Introduction
Ethics is defined as "the discipline concerned with what is good and bad, right and wrong, or moral duty and obligation." (Unabridged edition, 1961.) The word derives from the Greek word for "moral," a Latin word with roots in "mores" or "customs"—in other words, societal values.
Business Ethical Practices
The origins of business ethics can be traced back to the earliest bartering system, which involved the exchange of equals. People centuries ago used ethical guidelines such as the religious Ten Commandments or Aristotle's economic philosophies instead of following a code of ethics.
The modern concept of business ethics dates back to the 1970s in the United States, during which time there was also a civil rights movement and the formation of environmentalist organizations. Americans became increasingly critical of the government's involvement and ongoing business operations during the Vietnam War. After WWII, the United States was the only major power that did not suffer major devastation, and as a result, American businesses flourished and expanded their global reach.
candles in Business
Bribery, insider trading, money laundering, and false schemes scandals represent a failure of businesses/corporations to act ethically. One of the most egregious cases of insider trading was that of Jeffrey Skilling, the CEO of Enron. He was involved in a number of white-collar crimes, but insider trading was the most egregious. He duped the investing public by concealing the company's financial problems and dumped his stocks worth $60 million before leaving the company, which soon went bankrupt. Enron's demise was shocking, and it also destroyed Arthur Andersen, one of the world's largest audit firms.
Another scam story involves Bernie Madoff, a Wall Street financier who ran the largest Ponzi scheme in history, with victims from all socioeconomic backgrounds.
What is Corporate Finance?
Corporate Finance is a department that handles how businesses/corporations address funding sources, accounting, capital structuring, and investment decisions. They are concerned with increasing the value of their shareholders through financial planning, dividend distribution, and various strategies. They also oversee capital investments and taxation.
Because managing corporate finance, dealing with a firm's financial resources, entails a lot of decision-making and risk, there can be a lot of incentives to choose unethical procedures. Government and regulatory reforms are insufficient to ensure that a firm is fully ethical; therefore, firms require a developed set of principles to analyze decisions and check potential conduct from an ethical standpoint.
Maintaining consumer privacy while companies mine user information for valuable marketing data has become one of the most important ethical considerations in recent years. According to governing organizations, basic ethics in financial management include professionalism, compliance with all applicable laws, and no misinterpretation or misconduct. All dealings/transactions should be conducted with complete transparency and integrity. In the event of a conflict of interest, financial managers must act in the best interests of their clients and employers. Another responsibility is to protect your and your employer's reputation. Some believe that the risk of scandal and reputational damage is enough to deter financial managers from acting unethically. According to industry analysts, tighter regulation is required because ethics in finance cannot withstand temptation.
Finance Ethics
The role of ethics in financial management is to balance, protect, and preserve the interests of stakeholders. Eli Lilly and Company, for example, claims that its finance code of ethics covers obligations to management, coworkers, business partners, the public, and shareholders. Typical standards found in a finance code of ethics include
Act with honesty and integrity
Avoid conflicts of interest in professional relationships. Also, avoid the appearance of such conflicts.
Provide people with accurate, objective, understandable information. Disclose all relevant information, positive and negative, so that your listeners have an accurate picture.
Comply with all rules and regulations governing your position and your company.
Act with good faith and independent judgment. Don't allow self-interest or other factors to sway your recommendations.
Never share confidential information or use it for personal gain.
Maintain an internal controls system to guard against unethical behavior.
Report anyone you see violating the code.
Financial managers should not interpret the code as limiting ethical behavior: Check all the boxes, and you're done. Doing the right thing in finance means doing the right thing even in situations that aren't on the list. If in doubt, seek ethical advice from someone with authority.
Potential Conflicts of Interest
A fiduciary duty underpins the role of ethics in financial management. Managers must act in their clients' and employers' best interests, not their own. You must side with the client if there is a conflict of interest in which you can enrich yourself while harming a client.
Bernie Madoff, for example, acted as both a broker and a custodian for his clients' funds. With both roles combined, there was no independent auditing of his operations, making it easier for him to defraud his clients out of millions of dollars.
That is why it is critical to establish internal controls. When the risk of exposure is high, stealing becomes less appealing.
A fiduciary duty underpins the role of ethics in financial management. Managers must act in their clients' and employers' best interests, not their own. You must side with the client if there is a conflict of interest in which you can enrich yourself while harming a client.
Bernie Madoff, for example, acted as both a broker and a custodian for his clients' funds. With both roles combined, there was no independent auditing of his operations, making it easier for him to defraud his clients out of millions of dollars.
That is why it is critical to establish internal controls. When the risk of exposure is high, stealing becomes less appealing.
Information and security
In the networked twenty-first century, ethical behavior includes how you handle and secure data. For example, a security breach at the Equifax credit bureau may have compromised the confidential credit and personal information of 143 million Americans. According to Strategic CFO magazine, a proper code of ethics could have resulted in better data protection and greater transparency following the breach.
Finance Ethics and Reputation
Another role of ethics in financial management is to guard your and your employer's reputation. You're safe if you behave ethically. Crossing the line, on the other hand, can ruin both your company's and your own reputation.
Some regulators and lawmakers believed that the risk of scandal and loss of reputation would deter financial managers from acting unethically. Repeated cases of financial mismanagement in the twenty-first century have demonstrated that the largest financial institutions can sail through a scandal with no loss of business.
According to some industry analysts, tighter regulation is required because ethics in finance cannot withstand temptation.
Finance Ethics vs. Reward
One issue with following an ethical code in finance is that the system sometimes rewards unethical behavior. Some financial managers will fail if an organization rewards them for making decisions that benefit the company rather than the clients.
Wells Fargo, for example, got into trouble after it was discovered that employees had opened accounts without customers' permission in order to meet sales targets. Mis Selling to customers is a serious breach of ethics in the banking industry. If the rewards system prioritizes goals over ethics, it may be too tempting for some.
Ethical Issues in Business
1.Harassment and Discrimination in the Workplace. ...
2.Health and Safety in the Workplace. ...
3.Whistleblowing or Social Media Rants. ...
4.Ethics in Accounting Practices. ...
5.Nondisclosure and Corporate Espionage. ...
6.Technology and Privacy Practices.
Conclusion
According to this article good ethical practices by businesses are critical to achieving organizational success. A business organization that embraces ethical business practices is more likely to achieve employee commitment, loyalty, and satisfaction, which leads to higher work quality and performance than an unethical one. Such a business will also demonstrate good organizational value to stakeholders. It is also concluded that practicing good ethical behavior will boost competitiveness, business sales, profit, customer retention and loyalty, and investments, to name a few.
Because the importance of business ethics cannot be overstated in today's business world, it is strongly advised that businesses adopt ethical practices. Businesses must address ethical issues.