Ethics, Values, and Social Responsibility
Abstract
The aim of this analysis is to explore the major ethical issues affecting business organizations including disclosure, fraudulent financial reporting, asset misappropriation, pressure from management and greed. The analysis recommends that business management should encourage a cultural transformation that ensures that ethical standards are upheld in the organization and thus deal with challenges arising from the unethical practices. The conclusion involves relating ethical dilemmas to moral values with a highlight on management to deal with aforesaid issues as per requirements of their organizations.
Introduction
In any business and levels of management, ethics is highly regarded and considered everybody’s business. Ethics involves conducting the most significant social challenges in an acceptable manner in terms of ethical and moral values. In the current business environment the issues that draw most attention include relates to disclosure, fraudulent financial reporting, asset misappropriation, pressure from management and greed. These issues affect business organizations at all management levels and arise when managing both cash and non-cash assets. The issues also touch on all the stakeholders of any business organization in terms of what is expected of the management and employees. Ethical values must be taken seriously and given priority over any human weakness, rationalization, personal fault and ego in order to address the ethical issues. Their impact can be felt by both the current and future stakeholders and thus management and employee must place high regard on them. An economy that is increasingly globalized a high diverse workforce and the public that is more alert to existing and emerging ethical issues has brought about a more complex business landscape.
Review and ranking
Disclosure
Business or corporate disclosure refers to the communication of different financial information by people inside the public organization including accountants to the stakeholders outside. Disclosing financial information aims at communicating the performance and governance of a firm to the stakeholders especially the outside investors (Jo & Kim, 2008). The aforesaid communication is important to both the shareholders and investors so that they can analyze how their investment is fairing and other stakeholders who need information regarding the corporate social responsibility and policies touching on the environment. The disclosure may involve financial reporting, basically though financial statements as per the definition of accounting standards. It can also involve governance where the management is required to comply with good practice and management communication where managers relay information in informal ways such as through announcements and press conferences. Businesses that have extensive disclosure are not likely to encounter information problems but are likely to experience an active monitoring by shareholders (Jo & Kim, 2008). Thus, they are likely to engage in less unethical activities including aggressive manipulation of earnings and experience better post-performance issues over the long-term. This means that increased disclosure is beneficial to the stakeholders since there is likely to be minimal manipulation of earnings and the stakeholders can rest assured that few ethical issues will arise that touch on their investments.
In addition, ethical issues may involve non-disclosure agreements, where the business management enters into legal contract with other parties not to disclose certain information that they have shared for a given purpose (Richard, 2016). The management has to uphold integrity especially when sharing confidential information to the parties so that to do so safely in a way that the interest of the shareholders is not compromised. Such information may include presentation of an idea or invention to possible partners, distributors or investors, sharing of marketing and financial information with potential investors and receiving some services from some firms or individuals who might have access to sensitive information when offering such services (Richard, 2016). The aspects are likely to lead to ethical issues where the non-disclosure agreements have been violated.
At times, there may be failure to disclose financial information in the required manner as per the GAAP which means that the preparation of accounts is not done with honesty (Jo & Kim, 2008). The stakeholders especially the investors are not able to make the appropriate decisions since they cannot understand the information presented.
Fraudulent financial reporting
Fraudulent reporting involves intentional misapplication of certain amount with an aim of deceiving shareholders more investors and showing fake financial performance of a firm including its share price. The major fraudulent activities involve presenting fictitious revenues in financial statements, recognizing premature revenues and adjusting revenues through misstating accounting entries (Jo & Kim, 2008). Over the short-term , when the stock price of a firm is high but over the long-run it negatively affect the financial positions of the firm , it can be understood through business concern that the financial reporting involved misrepresentation of accounts (Jo & Kim, 2008). A major reason for fraudulent financial reporting is absence of emphasis by management on business ethics which present an opportunity for accountants and financial employees to commit fraud (Liu, Wright & Wu, 2015). Another major issue involves conflict of personal interests. The major financial scandals that involve fraudulent activities have been brought about by conflict of interests with major culprits being the management, CEOs, accountants and auditors.
Conflict of interest has been a common threat underlying ethical lapses in the many organizations including businesses. The issues have brought about a large number of problems in many areas and have caused great financial harm and injury to the stakeholders of businesses. Conflicts of interest have been major issues in organizations’ boardrooms, accounting firms, Investment Banking Firms and even in the stock markets (Bell, Friedman & Friedman, 2005). It is possible for the most ethical individuals to fail if the potential to gain is big. Hence, it can be impossible to do away with all conflicts of interest in the businesses but a significant reduction can surely improve the chances of management and employees doing the right thing. Businesses that have a real concern about ethics should first make sure that conflicts of interests are not existent or are as minimal as possible. Business managers have been taking various measures aimed at preventing cases of conflicts of interest occurring or to mitigate the impact of such cases on the organization’s public image.
The conduct of business managers and employees is guided by established codes that aim to check their actions and to ensure that they primarily serve the interests of shareholders without antagonizing other stakeholders (Davis, 2015). For instance, a compensation committee is established to determine the CEO’s compensation. Where the members of the committees have established ties with the CEO, the individual is in most cases involved in the process of determining the board members’ compensation. The resulting conflict of interests has in the past led to huge compensations. In accounting firms, there are many cases that have led to financial scandals where the firms have earned significantly higher fees from consulting services than from the auditing services. The conflict of interest arises when auditors are not objective especially where their firms are poised to lose a lot of money in consulting fees (Bell, Friedman & Friedman, 2005). The scandals may also involve misrepresentation of financial information that is shrouded in fraud and theft with an aim of personal financial gains. The management in business organization have resulted to ethical codes and upholding the accounting standards to prevent such cases or stem out the negative of effects on the organizational image (Bryce, 2017).
