Question

explain briefly regarding the ethical reaponsibilities financial managers have in relation to the firms stakeholders( consider questions as “ all stakeholders are equally important”, what should be done when the financial managers best intrest may not align with those of firms stakehodes?” and how can financial mangers be held accountable for making the right ethical decisions?”)

Answer 1

Financial managers are at the center to keep interest of firms stakeholders. Financial managers when making decisions on behalf of the company should see whether those are ethical or not and also see that does not harm stakeholders interest.

Few ethical responsibilities of a financial manager are:

1. Related Party Transaction: Financial managers should see that RPT should be minimum as possible and should be in line with the norms of regulatory authority. As this may harm the impression of the company and as a result, it will be harmful to the stakeholders.

2. Compensation of higher management: Financial Managers should see that compensation of higher management should be inline average industry compensation. If higher management compensation is higher then it may affect the shareholders return on equity

3. Raising of Capital for the firm: While raising the capital for the firm financial manager should see that the debt level of the firm should be at the appropriate level and does not go beyond certain level making company risky.

4. Bribery: Financial manager should ensure that there should not be any inappropriate dealings in the financial transaction of a firm.

Sometimes it may happen that the financial managers best interest may not align with those of the firm's stakeholders. For eg. consider the example when the firm wants to raise the money, the financial manager would want the money should be raised through equity as it will not make a burden on the firm to service the debt and generally the compensation of financial manager depends upon the company bottom line, while the stockholders would want that the money should be raised through debt as it will not lower ROE.

In this case, there should be a policy in the company related to what should be the capital structure of the company and in deciding the capital structure of the company only financial manager should not be decision maker but it should be passed from the board of directors of the company