Ethical Business vs Maximizing Profits

Come to the last week of blog!

This week, I’m going to discuss a topic which regard on an issue related to the financial ethical. As we can observe that tons and ton of scandals have been reveal each year which majority are due to unethical conduct in the business. Taking example such as the recent Volkswagen emissions scandal, Enron, American Insurance Group (AIG), Lehaman Brother, Bernie Madoff's ponzi scheme and etc etc. The fun facts is that, ended with the scandal those culprit which are resulting the fraud did not get into punishment. For instance,  AIG rewarded themselves with over $165m in bonuses after posting the largest quarterly corporate loss in history in 2008 and getting  bailed out with taxpayer.

What causes the unethical conduct happened?

Looking though the recent Volkswagen, the car were built with a software device that detects when the vehicle is undergoing emissions tests and activates full emissions control measures to produce results far better than those achieved in real-world driving. The net result is that cars pass strict US emissions limits under laboratory conditions, but when unplugged from the testing rigs, the EPA states that the diesel engines emit nitrogen oxides (NOx) up to 40 times. Perhaps, the company were to edger to gain much profit which resulting them to have pay for the price of scandal!

Almost one in five of the stories about the financial sector – which includes insurance and payday lenders – was about the bonus culture and pay, followed by almost one in five on fraud and theft – a reflection mainly of the manipulation of Libor. Then, each with fewer than 10 per cent, came mis-selling, the treatment of stakeholders, tax avoidance, bribery and money-laundering.

The issue in retail was mis-treatment of stakeholders, mainly treatment of staff. It was followed by supply chain issues, notably sweatshop labour and poor working conditions. Mining, in contrast, was criticized mostly for bribery and corruption. 

In conclusion, business man and company should not be doing unethical conduct in order to for short-term gain. Looking into the consequences that the tax-payer or consumer have to suffer for the wrongdoing of the company. This unhealthy habit and ethical should be eliminated in every company especially financial industries. 

Accounting For The Olympus Fraud

Spending my weekend to watch the Olympus: 1.7 Billion Dollar Fraud, which is talking about corporate corruption scandal on how the well-known Japanese optical company hide up losses and kept the secret for more than two decades. This documentary is about the corporation dismissed its president and CEO, Michael Woodford over culture differences in management style. Despite there being minimum coverage, media reported an alleged scandal where board members of the company voted to get rid of Woodford for whistle blowing on $1.7 billion dollar fraud.

Former chairman Tsuyoshi Kikukawa and two other former executives pleaded guilty in September 2012 for covering up losses at Olympus for 13 years starting in the 1990s. The $1.7 billion fraud was revealed by the company’s former president Michael Woodford in 2011. Perhaps, the reason behind for the former executives to cover losses probably is to make a healthy book of account which will resulting the increasing of shares prices, thus lead to the corporate to pay more bonuses. According to Pawel Bilinski, director of the Centre for Financial Analysis and Reporting Research at Cass Business School, claimed that the accounting scandal will be arise is due to the  pressure to meet short-term market expectations in terms of financial and share price performance.

“Bonuses and share options are often linked to hitting particular targets and these pressures may entice executives to engage in creative accounting. Companies can also manage their operations by delaying investments or selling assets to reach certain goals. As long as there are market pressures, we can expect some firms to resort to creative accounting to shore up their performance.”

Michael Woodfrod blew the whistle on a 1.7bn dollar fraud at Olympus and resulting in dismissed from his position after he confronted senior executives about the scandal. It demonstrates that even people at the top of an organisation can find themselves in a "whistle-blower" role. He stands tall as an example of leadership. Would you do the same thing—or would you just shut up and go on?