Ethical Issues in Financial and Business Management | Understanding Importance and Implications

Module Four: Session 6 Ethical Issues in Financial and Business Management Module 4: Session 6 1 4/4/2025

The objectives of the session 1. To review citizenship roles of business and to create awareness of ethical issues in business management. To explain why ethics matter in business management. To create awareness of the ethical dilemmas posed to entrepreneurs in road construction. To share experiences of and suggest ways to address the ethical dilemmas in the road construction sector. 2. 3. 4. Module 4: Session 6 2 4/4/2025

Appreciating ethics in business Ethics is concerned with human behavior that is acceptable or "right" and that is not acceptable or "wrong" based on conventional morality. General ethical norms encompass: Integrity and truthfulness Respect for self and others Fairness and justice Morality "Ethics represents the attempt to resolve the conflict between selfishness and selflessness; between our material needs and our conscience." Ethical norms are essential for maintaining stability and harmony where people interact with one another. Module 4: Session 6 3 4/4/2025

Why ethics matter in Financial Management? A lack of ethical behavior has led to catastrophe for several institutions. Beyond the legal consequences, there are financial implications that follow a decision to act unethically. Business decisions are a result of deliberate discussion and election but have a wide outreach. Module 4: Session 6 4 4/4/2025

Effects of unethical practices on stakeholders Lenders - Institutional lenders attach higher risk due to fraudulent activity. This leads to increased interest costs. Investors - Confidence in the business performance takes a hit because investor cannot trust financial reporting, economic use of resources or credit extension. Peers Business partners will look elsewhere for business relationships if they cannot trust the company s management. Employees - Workers morale and trust slips following revelation of unethical behavior. Public The public suffers consequences of unethical action and in return the company s image will forever be tarnished. Owner The proprietor loses his or her investment (ref. Greenland Bank). Module 4: Session 6 5 4/4/2025

Social responsibility in business The goal of maximizing shareholder wealth implies that shareholders are the only stakeholders of company. In fact stakeholders of a company include employees, customers, suppliers and the wider community. The formulation of financial policy of the firm should foremost take into account the interests of the shareholders The formulation of non- financial objectives should addresses the concerns of other stakeholders. Module 4: Session 6 6 4/4/2025

Stakeholders expectations Ethical considerations Expectation Competitive wages, comfortable and safe working conditions, good training and career advancement, continued employment. Welfare of Employees Competitive salaries and benefits within the means of the business Welfare of management Concern for environment, protection from danger, safe and secure operations. Economic use of resources, societal benefits. Provision of goods or services at acceptable standards, value for money. Value delivery, fair dealing. Welfare of society Service quality Satisfaction of customers Not exploiting power as buyer, .fair bargain Relationship to suppliers Improved products, services. Innovation. Research and development Module 4: Session 6 7 4/4/2025

Companys social responsibility Economic responsibility: Shareholders and financiers have invested their money in the company and require a return. Legal responsibility: Companies operate within a legal framework as defined by company law, the various accounting and environmental standards, labour and other laws. Ethical responsibility: Arise not as a result of legal requirements but as a result societal expectations. Philanthropic responsibility: Sensitive to the needy with charitable donations, provision of recreation facilities to employees, the sponsoring of athletic, religious and cultural events and the like. Module 4: Session 6 8 4/4/2025

Ethical dilemmas in road construction Corruption of employers, consultants born by contractor against value for money delivery. Delayed fulfillment of employer obligations against timely completion of works. Unfair advantage against competitive bidding. Under bidding against value for money delivery. Competitive bidding against collusive practice. Lowest evaluated bidder against value delivery. Fixed price contracts against inflation during long term contracts. Cancelled invitations against transparency bidding. Module 4: Session 6 9 4/4/2025

Ethical challenges in the sector: contractor s perspective Bidding Process: the jobs are given to a few companies due to stringent bidding process. Evaluation and contract award: There is poor management and lack of transparency of the pass/fail evaluation process. Contract formats: Contractors may be exploited by the contracts signed with Government where there are no price escalation or bonus clauses. Contract execution: . Contractors are faced with the challenge of increased prices of inputs, vague specifications, substandard designs, under/overestimated quantities, inadequate supervision. Module 4: Session 6 10 4/4/2025

Group Activity 1. Review the nonfinancial objectives and the citizenship roles of a business. 2. Discuss and recommend action for enhancing corporate social responsibility in road construction business. 3. Discuss the impact of environmental issues on corporate objectives and governance. 4. Identify the core ethical challenges to road contractors and suggest ways to strengthen ethical practices in the business. 5. Suggest ethical policy in soliciting and execution of road works as well as in general business administration. Module 4: Session 6 11 4/4/2025

END Q&A Module 4: Session 6 12 4/4/2025