in a variety of situations including when the rules are unclear,
conflicts exist between stakeholder interests, and numerical amounts are based on
management’s judgments. It is up to accountants and auditors to make careful,
deliberative, and thoughtful evaluations in coming to a conclusion about the
reasonableness of financial statements amounts.
Ethical leadership in accounting and auditing requires a commitment to ethical decision
making informed by professional judgment that is independent of any influences by the
client and management. Ethical auditors do not allow management to call the shots with
respect to what should and should not be included in the financial statements. Instead,
auditors understand their leadership role in showing the way and fostering ethical
9. How does the nature of the internal audit function, strength of ethical leadership,
and level of moral intensity influence whether an auditor will record questionable
and undocumented journal entries?
As mentioned in the text, Chambers identifies seven attributes of internal audit leadership
as a standard for ethical behavior including honesty, courageousness, accountability,
empathy, trustworthiness, respect, and proactiveness. These are important qualities for
internal auditors who are on the front lines of dealing with financial fraud.
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versus chief financial officer); the primary role of the internal audit function within the
company (i.e., assurance versus consulting); and the work product produced (i.e., history
of finding versus missing deficiencies).
When deciding whether to record a questionable journal entry (i.e., any entry for which a
reasonable business case can be made for either recording it or not recording it), auditors
may take their cue from executive management’s behavior, especially if such behavior is
the social norm and has been rewarded in the past. In addition, a high-quality internal
audit function can reinforce the tone at the top and provide guidance for decision makers
Arel et al. studied the impact of ethical leadership, the internal audit function, and moral
intensity on a decision to record a questionable entry. The authors found that the joint
influence of ethical leadership and internal audit quality on accountants’ willingness to
book a questionable accrual entry is fully mediated by participants’ perception of the
moral intensity of the issue. Specifically, a strong internal audit function and weak ethical
leadership combined to alter accountants’ perception of the moral intensity of the issue.
As a result, accounting professionals who perceive greater moral intensity associated with
the controller’s request to record a questionable entry are less willing to book the
questionable entry.
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10. How might an accounting firm influence whether non–tax practitioners view a
contentious issue with a client as having been handled ethically?
Studies have shown there is a disconnect between the perceptions of organizational ethics
between higher and lower levels of an organization. Employees at higher levels perceive
organizational ethics at a higher level. As mentioned in the text, Bobek et al. found a
disconnect between tax partners and nonpartner tax practitioners with respect to
perceptions of organizational ethics when they described a self-identified ethical
dilemma. On average, they found tax partners rated the ethical environments of their
firms as stronger than nonpartner tax practitioners, especially with respect to firm
leadership. While tax partners were more likely to describe an actual ethical dilemma
than nontax practitioners, the group who described a dilemma rated the ethical
environment as weaker, and this discrepancy was more pronounced for nontax
11. How does an auditor’s commitment to the firm, the profession, and to colleagues
influence whether she will blow the whistle on financial wrongdoing?
As mentioned in the chapter, Sims and Keenan studied organizational and interpersonal
values as predictors of external whistleblowing. They found employees were more likely
to engage in external whistleblowing if they had the support of their supervisor or they