Ep 312: Douglas Boyle, Daniel Haggerty, and Dana Hermanson - Aristotle and Accounting: Building Virtue to Fight Fraud
Welcome to Count Me In. I'm your host, Adam Larson, today we're bringing you a truly thought provoking conversation with three outstanding guests, Douglas Boyle, Daniel Hagerty, and Dana Hermanson. All three are respected professors and authors of the Kurt for sure feature of the year, Aristotle and Building Virtue to Fight Fraud. In this episode, we dig deep into the concept of virtue, what it really means, where it comes from and why it matters for professionals in business today.
Adam Larson:From the philosophical roots of arte in the ancient Greek to practical steps for building virtuous organizations in the modern workplace, our guests explore how excellence, courage, and human flourishing can become the foundation for ethical decision making and leadership. You'll hear why virtue often goes missing in business education and professional development, and what we can do about it. Whether you're a student, a working professional, or a leader looking to create a more ethical and effective culture, this episode practical insights you can put into action right away. Let's get started.
Adam Larson:Well, Daniel, Dana, and Doug, I'm so excited to have you on. We're gonna be talking about your award winning article that's out. Please look at the link in the description if you wanna read that article before you listen to this conversation. But I figured we could start in a place where you can give us a bit of a background on the ongoing issue of fraud, especially in accounting and finance.
Dana Hermanson:Sure. So fraud remains a major societal issue, and it's fundamentally a people issue. You know, the number one cause of fraud, as my co author David Wolf always says, is people. So as long as you've got people in any system, you're going to see somebody do something crazy. And the cost of this issue remains high.
Dana Hermanson:ACFE estimates it's about 5% of revenues for the typical organization. So you extrapolate that out globally, and it's a multi trillion dollar problem. We've got some unique things going on in the fraud area right now. One is the continuing arms race between the perpetrators and the fraud prevention folks. For example, AI, I think has great potential for mitigating fraud, detecting fraud, but AI is also a very useful tool for committing fraud with fake voice, fake video, fake documents.
Dana Hermanson:From an accounting fraud perspective, we continue to deal with the fundamental issue that we get the financial statements from management, who knows the most about the company. But management has the ability, if they want to, to exploit their information advantage over others. So that's why we have auditors and all the other controls in place. So we've got an issue that has attracted attention for decades. I think we have made some progress in addressing the fraud issue, but it's still a significant societal issue because people are at the heart of the issue.
Adam Larson:So your article specifically focused on virtue. And so I figured we could start off by defining virtue, especially in the context of business in excess and professional conduct, you know, because it's a word that is not often used in a business context.
Daniel Haggerty:So to understand what we mean by virtue and how we use it in the article, I think it's really important to sort of get to the philosophical roots of this word that gets translated from Greek into Latin into English as virtue. So the original Greek word was Arite, and Arite referred to the qualities of excellence in warfare. Right? The word Arite derives from the Greek god Ares, the god of war. So the original meaning of this, you know, Arite that gets rendered ultimately into English as virtue was in no way a soft quality.
Daniel Haggerty:It was referring to the kind of courage and even ferocity and strength that was necessary for an effective soldier in battle. But in the hands of the philosophers and particularly Plato and Aristotle, they broadened the concept. They said, okay, well, you know, understanding what it means to be an excellent soldier is important, but we want to try to understand more broadly, what does it mean to be an excellent human being, right? So what are the erratic qualities that is, what are the excellences that make a person an excellent person and such as to live an excellent life? And that was the beginning of ancient Greek ethics.
Daniel Haggerty:Ancient Greek ethics with Plato and Aristotle, it's not about admonishing us about what we ought not to do or goading us about what we should do. It's not even really so much about right and wrong. It's about greatness. It's about excellence. Like what sort of qualities does a human being need to possess in order to flourish in life, in order to achieve the Greek word is eudaimonia, which is often translated as happiness.
Daniel Haggerty:And again, I think the word happiness is kind of, I don't know, vague. Maybe it's something like flourishing. What are the qualities that a human being needs to cultivate and to practice in order to flourish in life, in order to live well, in order to be happy? So that's how they broadened the concept, arete. What are these qualities?
