4 Ways EY Can Overcome Its Cheating Scandal
Who would cheat on an ethics exam? According to the Securities and Exchange Commission, hundreds of auditors at Ernst & Young did this between 2017 and 2021. The SEC slapped the Big Four accounting firm with a $100 million dollar fine.
Although cheating on an ethics test sounds like a bad joke, it’s no laughing matter. As EY admitted to the SEC, “Nothing is more important than our integrity and our ethics.” Here are four things the company must do to walk the talk.
These directives apply to your company too, whether or not it's EY. Even if your organization hasn’t been rocked by a cheating scandal, the following four rules will increase the likelihood that it never will be.
Fire every cheater
Firing the cheaters is the least that EY’s current and future clients can expect in the wake of this scandal. Although all cheating is wrong, some forms are worse than others. An auditor who looks up the Wordle word of the day and then tweets that she got it in two tries is cheating, but the stakes are low. At the other end of the spectrum, auditors who share the answers from their company’s ethics exam violate its Code of Conduct and erode the trust that others put in the company.
Years ago I took a leadership course at Gallup in Omaha, Nebraska. Its chairman, the late Donald O. Clifton, told us that employees who fudged data, even a single time, are fired immediately.
“Isn’t that a harsh response?” I asked him.
“Not at all,” he replied. “Our company’s reputation rests on the integrity of our data. Nothing is more important than that.”
Amen.
Promote your values to the world and within your company
“We embrace our responsibility as independent auditors to perform high-quality audits that promote trust and confidence in the capital markets,” writes EY on its website. The problem is that you have to scroll down a bit on the home page to find this critical statement.
Bad move. A company should make it easy for others to see what it stands for. This means extolling the company’s values above the fold (i.e., the part of the home page you see before scrolling).
As with most major companies, EY does a great job of telling the world what its products and services are. On the top left, next to its cool logo, the company has tabs labeled “Insights,” “Services,” “Industries,” “Careers,” and “About us.” But it should also have a tab that says “Values.”
EY does explain what its values are, but you have to click on “About us” to discover this. That’s one click too many. In today’s world, requiring even a single click to locate crucial information makes no sense.
A declaration of values is just that: only words. But they’re the most important words a company can use to let the world know what the company stands for.
Promoting your values also means providing regular training to staff in a way that is relevant, accessible and, yes, fun. Smart companies thus promote their values both without and within.
Embed references to your values in every job description
The hundreds of EY auditors who cheated on their ethics exams didn’t share the company’s belief that “without trust, you can’t create value.” Why not? Part of the answer lies in how the company looks for auditors to join the firm.
On its Careers tab, I searched for job openings for auditors in the U.S. Four positions came up: two in Phoenix, one in L.A., and one in Atlanta. Each job description did a superb job of listing exactly what an applicant needed to know and be able to do to get hired.
Under “What we look for,” one of the listings included this statement:
We’re interested in leaders with a genuine creative vision and the confidence to make it happen. You can expect plenty of autonomy in this role, so you’ll also need the ability to take initiative and seek out opportunities to improve our current relationships and processes. If you’re serious about auditing and ready to take on some of our clients’ most complex issues, this role is for you.
I know of some people who fit this description to a T. Bernard Madoff, founder of Bernard L. Madoff Investment Securities LLC, did indeed have “a genuine creative vision and the confidence to make it happen.” He also had plenty of “initiative.” He used all of these personal qualities to defraud his clients of more than $19 billion in the largest Ponzi scheme in history.
Both knowledge and skill are necessary but not sufficient to be the kind of financial professional who would never think of cheating on an ethics test or stealing from clients. The best financial leaders are also people of high character.
EY no doubt believes this is true. Why, then, are there no references to character in any of its job descriptions?
To avoid being enmeshed in another scandal involving dishonest employees, EY (and your company) must embed references to its values in every single job description it posts the world over.
Evaluate job applicants for their character as well as their competence
Is it possible to discover how honest, accountable, and courageous a job applicant is? It is not only possible to do this. You must do so.
There is a wide range of questions you can ask to evaluate the character of someone who wants to work on your team. For example, “Tell me about a time when you had to tell someone an uncomfortable truth, but you did it and something good happened.”
A detailed answer will reveal two crucial qualities of high-character people: honesty and courage.
Yes, there are people out there who are exceptionally good at lying. You can’t be guaranteed you’ll never hire such a person, but you absolutely can increase the likelihood you won’t.
You just have to ask the right questions.
The takeaway
It’s a lot easier and less expensive to hire honest, accountable people than to deal with the aftermath of a scandal like EY’s. The way to do this is to:
Fire cheaters
Promote your values to the world and within your company
Embed references to your company’s values in every job description
Evaluate job applicants for their character as well as their competence