Question

Select a publicly traded firm of your choice that enjoys a large shareholder base. What challenges may this firm have encountered (or is likely to encounter) in terms of (a) incorporating ethics into financial management practices, and (b) maintaining/sustaining ethical practices in the face of internal or external (market) pressures? Frame your response relative to the financial manager's fiduciary duty to maximize shareholder's wealth.

Answer 1

Principles of Ethics

Ethics are the principle of right and wrong. They are the values on which an individual or organization works. It is the standard which is ultimate and the individual or an organization will not go below that.

Ethics are the principle of right and wrong. They are the values on which an individual or organization works. It is the standard which is ultimate and the individual or an organization will not go below that. Challenges which are faced by the financial management in terms of ethics Self interest threat is a challenge faced by management which sometimes converts into selfishness or greed. Only following the law and legal requirement is not enough but doing the things with morals and ethics is also important. There can be a conflict between professionalism and the company?s demand which induce unethical behavior. Challenges in sustaining ethics under pressure The challenge is for the financial manager to prepare the financial report which gives true and fair view about the financial statements. He also has to face ethical dilemma while reporting financial statement between the companies favor and accounting standards.

Ethics—the values an organization demonstrates in its goals, policies and practices—are the heart of any workplace culture. And the quality of experience in an organization depends on the quality of its culture. Whether we are employees, customers or clients, a positive culture enlivens and enriches our experience of a firm—and a negative culture diminishes it. Each year, almost half of U.S. employees report witnessing unethical or illegal conduct in their workplaces.1 The majority of these events go unreported and unaddressed. The cost of unethical behavior can be staggering. More than half of the 10 largest corporate bankruptcies since 1980—think Enron, WorldCom, Lehman Brothers—resulted from unethical business practices. The cost to owners and the economy: $1.228 trillion, or almost 10 percent of the U.S. gross domestic product in 2011. In 2012, corporations paid almost $8 billion in fines for defrauding the U.S. government and taxpayers.2 The Financial Crisis Inquiry Commission report found that a major cause of the 2008 crisis was a systematic breakdown in ethics.3 Small wonder, then, that people regard the banking and financial services industries with great distrust. Currently, only 50 percent of Americans trust banks “to do what is right.”4 Fortunately, good news is coming from organizations with ethical workplace cultures where trust in managers and management runs high.5 Businesses that have ethical workplace cultures outperform their competitors and peers in all the categories that matter, but especially in stock price growth.

