FOCUS ON ETHICS
“WHAT ABOUT MORAL RISK?”`
 Presentation by:
AMOS VILANE
 ID:
MA0N0241
BRIEF HISTORY
FOCUS ON ETHICS
“WHAT ABOUT MORAL RISK?”
 Moral risk…exposure to loss resulting from wilful, improper, or illegal act by an
agent or. counterparty…unethical behaviour
 Reasons for engaging in unethical practices
1.
Pressure from CEO to CFO…to use aggressive accounting to “make the
numbers work”
2.
Reason for Accounting Fraud is “Pressure to hit the numbers” …portraying a
wrong image to attract investors
WAYS TO MINIMIZE MORAL RISK
1.
Build awareness through code of ethics- which spells out general principles of
right and wrong conduct
2.
Companies must write detailed standards of conduct….because some ethical
codes are faulted because the are Vague and abstract
3.
some organizations administer honesty tests prior to hiring new workers
4.
other organizations require ethics training of mid –level managers.
WAYS TO MINIMIZE MORAL RISK
 Provide whistle blower protection for employees with ethics related concerns……to
strengthen corporate ethics
 Establish an Ethics director
 Evaluate managers’ ethics in performance reviews
BENEFITS
CFOs who stand up to CFOs pressure improve their ethical standards in their performance.
Unethical practices
 Cheating on expense accounts
 Forging signatures
CHALLENGES RELATED TO ETHICS
ATTITUDES vs ACTUAL ACTIONS
People who otherwise might do the right thing can be pressured to do something
wrong e.g. CFO by CEO
 Is “hitting the numbers or making the numbers work” ! An appropriate goal ? If not, why
do executives emphasize it?
Refer to the contrast between profit maximization and shareholder wealth maximization.
1. CEOs act unethically because they want to be seen to have attained the expected
targets of the corporations they are managing or else they may lose their jobs.
2. Also, the CEOs want to attract more people to buy shares from the corporation, so they
portray a wrong image that their company is doing quite well
3. At times, out of greed, CEOs would act unethically to get more bonuses using
information from the “cooked books”, thus they put pressure on CFOs to “make the
numbers work.
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