Daniel Haggerty:Now, when the Romans translated, Roman philosophers translated the Greek into Latin, they translated Aritae into Virtus, v I r t u s. Virtus. And if you think about it, the root of the word Vir or the root there Vir is also the root of the word virility, which suggests or means, you know, strength, courage, energy. It also specifically meant the sort of qualities of a mature man or manliness. And, you know, here inevitably we come up against certain, you know, attitudes toward women and men in the ancient world that we wouldn't endorse today.
Daniel Haggerty:The idea that, you know, being fully excellent for the Greek and some of the Greek and Roman philosophers, especially meant what are those qualities of an excellent man? But there is an exception. And I think it's really great to point it out. And that was Plato, right? So Plato argued that no, Plato had a view that in the ancient world was really uncommon to say the least.
Daniel Haggerty:And that was Plato said, there is no reason why in principle, a woman should not run the city, why a woman should not rule. And you know, even Aristotle thought that was impossible, really. He thought practically it was impossible. But Plato argued, no, what we need among our leaders are excellent people. And excellent people aren't defined by their sex or their gender or any other contingencies of their lives and circumstances.
Daniel Haggerty:Excellent people, he said, first of all, they're very rare. And secondly, they've cultivated those virtues. Even the virtues that are stereotypical of women or characteristic or characteristic of women and characteristic of men, they have the full array of virtues so that they can be fierce when fierceness is required. They're courageous like men and women are both courageous. They can be nurturing when nurturing is required.
Daniel Haggerty:And I think Plato was right, right? That what we need in leaders are those people who have most fully developed the fullest array of human excellences. So we have this word virtus, and naturally it gets translated from Latin into English as virtue. But I don't love it because I do think that, you know, outside of philosophy, in ordinary language, when people hear virtue, it sounds like, I don't know, some sort of maybe amorphous or a soft set of qualities that is so far removed from the philosophical meaning of it, which is strength, which is courage, which is excellence. But we're retaining the word.
Daniel Haggerty:I mean, in some cases, I think it might make sense to refer to something like a Reddick leadership in part because the word is unfamiliar. So people have to think if I say virtuous leadership, a lot of people are going be like, well, you know, what are you talking about? Virtuous leadership that that doesn't sound like anything that really is going to be useful in the field of accounting. But if we say a Reddick leadership, well, I don't know what that means, first of all. So, you know, it's an invitation to further questioning.
Daniel Haggerty:What do you mean by heretic leadership? Well, we do mean leadership that has cultivated, practiced, is implemented, implementing those excellences or virtues that make for an effective organization and an effective leader. So I guess also I would say that for business ethics, like when Doug invited me to participate in the PhD program in accounting, originally, he just invited me to come in and give a talk. Know, he knows I'm a philosophy professor. He wanted to develop more ethics in program.
Daniel Haggerty:So he invited me and I thought, well, I'm not just going to talk about business ethics generally or abstractly. I want to really think about the problem of fraud and what philosophical ethics might be able to contribute to try to help mitigate the fraud. I'm not unrealistic. I'm not thinking that if we understand virtue, fraud's gonna go away. But I do think instead of talking about utilitarianism or deontology or these abstract moral theories and then maybe trying to apply rules to particular cases.
Daniel Haggerty:Let's instead try to deepen our understanding of the motivation to commit fraud and moral motivation more generally and how that fits into. Because virtue is not just something like, oh, I'm gonna be virtuous. You know, I decide I'm gonna be virtuous, and now I'm virtuous. No. First, it takes understanding and having models to understand what these qualities like courage are.
Daniel Haggerty:And then it takes cultivation, which often takes mentoring, and it takes practice. It has to be reinforced. So I thought that, you know, to understand moral motivation, including the motivation to commit fraud, and contrary to that, the motivation to achieve a greater level of excellence would be both a unique and I thought promising way to try to come at the problem of fraud from another angle.
Dana Hermanson:It really struck me as we got into this discussion, how the, what I liked so much about what Dan brought to the table was this notion of getting above the level of, don't do the crime if you can't do the time, this punishment kind of mantra. I actually had a student in class describe it one time as the importance of discipline, because there are situations that people can exploit, and it takes discipline not to do it. I think virtue is a greatly expanded way of thinking about that is that I'm not doing it because I don't want to get caught and punished. I'm doing it because I want to live an excellent life, which is a very, very different approach to this whole notion of fraud prevention.
