Ethics Considerations in Financial Management
Ethics Considerations in Financial Management
Ethics assists individuals in deciding when an act is moral or immoral, right or wrong.
Ethics can be grounded in natural law, religious tenets, parental and family influence, educational experiences, life experiences, and cultural and societal expectations. The days of when people were simply trusted to always do the right thing are over with ENRON and WorldCom and the devastation that followed in the business world you are now guilty until proven innocent. Ethics are now written clearly out in agreements that are signed when people are newly hired and the employee is expected to follow those guidelines or face termination (Gitman, 2006). Ethics in financial management is actually two different things, societal and corporate.
When talking about financial ethics, we are talking about two different types of considerations, which are quite different. First, we are talking about societal considerations, such as environmental concerns and balancing the interests of the corporation against those of stakeholders (Luft, 1997). Second, we are talking about preventing conduct which is either a violation of law or is sufficiently close to the line of illegality that the corporation has determined not to take a risk of violation, particularly without careful consideration at senior levels (Luft, 1997).
Numerous scandals in the late 1990s and early 2000s seemed to add credence to the criticism of business ethics. Corporate executives of WorldCom, a giant in the telecommunications field, admitted fraud and misrepresentation in financial statements. WorldCom’s former CEO went on trial for alleged crimes related to this accounting ethics scandal (Luft, 1997). A similar scandal engulfed Enron in the late 1990s and its former CEO, Ken Lay, also faced trial. Other notable ethical lapses were publicized involving ImClone, a biotechnological firm; Arthur Andersen, one of the largest and oldest public accounting firms; and
Ethics assists individuals in deciding when an act is moral or immoral, right or wrong.
Ethics can be grounded in natural law, religious tenets, parental and family influence, educational experiences, life experiences, and cultural and societal expectations. The days of when people were simply trusted to always do the right thing are over with ENRON and WorldCom and the devastation that followed in the business world you are now guilty until proven innocent. Ethics are now written clearly out in agreements that are signed when people are newly hired and the employee is expected to follow those guidelines or face termination (Gitman, 2006). Ethics in financial management is actually two different things, societal and corporate.
When talking about financial ethics, we are talking about two different types of considerations, which are quite different. First, we are talking about societal considerations, such as environmental concerns and balancing the interests of the corporation against those of stakeholders (Luft, 1997). Second, we are talking about preventing conduct which is either a violation of law or is sufficiently close to the line of illegality that the corporation has determined not to take a risk of violation, particularly without careful consideration at senior levels (Luft, 1997).
Numerous scandals in the late 1990s and early 2000s seemed to add credence to the criticism of business ethics. Corporate executives of WorldCom, a giant in the telecommunications field, admitted fraud and misrepresentation in financial statements. WorldCom’s former CEO went on trial for alleged crimes related to this accounting ethics scandal (Luft, 1997). A similar scandal engulfed Enron in the late 1990s and its former CEO, Ken Lay, also faced trial. Other notable ethical lapses were publicized involving ImClone, a biotechnological firm; Arthur Andersen, one of the largest and oldest public accounting firms; and
References: Gitman, Lawrence J. (2006). The Role and Environment of Managerial Finance. Principles of Managerial Finance, Brief Fourth Edition. Boston, MA: Pearson/Addison Wesley. Joan L Luft (1997). Fairness, Ethics and the Effect of Management Accounting on Transaction Costs. Journal of Management Accounting Research, 9, 199-216. Retrieved June 30, 2008, from Accounting & Tax with Standards database. (Document ID: 905990581).