Question

Discuss whether the financial manager has a greater or lesser responsibility for maintaining ethical corporate governance. Why or why not? Explain what ethical corporate governance is and give examples.

Answer 1

Ethical corporate governance refers to the processes and practices that a company has in place to deal with issues concerning how it is administerd and conducts day to day business. It is important to remember that companies exist primary to create a product or service, which is used to generate profit. However that intention must be balanced with controls that ensure a company pursues profit without crossing over the line into the realms of unethical behaviour.

For example - before the collapse of Enron, the company and its associated traders are believed to have artificially inflated the price of energy in certain US states, thus increasing their profit margins. While this action alone was not enough to cause teh company to collapse it was a clear indication that internal controls had failed, which of course meant that other much larger abuses were possible, which eventually lead to the downfall of the company.

Hence given the above example it becomes essential for a financial manager to contribute towards right financial practices and hence have a greater responsibility for maintaining ethical corporate governance.