Adam Larson:Why do you think that these concepts have been lost, especially in modern business language? It's not something like you see the self help books, all the business books on the shelf. They're not talking about, Hey, be a virtuous person.
Douglas Boyle:Yeah. I mean, I came from industry before my life in academia, so I've seen this a lot in practice and also in research. But to be simple about it, it's not how executives are trained. It's not how they do their ongoing professional development and it's not how they're incented. So if you think about it, these leaders, and they are leaders, they get their formal education through business school and that's particularly focused on technical topics and net present value, how we do different things.
Douglas Boyle:It's very quantitative, it's very analytical, and now it's very technology focused with AI and everything coming up. It's not how they're initially trained when they're young through their education and it's not how they continue to get their CPE credits, particularly in accounting or finance. There's many certifications and they require ethics training, but that typically focuses on rules. Like you can't do this, you can't do that, don't spend, don't let your client buy you lunch. Lots of things that are very important to understand, but it's not building virtue.
Douglas Boyle:It's a rule book. It's a kind of a don't do this, don't do that. And that's not how virtue is understood or built. So, you know, what we're trying to do here is give these executives an alternative way to think about ethics and not just be so rules based, but also be more human behavioral based. And that ties into incentives because executives, in particular CFOs, which a lot of the folks in the IMA are CFOs or controllers, they're typically incented to meet short term financial objectives.
Douglas Boyle:So to build virtue takes time and it's work and it's practice and you ultimately will get there. And research has shown that organizations who build trust with their employees, it leads to higher levels of employee satisfaction, which leads to higher levels of customer satisfaction, which ultimately leads to better financial outcomes. So this pursuit of virtue is not just a nice thing to do, it also has a real financial impact to a company, but it takes time. So I'm not going build virtue with myself and my leadership team and the culture of my organization in one quarter to impact next quarter's results. It's going to take a little time.
Douglas Boyle:That's not how executives are typically compensated. So those are kind of the challenges we have in business to overcome to really change the ethical framework. Because until we start building virtue and looking at the human side, the behavioral side, controls are really important and rules are really important, but they're limiting. So that's why I think it hasn't really taken off a business as to education, ongoing development, and also incentives. So that's kind of the path that we're trying to plow here is to make people aware of this.
Douglas Boyle:And we've also talked about maybe having some CPE courses and ethics that are more geared this way. Because what we found in our PhD program and also in our Mac program, I know Dana has seen this at Kennesaw as well, is people love this. Like students love it, executives love it, they want to hear more about it because everybody wants to live an excellent life, right? So there's a lot of interest out there. So that makes it very promising for folks like us who develop these articles and develop these programs is that there is a real interest in this.
Douglas Boyle:So we really do think there could be impact here.
Daniel Haggerty:I could add to that if you give me a moment here. You know, some going back to what Doug said at the beginning about at the level of education, undergraduate education. So it's not uncommon, I think, for business students generally, maybe accounting students in particular, to take a course or even be required to take a course in ethics. And in our institution, and I think in many institutions, business ethics is offered out of the philosophy department, right? So, but I mean, of course, I'm sure there are exceptions, but generally, the approach philosophical approach to ethics generally and business ethics in particular is very theoretical and abstract.
Daniel Haggerty:And this might be hard to imagine, but the philosophical question about theoretical ethics is what makes right actions right and wrong actions wrong? What is the nature of good? What is the nature of bad? These are very, I think, interesting. Right?
Daniel Haggerty:I'm a philosophy professor, but again, very abstract theoretical questions. You know, some of the theories of morality that have been developed, you know, over millennia in Western philosophy are efforts to answer those abstract questions. Aristotle weighed in on that. Plato weighed in on that. But Aristotle said, and I I agree with this.
Daniel Haggerty:He said, well, it's one thing to try to answer theoretically what is the nature of the good and what makes right actions right. But when it comes to actually living well or even doing the right thing, a philosophical theory is not going to be helpful. It's not like, well, we should consult the theory and the theory is going to give us a decision procedure to decide what to do in this particular situation because Aristotle recognizes that the, you know, the circumstances are so various that we can't answer abstractly what's the right thing to do in that particular situation. It depends on that situation. So what Aristotle said, what is needed is not a set of rules or a theory.
