Integrity and Ethics in the CFO Role: Leadership by Example

By Heather Ogan

Integrity and ethics: few concepts are as essential and frequently debated in the corporate world, particularly in finance.  These values form the backbone of trust between an organization and its stakeholders—employees, customers, investors, and society.

The CFO’s role in establishing and maintaining this trust cannot be overstated.  As companies grow more global and interconnected, the spotlight on corporate responsibility has never been brighter. Leaders are no longer only expected to achieve financial success; they are also called upon to uphold moral and ethical standards that reflect the values of their communities.

But what does it mean to truly act with integrity? And how does a business navigate the often-gray areas of ethical decision-making? Understanding and promoting these principles is critical because they shape not only the internal culture of an organization but also its reputation and long-term viability.

Perception, Value, and What Matters Most

Let’s explore the foundational role that integrity and ethics play in business, focusing on three key concepts:

1. Corporate Social Responsibility (CSR),
2. the Tone from the Top, and
3. a comprehensive model that interweaves the roles of individuals, organizations, and the social contract.

This discussion is more than just a theoretical exercise. A strong commitment to integrity and ethics impacts everything—from day-to-day operations to strategic decisions and, ultimately, how an organization is perceived and valued in the world. By addressing these elements holistically, CFOs can build organizations that are not just profitable but also principled, resilient, and aligned with the greater good.

Defining Integrity

So, what is integrity and why is it relevant for business? Integrity is honesty, consistency, and adherence to strong moral and ethical principles, regardless of the circumstances. It involves doing the right thing even when no one is watching and maintaining transparency, fairness, and accountability in all actions. Integrity is not just about avoiding wrongdoing; it’s about actively upholding values such as truthfulness, reliability, and respect. For organizations and individuals alike, integrity is a guiding compass that informs decisions and behaviors, building trust and credibility over time. Integrity is relevant for business because, without rules, there is no game.

Defining Ethics

On the other hand, ethics refers to moral principles and values that can differ from society to society.  Ethical decision-making requires considering not just the legal or business outcomes but also the consequences for stakeholders.

Let’s consider ethical behavior through the prism of the interplay between the Individual, the Organization, and the Social Contract.

The Individual
The individual is characterized by their integrity, ethical decision-making ability, and propensity. Of key import here is self-regulation and personal accountability.  The control environment also has a role in this aspect.

The Organization
The organization is characterized by culture and its influence on behavior.  This can be enhanced by implementing effective ethics training and compliance programs and establishing policies that align with core values.

The Social Contract
The social contract is the implicit agreement between business and society, including corporations’ responsibilities toward stakeholders and the public and the imperative to balance profit-making with the broader societal good.

For the social contract, or business, to function effectively, all participants must trust that the rules of engagement will be followed. For example, if I enter into a contractual agreement with a supplier to provide products and services that adhere to specific procedures designed to minimize the risk of human trafficking within the supply chain, I should be able to trust that the supplier will honor those terms. If they fail to do so, I should have legal recourse.

While complying with these procedures may add some additional cost for the supplier, failing to follow them should pose much greater risks. It can damage the brand reputation of both parties, lead to fines and penalties, and ultimately undermine the broader societal interest in eliminating human trafficking.  This is where Corporate Social Responsibility comes into play.

Corporate Social Responsibility 

The concept of CSR first originated in the mid-20th century but has roots that go back even further. CSR began as a response to the evolving role of corporations in society and the expectations placed on them by various stakeholders.

The modern concept of CSR is often traced back to American economist Howard R. Bowen, known as the “Father of CSR.” His book, Social Responsibilities of the Businessman (1953), introduced the idea that businesses have a responsibility to society that goes beyond profit-making.

Bowen defined CSR as:

The obligations of business to pursue policies, make decisions, and follow lines of action which are desirable in terms of the objectives and values of society

In the 1970s, the idea of CSR evolved with the recognition that businesses have a responsibility not only to shareholders but also to a broader range of stakeholders, including employees, customers, suppliers, and the community.  The Committee for Economic Development (CED) Report (1971) was an influential report that introduced a “three concentric circles” model that outlined how businesses should address economic, social, and broader societal concerns, thereby formalizing CSR into a strategic framework.

