Thursday, May 25, 2017

Managerial Ethics in Finance

Managerial Ethics in Finance

Management and leadership can have a direct effect on market performance of their company. This can be in the form of good and bad decisions of management. Obvious choices would be those that surround the products or services that are offered. If management pushes for a good product, markets will most likely react positively. Leadership can also have an effect based on their ethical decision. Investors react to the companies’ earnings disclosures and these reactions can be influenced by the type of disclosures companies do. Managers are responsible for choosing which information to disclose and sometimes they do not promote transparency. Managers bend the information according to the needs of the company and investors can usually detect this kind of behavior (Dinis & Soukiazis, pg. 29, 2016). When this is detected, it acts as a deterrent for investment as one would question why the company is attempting to hide certain aspects.
There are numerous regulations that exist to prevent the unlawful or unethical behavior by publicly traded companies. The Sarbanes-Oxley Act is one of these and lay out specific things that corporations must do in addition to conducting business ethically. Rather than prevent, these regulations are more apt to deter, as many companies still choose to bend the rules. Ethics are not cut and dry as the ideals differ for each individual and business. What one company may consider unethical, another may consider it common practice. For companies to stay competitive in a global economy the temptation is there to bend rules in order to stay at the top. Additionally, unethical and unlawful are two different things. It can be difficult to prosecute companies for unethical behavior. Because of the rarity of repercussions, many companies do not feel an overwhelming need to conduct 100% of their business in a completely ethical manner.
There are steps that can be taken to change an unethical culture into one that is an example of good business ethics. In a survey of managers on how to improve ethics within the organization, there were four common responses on what steps should be taken. Those responses were: ethics should be taught in school, there should be organizational codes of ethical conduct, improve monitoring and reporting, and hire people with integrity as a driving quality (Cordeiro, pg. 270, 2003). Teaching ethics in school is a good start. People should be aware of what ethics are, understand the importance, and be prepared to follow ethical guidelines. It should go beyond this and ethics training should be a regular occurrence within an organization. Leadership should set the example for everyone to follow. It is far less likely to have unethical behavior when management acts ethical and expects the same from employees by creating an atmosphere of shared values. Routine internal audits are another way that companies can curb unethical behavior. Having oversight and acting upon findings shows a company's commitment. The last recommendation regarding hiring honest employees can be difficult. It is hard to know with certainty that someone is honest. It can be conveyed to potential employees, however, that integrity and ethical behavior is a pillar within the organization. There are numerous ways in which a company can lessen unethical behavior and each solution requires commitment from the organization as a whole.
Dinis, D. S., & Soukiazis, E. (2016). The links between the companies’ market price quality and that of its management and business quality: A system panel data approach. International Journal of Financial Management, 6(1), 28-38. Retrieved from
Cordeiro, W. P. (2003). The only solution to the decline in business ethics: Ethical managers. Teaching Business Ethics, 7(3), 265. Retrieved from

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