Question

What ethical issues can arise in the area of management control?

(1,000words essay)

Answer 1

Ethics are the rules or standards which governs the conduct of individuals or organizations. The ethical behavior of an employee depends on various factors such as his/her ethical philosophy, ethical decision ideology, other individual factors, factors based on his position in an organization, and various other external environmental factors.
An individual's ethical philosophy depicts the ethical principles that he/she holds or follows.

When an individual faces an ethical dilemma, his value system is an important factor that determines whether he/she will behave ethically or unethically. Other factors which influence ethical behavior of an individual are age of the person, his/her level of ego strength, and the level of moral development. The past decisions of an individuals influence his present and future decision-making.

There is a direct impact of organizational factors on the behaviour of employees and ethical decision-making process. The organizational factors that influence the behavior of the employees are Culture and structure of the organization, strategies adopted for performance measurement, reward systems, and the position-related factors. Environmental factors which lay an influence ethical behavior include the political and economic factors, the legal environment in which the organization operates, and the social factors.

In the context of management control, ethical issues can take place in any department or function of an organization. From the financial viewpoint, the ethical issues may arise due to the creation of budgetary slack and managing earnings. Budgetary slack is an understatement of revenues and/or overstatement of expenses in the budget. Its basic cause is managerial intention rather than by an unforeseen error in the estimation process. The creation of slack is ethical or unethical depends on the personality traits (related to honesty and fairness) of managers. It is also dependable on the extent of open communications possible between the manager and his/her superiors regarding the ability and the required support necessary to achieve the desired objectives. Earnings management is a method which is adopted by organizations to show the financial performance to be better than what they actually are. This may be performed in order to provide a misguidance to the stakeholders who use the financial statements to get an assessment of the organization's financial strength. Ethical issues in the sales function arises due to the reason when there is pressure of higher authorities on salespeople to achieve targets in order to earn incentives or recognition.

In the operations function, ethical issues may take form in areas of productivity and quality or on the safety front. Better quality leads to more efficient utilization of resources, and helps in boosting productivity. On the other hand, bad quality can lead to managers budgeting for slack in their operations, either in terms of consuming more resources, providing for higher lead times, or acceptance of relatively poor quality.A positive impact can be seen on the development and proper maintenance of a culture which consists of good quality if the managers and employees in an organization shows highly ethical behaviour and if the business environment and organization/job-related factors provides an encouragement to ethical behavior. The quality of products may be compromised by managers to increase productivity and cut costs. In order to increase their profitability, organizations may ask the employees to work in unhealthy or dangerous working conditions and bend towards the unethical behaviour.

The ethical issues related to the area of human resource management include lack of job security and increase in risk of unemployment, excessive scrutiny and managerial control over employees, and discrimination among different employees. The system of management control of any organization can be divided into three parts. These can be divided as:

• To provide an indication and communication of the objectives of the organization to each level in the organization
• Measurement of performance through a pre-applied performance measurement system
• Integration of the reward systems of the organization with the accomplishment of targeted objectives and in turn encouraging the employees to perform better and efficiently.

There are different mechanisms in order to control and monitor the ethical behavior of employees in an organization.

To work accordingly and in limits set by the organization, there must be a set Code of Ethics which must be followed by each member of the organization. Code of Ethics is a document which provides details about the expected behaviors on front of each level of management. The policies that are related to ethics and a proper method to implement them must be provided by the Code of ethics.

The practice of formation of Ethics Committee by an organization states that there must be proper regulation of ethical conduct. The Ethics Committee's basic task is to strike a balance between the ethical issues emerging due to the strategic decisions taken at top management level, and the ethical issues that are faced by the employees at all levels of functioning.

Ethics training for employees is a general process to improve the ethical conduct and decision-making power of employees. Ethics training helps employees in deciding the ethical implications of their decisions and actions. The ethics training program must be composition of such characteristics that it strengthens the organization's stand on ethics, provides the employees guidelines through which they can bring to light the wrong behavior, and also helps in making the employees aware of the likely penalties for discrepancies.

The concept of Corporate governance is an important aspect of the organization which should be integrated with the ethical codes of the organization. The behavior of the top management and all employees must be monitored in order to check for compliance with the ethical code at all levels as well as with the functional strategies of the organization.

There is a term known as Whistleblowing, which provides an employee a power to inform the higher authorities or public about unethical practices or wrongdoings taking place in his/her organization. They help the organizations in tracing-up and inhibiting unethical practices which, if not tracked, would lead to a damage in the reputation of the organization and also cause harm to the well-being of employees.

There is a necessity in organizations to incorporate reward systems which promote ethical means of achieving the mentioned objectives. Incorporating ethics into the reward systems will lead to the higher commitment of the employees toward the ethical programs of the organization. The system should also ensure rewards or bonuses for employees who show good judgmental capabilities or helps in taking proactive decisions that benefit the organization.