Ethical Issues in Financial Management 4
EthicalIssues in Financial Management
EthicalIssues in Financial Management
Financialmanagement is a function assigned to a Chief Financial Officer thatentails raising and allocating capital. Ethical issues in managementfall into two broad categories: obligations of financial managers andthe organization of the company with shareholders control and theobjective of wealth maximization(Boatright, 2010, p. 15).Organizations should hire qualified experts to run their financialprojects and not just any other person. Such professionals can makeinformed financial decisions that see the business grow and expand aswell as ensuring that the company does not commit any financialcrimes that could warrant a lawsuit in a court of law. They upholdprofessionalism in all economic processes. The aim of business’splanning and operation is the well-being of the enterprise and itsinvestors. Therefore, every action by the management and allemployees should be designed to improving the capital base of thebusiness. It should also aim at creating wealth for the investors(Moyer, McGuigan, Rao, & Kretlow, 2011, p. 794).Employees should avoid pursuing personal interests and misusingcorporate funds. Such scenario happened to the Enron Corporationwhere the top management failed to account correctly for all theirfinances so that they withheld the investor’s dividends. When theinvestors learned of this fraud, they went to court and theadministrators were charged with fraud and the company was declaredbankrupt.
Employeesshould also not share confidential financial information with anyoutside person for personal gains. Companies operate on the principleof having a competitive advantage over their competitors. Suchbenefit is only achieved by a business possessing particularinformation that other firms don’t have. Financial information iscrucial for business survival and therefore every company is obligedto protect it. However, every business should ensure that it providesits stakeholders with correct and accurate information(Boatright, 2010, p. 72).MCI Inc., a company in the US, fell due to providing incorrectinformation by hiking expenditures and inflating revenues to concealits diminishing income. Its top executives are serving jail terms forfraud while the business was taken over by Verizon Enterprise. Thecompany should also ensure that there is a free flow of cash. . Itis, therefore, an ethical issue in financial management requires thatthe business does not hold a lot of cash with an intention ofdestabilizing the market. Every profit that an investment realizesshould either be divided among the shareholders in the business orreinvested.
Themost advantageous and best source of corporate financing forexpansion is investing the company profits. It’s an excellentsource of funding because the enterprise can earn higher from moneythan the interest it would earn if kept in the bank. In the case of acompany owned by more than one shareholder, they should agree uponreinvesting the earnings. The earnings are rightfully theirs to shareand therefore they are the one to decide otherwise. Dell ComputersInc. is an example. It has successfully exercised this practice forten years. Another ideal source of business financing is selling ofbonds. A bond is an agreement that an enterprise makes to lendersthat it will pay their money for a particular period and with acertain amount of interest. Corporations prefer to issue bonds morethan other means of raising capital because this means isadvantageous. First of all, the interest rates paid to the buyers ofthe bonds are relatively lower than that which would be earned bybank loans. Also, bonds leave the company with few regulations towork under which is different to the many restrictions that accompanybank credits. Buyers of bonds are also differentiated to thepurchasers of stock in that, after they are paid their money, theydon’t have any other claim in the profits or ownership of thebusiness. An example of a US corporation that recently sold bonds forupgrade of its pipelines is Kinder Morgan Inc.
Boatright,J. R. (2010). FinanceEthics: Critical Issues in Theory and Practice.New York: John Wiley & Sons. Print.
Moyer,R. C., McGuigan, J., Rao, R., & Kretlow, W. (2011). ContemporaryFinancial Management.Boston: Cengage Learning. Print.