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Focus On Ethics “What about Moral risk?”`

Focus On Ethics “What about Moral risk?”`. Presentation by: AMOS VILANE ID: MA0N0241. BRIEF HISTORY. Focus On Ethics “What about Moral risk ?”.

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Focus On Ethics “What about Moral risk?”`

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  1. Focus On Ethics“What about Moral risk?”` • Presentation by: AMOS VILANE • ID: MA0N0241

  2. BRIEF HISTORY

  3. 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 • Pressure from CEO to CFO…to use aggressive accounting to “make the numbers work” • Reason for Accounting Fraud is “Pressure to hit the numbers” …portraying a wrong image to attract investors

  4. Ways To Minimize Moral Risk • Build awareness through code of ethics- which spells out general principles of right and wrong conduct • Companies must write detailed standards of conduct….because some ethical codes are faulted because the are Vague and abstract • some organizations administer honesty tests prior to hiring new workers • other organizations require ethics training of mid –level managers.

  5. 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

  6. Benefits • CFOs who stand up to CFOs pressure improve their ethical standards in their performance. • Unethical practices • Cheating on expense accounts • Forging signatures

  7. 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. • 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. • 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 • 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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