Risk & Reward – Balancing Ethics, Risk & Entrepreneurship

Don’t hesitate to share your questions and comments. They will be highly appreciated. I’ll reply ASAP if I know the answer. Send at mubashirnazir100@gmail.com .


Dear Mubashir,

It’s been some time and I hope this email finds you well.

Further to my the information below and to the attached document, I wonder if I can receive your feedback in this respect which would be very useful and I will pass it on by turn to our Head office in UK.

We are especially concerned with the first three questions, and number six, if this list looks a bit long

Thanks in advance,

Looking forward to hearing from you before May 16,

Best wishes,

Ramy Abboud

Country Manager – Bahrain, Kuwait & Saudi Arabia

ACCA Middle East

May 2010

Dear Abboud

Assalam o alaikum

Now a days, ethics are becoming more and more popular. The response to your questions is appended below. Please feel free to contact should you’ve further queries.



Ethics and Performance

ACCA: Is good ethics good for business? An ACCA/CFO report in 2007, (summary attached) suggested a correlation between good ethical behaviour and good business/financial performance. Is there a causal link?

Mubashir: It is a causal link. For example, as a customer, if it comes to your knowledge that a company X is selling impure food items. Would you be willing to buy its products? If it comes to your knowledge the management of company X considers it OK to take others’ money be illegal and unethical means. As a supplier, would you be willing to sell your product to this company on credit?

Ethics have a direct link with the reputation which has a direct, positive and causal link with the profitability.

ACCA: To what extent is companies’ pursuit of success is tempered by prudence (and within that by ethical considerations)?

Mubashir: The concept of prudence means that while presenting financial statements, if the Accounting Standards allow two alternatives, we should select the one which results in less profit because it is not ethical to raise expectations of financial statement users. They should know the worst picture. The concept is based on ethical consideration that we should present true and fair affairs of the company to its stakeholders.

ACCA: Is risk management seen as an aid to business performance or is it seen as a block on getting business done?

Mubashir: Some people perceive Risk Management as a hindrance to their business decisions. It may be due to wrong attitude of risk and audit staff. Risk Management does not require a manager to avoid risk. It only requires that we should have full knowledge of risk and we should make well-informed decisions within the risk appetite of the owners of the business.

ACCA: Is risk management carried out in isolation or is there a clear link with company strategy?

Mubashir: Off course, it should have a clear link with the company strategy.

ACCA: How should we advise people who think that they can get on better in business by ignoring ethical considerations?

Mubashir: Present the above two examples to such people. No business can be run in long run without a good reputation which is totally dependent upon ethics.


ACCA: Has there been a change in approach to ethics since the financial crisis? i.e. is the focus different in 2010 compared with 2007?

Mubashir: In order to answer this question, we need to conduct a research. I can comment generally. Usually, it is human psychology that people facing financial difficulties ignore ethics. As mentioned in a Hadith, “I fear that poverty can take a person to infidelity.” This means that financial difficulties may take a person to unethical behaviour. The same is true for the companies who face financial difficulties in recession.

ACCA: What should be the role of the CFO (Chief Financial Office) and other finance professionals in setting the right tone? And what should be the role of the Chief Risk Officer (CRO) or Chief Compliance Officer (CCO)?

Mubashir: Setting the right tone is the job of CEO (Chief Executive Officer) and the Board of Directors. CFO should convey this tone to his team. CRO or CCO should work as a catalyst to expedite the process of ethical compliance. You can see detailed job descriptions as:



ACCA: To what extent do, or should, accountants in business take ethical matters into account in managing risk and making business decisions.

Mubashir: Up to full extent.

ACCA: How companies can go about recruiting and developing CFOs and senior finance staff with a strong ethical compass.

Mubashir: By putting the ethics at the top agenda. The ethics should be communicated and discussed widely in all divisions and departments. Ethical issues must be taken care off seriously. While hiring staff, background checks for ethical behviour are important.

ACCA: Does incentive-based remuneration support or impair ethical performance?

Mubashir: Sometimes, yes. As I’ve seen in my career, people manipulate their financial statements to adjust it to earn more bonus and commissions. It becomes hard to maintain neutrality in the financial statements.

ACCA: How do we know if we are being ethical?

Mubashir: By paying heed to our inner voice i.e. conscience which is called نفس اللوامة in Arabic. This is the first built-in control which is extremely powerful. If we train our people for not ignoring the reminders of our conscience, we can develop a good ethical climate.

Risk Management

ACCA: Are risks considered purely in terms of mitigation or in relation to the possible benefits which may accrue in taking them?

Mubashir: There are four strategies to Risk Management: Avoid; Transfer; Mitigate; or Accept. Any of these strategies is acceptable under Risk Management if it fits within the Risk Appetite of the Top Management / Business Owners.

ACCA: Should financial institutions have as different approach to risk management from other companies?

Mubashir: Financial Institutions are highly conscious about the risks because probability and impact of their risks is very high. For example, credit risk, information risk, compliance risk is very high in case of financial institutions and insurance companies. Due to this reason, they are usually more matured in risk management as compared to other companies.

ACCA: Does incentive based remuneration support or impair risk management?

Mubashir: Both possibilities are there under different circumstances. If ethical environment and financial reporting is strong and neutral, incentive-based remuneration will support risk management and ultimately the corporate goals. If ethical environment is weak, it will impair the risk management as well as the corporate goals.

ACCA: What is meant by the terms ‘risk appetite’ and ‘risk tolerance’?

Mubashir: Risk Tolerance is a part of Risk Appetite. The later indicates the attitude of business owners / top management about taking or avoiding risks. Risk Tolerance depicts the maximum allowable limit for taking risks.

Ethics, Risk Management and Compliance

ACCA: Does compliance activity ever frustrate sensible risk management?

Mubashir: It should not. If there is some specific case, please share the information, then I can comment on it.

ACCA: To what extent does external regulation need to direct individual businesses’ approach to ethics and risk management? If regulators stress the importance of ethics within prudent risk management (and enforce this), would businesses be more prepared to take ethics and risk management more seriously than if there was little regulatory interest?

Mubashir: Up to some extent. Law and regulations have their own limitations. You cannot force an unethical person to be ethical in the long run. The best control is metaphysical i.e. change the attitude of a person to pay heed to the built-in control of conscience in his / her personality. Regulations support it, but complete reliance on regulation is a big mistake. Unethical people invent different ways to avoid any ethical requirement of the law.

ACCA: To what extent does the growing focus on risk management, post-credit crunch, now include ethical and cultural risk rather than just compliance?

Mubashir: Ethical and Cultural Risk is always high in difficult financial situations. Therefore, this risk must be included in any Risk Management Program.

Risk & Reward – Balancing Ethics, Risk & Entrepreneurship
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