GOOD ETHICS = GOOD BUSINESS We should not be surprised by the link between ethical workplace culture and profit. Researchers have found that an organization’s culture is the strongest predictor of how much market value that firm will create for every dollar invested by shareholders. Between 1993 and 1998, stock market returns of the publicly traded firms with the strongest cultures outperformed the stock market by an average of 20 percent. That means that investors who put $1,000 into the average stock market portfolio in 1993, reinvesting interest gained every year, would have earned $3,000 by 1998. If the investors had invested the $1,000 with the firms possessing the strongest, clearest and most congruent workplace cultures, they would have earned $5,000.6 The evidence indicates that a positive workplace culture predicts shareholder value by enabling superior value- creation. The ethics of a firm’s culture plays a significant role in creating and sustaining value. Consider Southwest Airlines, the low-cost carrier that outperforms its competitors across a range of factors, satisfying both customers and owners.7 Southwest’s advertisements invite travelers to “Fly Southwest Airlines because you want to be treated like a person.” This pledge depends on the behavior of 46,000 employees, who must treat customers with respect and care. Guided by its Chief People and Administrative Officers, Southwest nurtures and respects its employees, so that they will pass on a positive, helpful culture to everyone who flies with the airline. Customers, in turn, reward Southwest with industry-leading profits. Contrast Southwest with another budget carrier, Japan’s Skymark Airlines. In 2012, Skymark announced that its customers should not expect flight attendants to help stow bags or even speak politely. If travelers complained, the airline warned, they would be removed. Skymark directed travelers’ outrage to Japan’s National Consumer Affairs Center. Customers rewarded Skymark with derision and a wave of negative publicity that circled the globe faster than Skymark’s jets. Clearly, strong ethics are essential to a successful business, so let’s now consider how best to reach the goal of an ethical workplace culture. This report will examine: ■ What elements comprise an ethical workplace and the benefits of striving to create one. ■ How to assess your own workplace culture, and three models to consider. ■ What HR professionals can do to shape an ethical workplace culture and where such efforts fit within the larger context of human resource management practices. ■ How an ethical culture supports legal requirements for ethics and compliance programs and what cautions HR professionals must apply in working with these programs to ensure that they do not unintentionally weaken the organization’s ethical, value- creating culture. ■ How HR professionals—and managers and employees at all levels—can lead the processes that shape a strong and ethical workplace culture. Virtue, the saying goes, is its own reward. But virtuous organizations, like virtuous people, outperform their peers over time. The ethical values guiding the world’s most successful organizations are cheap but powerful sources of competitive advantage. For example, when managers at Starbucks Coffee faced shortages of the high-quality Arabica coffee beans on which they depend, they forged a partnership. Joining forces with Conservation International, they developed programs for farmers and importers that increased supplies of shade-grown Arabica beans and that protected biodiversity and critical habitats. According to Harvard Business School professor and corporate strategist Michael Porter, Starbucks’s own ethical values spurred the recognition of shared values on which their sustainable competitive advantage depends.8 Small-holding coffee bean farmers improved their supply and increased their profits at the same time that Starbucks ensured a steady supply of high-quality beans. Such win-win relationships fulfill the highest-priority human values. Your organization certainly wants employees who can learn quickly and adapt to changing circumstances. The fact is, ethically engaged, internally motivated employees learn and adapt faster than ethically disengaged, externally motivated workers. With ethical clarity comes trust, which can ease the tension of difficult workplace situations. One process that helps people in a difficult situation determine the proper course of action is the “OODA” loop, meaning Observe, Orient, Decide, Act. This process describes how an individual or group can see what is happening, interpret the meaning, determine the proper course of action and finally take action. If the loop is too slow, important opportunities may be missed. When trust between employees and managers is strong, the loop speeds up, which offers a distinct competitive advantage.9 On the other hand, a total breakdown of the OODA loop can lead to a vicious cycle of ethical disengagement, distrust and “I win/ you lose” competition within an organization—as in the case of an employee work slowdown—and it certainly destroys value for customers. Unethical workplace cultures often all into a death spiral and ethical collapse, which may presage financial collapse.10 In summary, organizations with positive, virtuous ethical cultures enjoy bottom-line and top-line benefits, including: ■ Higher employee job satisfaction. ■ Increased legal compliance and rule-following. ■ Increased organizational commitment. ■ Increased cooperation.

ASSESSING WORKPLACE CULTURE All workplace cultures are not created equal. Some are more ethical than others. The first step to improving a culture is to assess its current state. Ethical cultures are measured by looking at three factors: ethical content, how well ethics are put into practice in the organization’s everyday operations and how well each individual adheres to ethical behaviors. Ethical content Ethical workplace cultures prioritize self-transcendence values such as care, compassion, honesty and the responsibility to uphold the rights of all persons and of nature. These other- regarding values trump self-enhancing values such as wealth, power, pleasure and fame. In fact, contrary to popular belief, people the world over prioritize self-transcending, ethical values over self-enhancing values.11 In business, selflessness translates into prioritizing concern for employees’ rights, fair procedures and equity in pay and promotion, as well as demonstrations of tolerance, compassion, loyalty and honesty in treatment of customers, clients and employees. These values, if cultivated and encouraged, are the bedrock on which to build ethical organizational operations.12 Ethical operations When we say that one organizational culture is “more ethical” than another, we refer to how adequately the organization’s values, systems and policies address the complex realities of its everyday operations. An ethically adequate workplace culture will leverage such essential tools as onboarding, performance and promotion procedures, role- modeling, communications, and employee feedback to build ethics into its operations. An ethically less adequate organization will leave gaps between its values and operations unaddressed and will leverage only a small portion of the tools that can shape ethical culture. Ethical individuals Finally, workplaces in which employees at all levels strive toward self-transcending values and adhere to ethical obligations are, by definition, more ethical than those in which employees strive toward self-enhancing values or violate their ethical obligations. We probably all know people in our private lives who say one thing but do another. Workplace cultures are no different. Together, ethical content based on self-transcending values, ethical operations that leverage all the tools available , and consistency at the organizational and individual level make for ethical workplace cultures. BUILDING BLOCKS OF AN ETHICAL WORKPLACE If workers believe that their organization and its leaders are fair, respectful and trustworthy and that the organization’s values and practices are ethically justified, they will meet or exceed expectations. HR professionals can shape their practices to reflect self-transcending values and thus set the stage for employees to meet the goals of an ethical workplace.

Increased change management success. ■ Increased attraction of high- potential talent. ■ Lower turnover. ■ Lower health care cost