Daniel Haggerty:What is needed is the cultivation of virtuous people. Virtuous people can count on themselves and can be counted on to do the best they can in a given situation. There's no absolute guarantee that they won't make a mistake or that it couldn't have been better. But what we need are not rules or theories to apply rules. What we need is the cultivation of a certain kind of person to do well and to live well.
Daniel Haggerty:And and I just I suspect that philosophical ethics and business ethics is not taught that way. Or even if it is taught that way, it's just a description of, you know, the virtue approach to ethics. What we're trying to do here is actually begin the cultivation and the recognition and cultivation and practice of virtue. So Doug and I have been in recent, very recent conversation about developing a concentration in ethics for accounting and finance. So not just business ethics, but ethics for accounting and finance.
Daniel Haggerty:And that would be a five course sequence over four years of undergraduate study culminating in a capstone course where virtue and ethics would be included in some of the required accounting courses and then it would culminate in a capstone course offered out of the philosophy department understanding that now you're about to embark on this career, what have you learned, how can you continue to develop it, how can you apply it, why is it important. So I think that sort of like at the beginning in undergraduate education, that sort of approach, again, it's not just theoretical and abstract, it's formative, is really valuable.
Dana Hermanson:The way I introduce this, I teach an undergraduate fraud and forensic course. And the first day of class, I talk about the nature of accounting education up to the point of taking this course. I say to them, you've been learning how to do the calculations, what the underlying concepts are. You are coming up with answers, but other than the answer being correct, nobody cared what the answer was. What we're going to address in this course is, now you're out there in the field, you're coming up with an answer, and now somebody comes and says, I don't like the answer.
Dana Hermanson:Because with that answer, I don't get my bonus. With that answer, I miss my target. So what we're going to focus on here is all of these pressures that come from all sides that want to influence your creation of this information. And ultimately what we're going to talk about is how are you going to respond to that? How are going to deal with those kinds of issues?
Dana Hermanson:And it is a totally different setting than learning how to calculate some type of depreciation. It's well, can we do something with salvage values? Can we do something with useful life? Because I don't like the answer you're giving me. It's going to be damaging to the company.
Dana Hermanson:So it's a totally different way of thinking about the accounting world. That's just, I think valuable and very rewarding to expose the students to.
Adam Larson:So I think that's great, you know, to incorporate that into our students coming up and the next generation of accountants, But maybe we can shift the conversation a little bit and talk a little bit about for folks who are in industry right now and maybe their team, they're like, okay, I want to build virtue, but I also mean to make my numbers. How do I bridge that gap? And maybe we can talk a little bit about that.
Dana Hermanson:Sure. So I think it's critical to build understanding of what is virtue, what are the key virtues that Aristotle emphasized. We've got a number of resources in the article for building in these concepts with different resources in different areas of the company. Hiring and mentoring, top management leadership. So I encourage people to take a look at the article for some specific exercises and resources.
Dana Hermanson:And while I think that the training is a critical first step and that needs to be ongoing training, two other things that really come through is that you can't have training that emphasizes virtues. And then people look at how management behaves and how the organization is really run. And if they perceive a disconnect there, what they're going to focus on is how management behaves and how the organization is really run. And then it becomes, okay, we did virtue training to check a box. And now I see that the people who get ahead in the organization don't look that virtuous to me.
Dana Hermanson:The behaviors that get me rewarded either financially or through advancement through the organization don't appear to be reflecting any type of virtues. So you've got to solve the disconnect if there is one. And like so many initiatives, the focus on virtue starts with training, it starts with education, it starts with reinforcement, but it also takes consistency with the actual ethical tone in the company and that you've got to have top leadership that is driving this. Without that, it falls apart.
Daniel Haggerty:If I can say a little more about that. Often when people think of ethics, they think of actions. What can you do? What can't you do? You know?
Daniel Haggerty:But virtue, as Aristotle understood it, action sort of comes at the end of the line. Focuses on is the development and the cultivation of habits of thinking, of feeling, of emotion, of desire, and all of those lead to action. So Dana's absolutely right. Those habits of thought and feeling and desire and emotion are occur in a culture. They occur in a context, and they're either reinforced by that culture or there's a disconnection there.
