"You have to make the rules, not follow them." -Isaac Newton
Systematic Problem Solving: Part 5
Previously we've looked at problems in our examples that tend to have a concrete solution. Sometimes we encounter problems that have a wide array of options available as what we might call solutions. There may even come to be times where there doesn't seem to even be a best solution. In cases like these we will often want to use our same problem solving strategies to find an acceptable solution, when possible, or even the one causing the least harm or wrongdoing when there are no acceptable solutions. Let's consider the following case from CIMA, the Charted Institute of Management Accountants.**
"I work in finance for a public unlisted company. The major shareholder is the CEO and he takes responsibility for all decisions. For tax reasons, he is manipulating operations and the transfer of goods, and ultimately how information is shown – in order to lower the liability. I am not sure what action to take."
First we will develop some ideas about such a situation, and then we will see what CIMA's recommendation was and how well they line up.
The first thing we need to do then is to determine the information. In this case, we will introduce another aspect of this part of the system which we didn't really consider before, namely conditional information. In reading the problem, you may have noticed that there appears to be very little information given, in fact, just enough to get us going. In cases such as these we can generate further information based on conditional ideas. What this means is we can consider two or three cases where we are unsure of which information should have been supplied, which may make itself apparent or at least provide for us an easy decision tree which is presentable after analysis.
We can proceed then with our first step: determine the information. We know the subject is in finance and works for a CEO who claims to take responsibility for all decisions. Our subject believes he may be violating a common code of ethics or maybe even the law. So if we want to determine and define a question to answer, it should probably be to decide which action, if any, should be taken. Recall also that we want to determine what we don't know, or what we can infer from what is given. We sense that the finance person feels that they may be at fault for not taking some kind of action, that perhaps this is happening in an area over which he or she has authority or responsibility. We do not know that this is true, however, it could very well be someone sticking their nose into things they don't understand. They seem to be certain though that the purpose is to explicitly avoid tax liability, but again, we don't know if this is a justified belief. We also don't know where this company is located or what laws it is operating under. If this is an offshore holdings company, then it may not be subject to the same rules as either a parent or subsidiary might be. So it actually looks like we actually don't know even more than we do know.
So now that we've tried to gather up the stuff we do or don't know about the situation, we'll begin to consider then some different paths to solutions, remembering not to rule anything out prematurely. The first obvious course of action would be for the finance person to not do anything, ignore the problem completely and hope it will go away of its own accord, after all, the CEO said he'll take responsibility for any decision, right? A second option could be to consult a supervisor, or someone who oversees the finance department besides the CEO, like the operations officer or just an immediate supervisor, depending on the size of the company. Depending on the finance person's level of experience and familiarity with the laws applicable to the company, if they feel that inaction could descend from these kinds of actions, then a law enforcement or regulatory agency may need to be sought out for assistance.
If we want to determine which path to take now, we've surely got a little extra work to do to build a kind of solution framework. Given how much information we don't really know here, we are probably best off listing and choosing our solutions conditionally. Basically, we want to attach it to an if-then type of statement.
If they are confident in the ultimate responsibility of the CEO, and no actual laws or regulations seem to be broken by these practices, then perhaps it is best to let the CEO do as he pleases.
If this cannot be done in full confidence for either case then we must look to other options. If they are a junior level employee, as in they are not directly answerable to the CEO, then the next best course would probably be to bring up the issue with a supervisor or other more senior personnel, preferable those with experience in the company's finance department. If they are the one person ultimately responsible for the company's finances and think laws or regulations are being broken by the CEO's practices, then an appropriate regulatory agency could probably be consulted for advice or to begin an investigation. In the United States for example, depending on the nature of the business, an appropriate agency could be the Securities and Exchange Commission (SEC) or the Internal Revenue Service (IRS). This could help to mitigate the risk to any finance personnel trying to abide by the regulations.
So we have three solutions, basically: the do nothing solution, the higher authority solution, or the whistle-blower solution. Each of these we described by looking at things we didn't know conditionally. If we look at what the response by CIMA was at the incident, they appear to have taken a similar approach in delivering a more general and less detailed solution, and yet they seem to have reached about the same solution as we did using our own methods.
CIMA's response:
By referring to the ethics checklist you need to ensure you have the facts of the case and requirements by law, as well as how things would be seen if they came to light by a third party. Good ethics may be above the law. It may be that your integrity is being undermined (section 110). You need to ensure any financial reporting “represents the facts accurately and completely in all material respects” (section 320). It also appears that the CEO may be using intimidation, so consider both threats and safeguards in relation to conflict (section 310).
The only real difference had to do with the potential threats or intimidation. I personally see little reason to include this except to maybe encourage someone to speak out if this is happening. There doesn't seem to be any information given that really suggests that it is going on. Aside from that, we've taken our systematic problem solving method and developed a solution which pretty nearly matched informal, professional ethical advising from a major business association. Not too shabby is it?
