With no less than 300 words, post an initial reply to the question below by Thursday at 11:55 p.m. Central Time. Then please respond to at least two classmates’ post with a sentence or two about their post by Sunday at 11:55 p.m. CT. In most cases responding to the instructor posts will also count. Please note that you will not see your classmates’ messages until you create your initial post.
Online Forum Discussion:
It’s common for the planning system to put financial executives in uncomfortable ethical positions. Plans are vehicles for communications to outsiders and they are usually put together by the finance department. But outside communications are ultimately the responsibility of the chief executive officer (CEO). That means that a CEO who doesn’t like what a plan says can apply his or her “judgment” and tell outsiders something else.
Problems arise when CEOs use judgment to further their personal ends or just refuse to accept unpleasant realities. Chief financial officers (CFOs) get caught in the middle, because although they work for CEOs, they’re supposed to have an overriding responsibility for truth and fairness in financial representations. They also have to stand up next to the CEO when the message is delivered and at least act as if they support every word.
Here’s an illustration. Suppose the planning process at a division of a large corporation reveals that it’s likely to lose market share and a great deal of money in the future. If the information is revealed to parent company executives in an upcoming meeting, they’re likely to replace the division’s president whose strategy is probably responsible for the poor performance. On the other hand, if a falsely optimistic plan is presented, the current president and his policies will continue in place, but the eventual loss is likely to be much larger.
The president plans to present the optimistic version of the plan. The division CFO feels this constitutes misleading corporate management. What is her ethical responsibility?
To appreciate this dilemma, it’s crucial to understand that all plans are to some extent matters of opinion. No one can say with certainty that the division president is proposing to lie. He’s just supporting a planning position that most people would find unrealistic if they knew all the details. The fact that it serves his own personal ends makes him suspect, but it doesn’t prove he doesn’t believe in the better plan. Optimistic people tend to believe what they want to in spite of overwhelming evidence to the contrary all the time!
If the CFO refuses to go along and insists on presenting the more likely plan herself, she’ll be setting up a confrontation with her boss in front of senior management. That will probably destroy her relationship with the president forever. And she may not win. Remember that the corporate managers put the president in charge because they valued his judgment above that of others. They may still do that in spite of strong evidence that he’s wrong. The fact that the CFO may eventually be proven right doesn’t help because the damage will be done, and she’ll be long gone by then.
On the other hand, if the CFO doesn’t stand up and give her opinion, there’s no doubt the unduly optimistic plan will be accepted. That will probably mean deeper losses for the company, which might lead to closing the division and laying off its employees. At that time, the corporate people will probably want to know why the division’s management team didn’t see the problem coming.
What are the CFO’s options? What would you do?
Post by Mariscela Jaimes
I’d like to start off by explaining that a Chief Financial Officer (CFO) is the senior executive responsible for managing the financial actions of a company. The CFO’s duties include tracking cash flow and financial planning as well as analyzing the company’s financial strengths and weaknesses and proposing corrective actions.
That said it is the CFO’s ethical responsibility to do the right thing for the business, it is important because it will secure the future of the company, its employees future and overall reputation of the corporation as trustworthy. High ethical standards are critical in maintaining the public’s trust in financial markets and in the investment profession. A strong ethics-based culture will instill and promote ethical behavior and foster trust. It is the responsibility of the CFO to be transparent with Senior Management of the corporation. The business will face a financial crisis and it’s the obligation and moral responsibility of the CFO to speak up. It’s about doing the right thing in my opinion.
I understand there will be confrontation with the President, but the plan he has will not work, yes being optimistic is great, but when it has to deal with a business loss that may end up shutting their doors and people’s jobs being lost is nothing to stand in the background and just watch. The CFO should make her point as to why this is a bad idea and propose some other alternatives for the loss to not impact the business as hard. Now if the CFO were to stay quiet then it’s would lead to the approval of a bad decision because the CFO didn’t stand up to the President. It’s about the respect one another should have for the other person, and for the gain of the company putting all feelings aside. If a closure were to happen all employees would ask why, who knew about this and turn to the CFO and President as they should have seen this coming.
I would create a plan, a realistic plan with a SWOT analysis of the plan and present to the President as an alternative. Many people want the idea to be theirs, well I would want to switch it to make the President think it’s his plan and not mine. That there is an alternative, putting my feelings aside and using my business judgement as well as my ethics as I wouldn’t be able to stand behind a bad decision that can cost many employee’s their livelihood.
Post by Aja Wrobleski
The CFO is correct; going along with this plan without informing others of the consequences of taking this option, constitutes misleading corporate management It is the CFO’s ethical responsibility to say something to prevent a poor outcome for the company. There is still a possibility that the optimistic plan will still be selected even if the CFO voices his or her opinion. All the people involved will have their own opinions regardless of any plan presented. It is important that the CFO has illustrated the financial consequences of taking the optimistic plan. I think if he or she does this, she has done her part, which is informing others of the outcome of this financial plan. What is chosen after the CFO voices the financial consequences, is left up to the president and CEO to decide the course of action. The CFO has an ethical responsibility to inform all members involved of the financial consequences before deciding on any plan.
The dilemma here is to say something, or not to say something, which are her two options. The CFO in this circumstance is facing a double-edged sword. If she does inform her company of the poor outcome, people will be upset with her because the president will be fired for his poor financial choices prior to this plan. If she does not say anything and goes along with it, she will be fired in the future for negligence on her part. The CFO is not going to win this. There is going to be a conflict, whether it’s now or later is up to her. the question poses a very poignant statement Optimistic people tend to believe what they want to in spite of overwhelming evidence to the contrary all the time! I also believe that most companies do not like change. It is easier to comply. Anybody going against the grain or has new ideas, or in this circumstance, doing the right thing, is going to be looked at as the troublemaker.
Berk, J. B., Harford, J. V., DeMarzo, P. M., Stangeland, D., & Marosi, A. (2019). Fundamentals of corporate finance, 4th ed.
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