Daniel Haggerty:So, the cultivation and the practice of virtue isn't something that can be done just individually, like I'm going to be virtuous now, I'm going to learn how to think. No, it's about reinforcing these attitudes, these habits of thought about the profession, thought about those that profession serves, thought about the honor of the profession, what we desire, what we want, you know, our emotional responses to stress and to challenges. And that has to be reinforced, I think beginning with education at the undergraduate level and then all the way through.
Douglas Boyle:I think that rings real true with our profession too because we're one of the only professions where we have an obligation to the public. So think about that for a second. I mean, we obviously have an obligation to our employer and things like that, but our ultimate obligation as professionals is to the public. So that lends itself really to virtues because we need to understand that and we need to behave that way in how we come up with decisions and think about things. I think particularly in accounting, we're probably one of the only professions or very few professions who have that broader obligation.
Douglas Boyle:I think the downside, you can mitigate some of that downside hit because like if we trust Adam's judgment and we know, we might not understand exactly why Adam made the decision he did, but we know he's an excellent person and we trust his judgment, you can mitigate some of that downside. But that takes time, like Dana said, to build that kind of reputation because people will trust the decisions you're making are consistent with the facts, you know, all the facts you had and you exercise really good judgment. So we need to trust a little bit more with that. But that takes time to build.
Adam Larson:Well, people have been burned so many times that it's hard to build back up that trust because, you know, they've had leaders ahead of them who've told them to do things and they're like, I can't trust this person or somebody's making a crazy decision. They're like, well, last time somebody made the decision, my company tanked and I lost everything, you know? So, you know, are there are there tips or thoughts about, you know, how do you build, like, what are steps you can take to kind of build up that trust that's required to have that, you know, that virtuous organization?
Douglas Boyle:One thing Dan talked about is information gathering. So, so not everybody might not agree with the ultimate decision, but if they feel that their views on the decision were heard and they were seriously considered, I think that's an important first step. And that requires time, right? And that requires a skill set. But I think too often in business decisions are made by a small group of individuals and a lot of other stakeholders felt that their interests weren't heard.
Douglas Boyle:So I think gathering that information in a very appropriate way is important.
Dana Hermanson:I think if there isn't that kind of information made available, it's very easy for people to fall into sort of coming up with what somebody else's motivation must have been. Our university president here emphasizes that all the time. Don't think you understand somebody's motivation. As soon as you start ascribing motivation, you get onto thin ice.
Dana Hermanson:I think that transparency about voices were heard, these are the things we considered, this is why we ended up, may and or may not be a short term hit, but we're looking for long term benefit. It's critical.
Daniel Haggerty:I would add that trust requires a relationship. That goes back to our discussion of culture. And I am reminded of this line in Aristotle's Nicomachean Ethics that he's speaking of a certain kind of relationship, friendship. We're not talking about friendship in this podcast, but I think it applies nonetheless. And he said, people cannot truly be friends until and unless they have shared much salt.
Daniel Haggerty:And then he doesn't explain. He doesn't elaborate, which is good because it's an invitation for us to think. And, you know, one thing that comes to mind is they've actually shared meals together, of course, which is a, is a way of building up relationship and community, right? Overcoming a sense of everybody's for themselves are not connected to one another. But what else do we think of when we think of sharing much salt while sweat, right?
Daniel Haggerty:Where they've worked together, right? They've, they've collaborated together in a joint effort and they've, they've applied themselves, right? They've sweated together. You think of tears with salt. So you think of hardship, you think of hard times, you think of enduring them together in relationship, in community salt.
Daniel Haggerty:You think of blood, you think of pain, you think of injury. So it's not like, you know, trust is a deep thing. It's a precious thing that has to be cultivated. It has to be sought. It has to be understood.
Daniel Haggerty:It has to be desired and it has to be reinforced. It has to be honored. So, you know, in addition to the sort of practical answers to to what it takes to to cultivate that trust, I think I think that broader sort of philosophical understanding is also a nice way to frame it.
