Business Ethics in Finance, Accounting & Management

Finance & Ethics

  • Focus: management of money—investing, borrowing, lending, budgeting, saving, forecasting.
  • Frequent unethical acts: investment fraud, inappropriate loans, misuse of funds, securities violations, counterfeit instruments.

20082008 Financial Crisis (Sub-prime Mortgages)

  • Cause: high-risk mortgages bundled into MBS; collapse illustrated by Lehman Brothers.
  • Key stakeholders: home buyers, lenders, insurers, rating agencies, government.
  • Moral takeaways:
    • Risk must stay with those who benefit.
    • Full transparency required at every transaction level.
    • Strong market and/or governmental controls essential.
    • Moral appeals alone fail when unethical incentives are strong.
    • Post-crisis: stricter accountability and disclosure rules worldwide.

Corporate Restructuring

  • Definition: altering financial/operational structure under pressure.
  • Ethical hotspots:
    • Corporate takeovers: weigh net consequences vs justice/fairness.
    • Leveraged buyouts: heavy debt; management conflicts of interest.
    • Downsizing: no right to lifelong jobs, yet duty to limit harm and show respect.

Accounting & Ethics

  • Purpose: record and balance credits/debits.
  • CPA ethical framework:
    • Independence from clients.
    • Governed by GAAP, GAAS, COPE.
    • COPE: integrity, objectivity, competence, compliance.
  • Wrongful practices: conflicts of interest, falsifying accounts, tax evasion, outright fraud.
  • Historic scandals: Enron (Arthur Andersen), Lehman Brothers.

Ethical Investing

  • Shareholders retain moral responsibility despite distance from corporate acts.
  • Ethical investing: applying moral criteria when choosing investments.
  • Assessment factors: company policies, track record, accountability for employee actions.
  • Criticisms: unethical investors fill gaps; too narrow a view; limited evidence of real pressure on firms.

Management & Ethics

  • Common violations: misuse of time/tech, abusive behavior, dishonesty, theft, discrimination, harassment.

Organizational Models

Rational Organization

  • Formal hierarchy aimed at efficiency.
  • Employer duty: fair pay & conditions.
  • Employee duty: pursue firm goals; avoid conflicts of interest.
  • Limitation: real behavior often not fully rational.

Political Organization

  • Firm as competing power coalitions; management likened to government.
  • Implication: employees deserve rights safeguarding them from managerial power.

Caring Organization

  • Network of relationships centered on mutual care rather than profit.
  • Risks: burnout from over-caring or indifference from under-caring.

Building an Ethical Organization

  • Staffing: recruit/select for high ethics.
  • Training: fundamentals, dilemma handling, code development.
  • Compensation: tie ethics to evaluations; discipline breaches.
  • Leadership: model honesty, transparency, accountability.
  • Code of Ethics: written standards covering employment, confidentiality, conflicts, stakeholders, environment, politics.
  • Support: advice channels, anonymous reporting.
  • Communication: clear, confidential, verbal & non-verbal.
  • Combined practices cultivate an enduring ethical climate.