So now we've pretty well covered a large part of our basic framework for problem solving. Given a problem, we can now determine the information, paths to solutions, and which path to take, even if it is given conditionally. Next we'll look at how we might decide whether or not to accept a solution we have developed and what might make even a good solution unfavorable.
Until next time!
Tristen
"I work in finance for a public unlisted company. The major shareholder is the CEO and he takes responsibility for all decisions. For tax reasons, he is manipulating operations and the transfer of goods, and ultimately how information is shown – in order to lower the liability. I am not sure what action to take."
First we will develop some ideas about such a situation, and then we will see what CIMA's recommendation was and how well they line up.
The first thing we need to do then is to determine the information. In this case, we will introduce another aspect of this part of the system which we didn't really consider before, namely conditional information. In reading the problem, you may have noticed that there appears to be very little information given, in fact, just enough to get us going. In cases such as these we can generate further information based on conditional ideas. What this means is we can consider two or three cases where we are unsure of which information should have been supplied, which may make itself apparent or at least provide for us an easy decision tree which is presentable after analysis.
We can proceed then with our first step: determine the information. We know the subject is in finance and works for a CEO who claims to take responsibility for all decisions. Our subject believes he may be violating a common code of ethics or maybe even the law. So if we want to determine and define a question to answer, it should probably be to decide which action, if any, should be taken. Recall also that we want to determine what we don't know, or what we can infer from what is given. We sense that the finance person feels that they may be at fault for not taking some kind of action, that perhaps this is happening in an area over which he or she has authority or responsibility. We do not know that this is true, however, it could very well be someone sticking their nose into things they don't understand. They seem to be certain though that the purpose is to explicitly avoid tax liability, but again, we don't know if this is a justified belief. We also don't know where this company is located or what laws it is operating under. If this is an offshore holdings company, then it may not be subject to the same rules as either a parent or subsidiary might be. So it actually looks like we actually don't know even more than we do know.
So now that we've tried to gather up the stuff we do or don't know about the situation, we'll begin to consider then some different paths to solutions, remembering not to rule anything out prematurely. The first obvious course of action would be for the finance person to not do anything, ignore the problem completely and hope it will go away of its own accord, after all, the CEO said he'll take responsibility for any decision, right? A second option could be to consult a supervisor, or someone who oversees the finance department besides the CEO, like the operations officer or just an immediate supervisor, depending on the size of the company. Depending on the finance person's level of experience and familiarity with the laws applicable to the company, if they feel that inaction could descend from these kinds of actions, then a law enforcement or regulatory agency may need to be sought out for assistance.
If we want to determine which path to take now, we've surely got a little extra work to do to build a kind of solution framework. Given how much information we don't really know here, we are probably best off listing and choosing our solutions conditionally. Basically, we want to attach it to an if-then type of statement.
If they are confident in the ultimate responsibility of the CEO, and no actual laws or regulations seem to be broken by these practices, then perhaps it is best to let the CEO do as he pleases.
If this cannot be done in full confidence for either case then we must look to other options. If they are a junior level employee, as in they are not directly answerable to the CEO, then the next best course would probably be to bring up the issue with a supervisor or other more senior personnel, preferable those with experience in the company's finance department. If they are the one person ultimately responsible for the company's finances and think laws or regulations are being broken by the CEO's practices, then an appropriate regulatory agency could probably be consulted for advice or to begin an investigation. In the United States for example, depending on the nature of the business, an appropriate agency could be the Securities and Exchange Commission (SEC) or the Internal Revenue Service (IRS). This could help to mitigate the risk to any finance personnel trying to abide by the regulations.
So we have three solutions, basically: the do nothing solution, the higher authority solution, or the whistle-blower solution. Each of these we described by looking at things we didn't know conditionally. If we look at what the response by CIMA was at the incident, they appear to have taken a similar approach in delivering a more general and less detailed solution, and yet they seem to have reached about the same solution as we did using our own methods.
CIMA's response:
By referring to the ethics checklist you need to ensure you have the facts of the case and requirements by law, as well as how things would be seen if they came to light by a third party. Good ethics may be above the law. It may be that your integrity is being undermined (section 110). You need to ensure any financial reporting “represents the facts accurately and completely in all material respects” (section 320). It also appears that the CEO may be using intimidation, so consider both threats and safeguards in relation to conflict (section 310).
The only real difference had to do with the potential threats or intimidation. I personally see little reason to include this except to maybe encourage someone to speak out if this is happening. There doesn't seem to be any information given that really suggests that it is going on. Aside from that, we've taken our systematic problem solving method and developed a solution which pretty nearly matched informal, professional ethical advising from a major business association. Not too shabby is it?
So now we've pretty well covered a large part of our basic framework for problem solving. Given a problem, we can now determine the information, paths to solutions, and which path to take, even if it is given conditionally. Next we'll look at how we might decide whether or not to accept a solution we have developed and what might make even a good solution unfavorable.
Until next time!
Tristen