Asset misappropriation
A major ethical issue in accounting involves misappropriation of assets more so at the individual level. The issues have both direct and indirect impacts on the staff morale and the company’s public reputation. The misappropriation can be related to lack of integrity which erodes stakeholder trust in the management. The leadership in the firm sets a bad example by failing the integrity test and this leads to bad culture in the organization. Trust reinforce and influences the quality of each connection, affiliation and project that a management engages in and is the basic aspect on which the other authentic business accomplishment depends (Audi, Loughran & McDonald, 2016). Integrity on the other hand is the basis for business trust and a culture that upholds workplace environment is founded on trustworthiness of management and employees. In the business, integrity relates to the culture, management and leadership principles where a culture that upholds integrity should start at the top and should be perceived in the activities and conduct of management (Pirson, Martin & Parmar, 2017). A business leadership should have an accord associated with mutual values. Establishment of shared values enhances environment and productivity of the workplace by strengthening individual effectiveness and corporate loyalty based on ethical behavior (Pirson, Martin & Parmar, 2017).
Unethical values mean that management can engage in misuse of assets and funds by misleading firm’s accounts, and wrong preparation of documents such as invoices. However, an ethical culture will eliminate asset misappropriation so that management and employees will use the assets for the intended purpose and uphold the interests of the owners. Good corporate culture ensures that there are strong internal controls that to detect asset misappropriation, and may include physical safeguard of non-cash assets, independent checks and proper records and documents. An adequate accounting system ensures that ethical values like integrity are incorporated in the entire organization which instills trust among all the stakeholders.
Pressure from management
Pressure from firms’ management or boards to achieve unrealistic goals or deadliness is a major factor that is likely to make employees to act unethically. The related unethical behavior relates to the employees desire to grow in their career and protect their livelihoods. They give in after being pressured to meet the expected targets and in order to do so they engage in unethical activities that enhance their chances of success. The pressure from management provides an unethical environment in the organization where the employees misreport financial statements revenues to meet the set targets. The practices go to the extent of being viewed as acceptable as long as the set goals have been set. For instance, the sales person can make untrue claims so that the can secure a certain deal and thus meet his or her quota. A major such case involved Wells Fargo, where the firm’s employees opened fake accounts and their credit cards using the names of clients to make certain quota, which cannot be realistically made without cheating. The unethical behavior by the employee becomes detrimental to the organizational stakeholders and can be associated with personal dishonesty, corruption and even fraudulent activities for individual gain. The erosion of stakeholder trust and tarnishing of public image leads to poor corporate performance at the securities exchange market in terms of share price. It can also lead to considerable loss of property, threatens the company’s survival especially if immediate action is not taken. From the business perspective, it is important for management to set realistic and achievable organizational goals so that to prevent employees from engaging misconduct or harmful activities to the stakeholders.
Greed
Corporate greed is associated with many ethical issues and has been blamed for environmental pollution, bankruptcies in forms, low wages, safety problems in products and even diseases such as cancer (Rivlin, 2003). Businesses are out to make good profits and engage in various activities that they think will yield high revenues for the shareholders. Regardless of how greedy business owners are, the market institutions normally channel their motivation to a certain social end. Firms have to consider the interests of the society if they are to thrive and thus the moral merit of the reason for undertaking commercial activities does not have necessary bearing in services provided by trade to the society (Friedman, Adel & Friedman, 2015). Ethical issues arise when the management or executives use shortcuts or cut corners for the sake of enhancing revenue making even if it means violating the laws. Meeting the various set regulations has costs and businesses must be willing to bear the costs so as to remain social responsible. Greed arises where businesses seeks profits at whatever cost, while paying little regard to the welfare of the society in which they operate in. The management has to create good organizational cultures that encourage people to exercise right judgment in complex situations while performing their duties (Friedman, Adel & Friedman, 2015). Ethical practices involves shunning the view that greed is good and understanding that operations of private sector have great impact on the environment and world populations.
Recommendations
Considering the ethical challenges presented by above issues, business management should employ past and present experience to remove obstacles and even contradictions that have been known to have the greatest effect in the capacity to act ethically. The management should adopt cultural transformation programs and other initiatives that will improve the ethical environment in their business organizations (McLaverty, McKee, 2016). Managers should ensure that they do not push too much for results and change which can make employees to engage in activities innately lead to conflict of interests. Employees should not be driven to act counter to their personal and group ethical values while trying to meet the set expectations. Since many leaders and employees are rewarded for achieving the set standards, many can be driven to disregard accounting standards and the trusts bestowed on them for the sake of rewards and fear of dismissal. This lure of rewards and incentives can be a problem at all levels of management including the boardroom. Since rules and standards may fail to apply in all cases, each manager has to understand what matters to their organization. Organizational awareness ensures that managers identify the specific forces in the culture and processes that can motivate others to engage fraudulent activities and misappropriation of assets for personal gains. They should develop a culture that encourage employees to speak up about various ethical issues thy encounter and which they consider to have impact on organizational performance (McLaverty, McKee, 2016). The management has to consider why people are acting in certain ways and take steps to prevent ethical risks’ impacts especially involving financial malpractices and disclosures.
Conclusion
Ethics involves conducting the most significant social challenges in an acceptable manner in terms of ethical and moral values. The management has to understand the major ethical affecting business organizations including disclosure, fraudulent financial reporting, asset misappropriation, pressure from management and greed at personal and organizational level. Organizations’ management should adopt cultural transformation programs and other initiatives that will improve the ethical environment in their business organizations.
References
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Liu, X. K., Wright, A. M., & Wu, Y. J. (2015). Managers’ unethical fraudulent financial reporting: The effect of control strength and control framing. Journal of Business Ethics, 129(2), 295-310.