Adam Larson:Also, salt brings out the best in things like when you put salt on food, it brings out all the other flavors.
Daniel Haggerty:That's right.
Adam Larson:So if we have salt among each other, we're bringing out the best in each other, which in case of friendship and in leadership, we wanna bring out the best in our employees. If we are a friend, you wanna bring out the best in your friend. So I think that's another way of looking at the salt reference.
Daniel Haggerty:Have you been reading Aristotle?
Adam Larson:Not since my undergraduate one philosophy class I had to take.
Daniel Haggerty:That's very good.
Adam Larson:Yeah. So, you know, we could go on this conversation for a long time and go around the circle a number of ways, but I figured we could kind of wrap up our conversation by maybe saying you could maybe give a piece of advice you'd give to maybe a young professional, somebody entering the finance and accounting field, which, you know, you guys are all professors, you see those those young minds a lot. You know, if you wanted to give them one piece of advice about the importance of virtue, you know, what would that be?
Douglas Boyle:Yeah. I would start by saying you're going to have a very long career and you're going to most certainly run into ethical dilemmas and you're also going to be subject to pressure to maybe not make the right decision. The more you understand that early on and you take a more long term perspective that you are going to live by a set of virtues, you will stand out and you will reach very high levels of an organization and sometimes you might have to change your organization if they don't have the same ethical framework, but your career is a long term marathon. And a lot of young people, you want to get promoted next week and they might take shortcuts or succumb to pressure. Sometimes it's best to maybe leave an opportunity to pursue another one.
Douglas Boyle:So having that long term view ultimately will result in a very sustainable career where you will reach the upper echelons at the right place. But you have to have a little patience to do that and you have to have a little confidence in yourself. Like Dan was saying before, courage is a really important virtue and you need to have courage throughout your career. So there's no shortcuts.
Dana Hermanson:My advice also builds on what Dan said earlier, the fundamental importance of courage and what I really try to convey to our students, what I try to convey to people in the profession is have the courage to question, have the courage to challenge, have the courage to think, I'm not an idiot, and this doesn't make sense to me.
Dana Hermanson:Somebody's got some other motivation here, I need to understand that. Have the courage to ask for time to consider what you're gonna do. Don't make snap decisions. And then ultimately have the courage to report something or change employers if needed. But it's about taking control of your career with this long term horizon that as I go through this thing, I'm going to do things the right way.
Dana Hermanson:And there may be some short term hits. I may run into a boss who says, You're not getting promoted because you weren't willing to play. Okay, I'll find a place that values that. But I think for me so much comes back to courage. I think that's just absolutely foundational.
Daniel Haggerty:I agree. So Aristotle understood that the excellences range from public life to private life, right? That there are excellences in relationships and friendships and family. There are excellences in the local community. There are excellences of citizenship, political, military, business, that there's an array of excellences because human life is complex.
Daniel Haggerty:And I guess I, you know, the philosopher's answer to advice to a student, I would encourage an accounting student when I have one. Mean, one of my daughters is currently studying accounting as an undergraduate. And that is to, of course, you know, we talk about work life balance and I understand the importance of that, but not to take that to mean that you should see your work and career as disconnected from the rest of your life. Right? The idea of virtue is to flourish and to live excellently across life, right, in all areas of your life.
Daniel Haggerty:And so I would encourage students going into the field of accounting to really look at their vocation, to look at their career as honorable, and as an opportunity to live honorably professionally, as well as living honorably personally. Right? I think what I mean by living honorably is ultimately, I think, living in such a way that you could admire it. You know, living in such a way that you knew you did well, you didn't do perfectly, but and you kept you kept at it. You kept developing.
Daniel Haggerty:And and and you aspired not just to be good, but in your own way to be great.
Adam Larson:Well, Dan, Dana, and Doug, thank you all so much for coming on the podcast. It was really great speaking with you and discussing this, virtue, especially in the business sense, and I think it's been a really enlightening conversation.
All Speakers:Great. Well, thank you very much.
Announcer:This has been Count Me In, IMA's podcast, providing you with the latest perspectives of thought leaders from the accounting and finance profession. If you like what you heard and you'd like to be counted in for more relevant accounting and finance education, visit IMA's website at www.imanet.org.
Creators and Guests