With the advent of globalization and increased scrutiny of corporate practices, CSR became a strategic imperative, and companies began integrating environmental, social, and governance (ESG) factors into their business strategies. In addition, the International Organization for Standardization released ISO 26000, providing guidelines for implementing CSR practices globally, which further standardized CSR efforts.

Today, CSR has evolved into a multifaceted concept that encompasses environmental sustainability, ethical labor practices, community engagement, and transparent governance, becoming an integral part of how modern businesses operate and define success.

CSR initiatives are environmental (sustainability, carbon footprint), social (community engagement, employee well-being), and economic (fair trade, responsible sourcing).

So, what is the business case for CSR?  

I have always thought this should go without saying, as there are so many examples of what goes wrong in the long run when businesses take a short-term, quarter-to-quarter approach to building value for a business.  First and foremost is long-term value creation for shareholders and stakeholders alike, along with enhanced brand reputation and better risk management.  These concepts are all components of any well-thought-out Long-Range Plan (LRP)

Strategies for Building and Sustaining Ethical Organizations 

Where do you, as CFO, come in?  Numerous studies have shown that one of the most important indicators of the control environment is the “Tone from the Top.”  The CFO has an important role in setting ethical standards for the organization.

Tone from the top is essentially the control environment – the first of the five components from the COSO framework for assessing Internal Controls.  It’s common knowledge that the old saying – “do as I say, not as I do” never works – not at home, and certainly not in the workplace.  The tone from the top refers to the actions, attitudes, and behaviors that the leadership team displays in their day-to-day dealings with internal and external parties.  This matters because we all know that rationalization is one of the three sides of the fraud triangle framework. When team members see leaders behaving unethically, they are more likely to behave similarly due to rationalization; essentially, it must be okay because everyone is doing it.

CFOs can demonstrate integrity and set the right tone in several ways, including communicating core values and acceptable behavior, and by their own personal behavior and public decisions.

Studies show auditors are more likely to assess fraud risk as high when the CFO or other leadership has exhibited poor personal behavior, such as unfaithfulness to their partners or substance abuse.

The recent scandal involving the Royal Bank of Canada’s CFO and her undisclosed personal, romantic relationship with a team member leading to her subsequent ouster is one example of setting the wrong example.

Likewise, the L Brand/Victoria’s Secret “casting couch” scandal.  In Joe Holt’s article for Forbes (For CFOs It’s Not Enough To Do The Right Thing, You Must Be Seen Doing It; Feb 25^th, 2020), he reminds us that “CFOs and other executives must proactively and strategically cultivate a reputation for ethical leadership.”

CFOs must establish a culture of integrity by setting policies, practices, and well-thought-out reward systems that encourage ethical behavior.  This is important because reward systems can inadvertently increase the risk of unethical behavior.  While no one approach can eliminate all risks, basing variable compensation such as bonuses and commissions on metrics that incorporate a balanced scorecard approach, for example, can help mitigate this risk.

Other strategies for building and sustaining ethical organizations include:

• Develop, promote, and maintain a code of conduct.
• Attend and promote regular ethics training and awareness programs.
• Establish robust reporting mechanisms (whistleblower policies).

And remember that teams focus on the tasks and behaviors that are measured, so you should establish appropriate metrics and KPIs to track ethical performance and conduct regular audits and assessments.  This will help you identify any gaps and weaknesses.

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So, what is the bottom line?  In my practice, I always ask, “So, what?” because, as a Finance leader, this is where the rubber meets the road.  There are sadly numerous examples of failures of integrity on the part of CFOs (and CEOs) – those I studied in Business School like Tyco, Enron, VW, PG&E, DuPont, and more recent ones like Wells Fargo Bank and RBC, the list goes on; and the consequences of those failures, large and small. These are cautionary tales of failures of integrity that led to dire consequences for shareholders and stakeholders alike, resulting in reputational damage, loss of market share, and even jail time and the winding down of some of the businesses.  The negative impacts are far-reaching and devastating to communities.

The stakes are high, and as CFOs, we are uniquely positioned to manage risk at our organizations by first recognizing the importance of integrity and ethics in business and then by building and maintaining a corporate culture that prioritizes ethical practices for the benefit of the organization, the shareholders and the stakeholders.