live soft skills

WHAT IS ETHICAL? Ethics has different meanings to different people. To some, there is a fixed set of rights and wrongs that can never change. An action is either ethical or unethical, whatever the circumstances. Others believe that there is a fixed set of rights and wrongs at any given time – but that over time this can change. Behaviour that was "right" 500 years ago may now be considered unethical. Similarly, some believe that different ethical rules will need to exist in different countries and cultures, because people are different around the world and there cannot be one set of rights and wrongs that apply to everyone. Others believe that right and wrong depends entirely on the circumstances, and that there are no rules as such. In the exam , you may be required to use any of the theories in this chapter to comment on someone’s behaviour. Whether you believe their behaviour to be right or wrong will be affected by your own beliefs, so be careful! The key is to consi...

STAKEHOLDER ACCOUNTABILITY If we believe that stakeholders are important, and if we believe that stakeholders may also have some responsibility for company behaviour, we need to ensure that companies are reporting adequate information to these stakeholders. Over recent years, company Annual Reports have grown massively in size, and part of this growth has been in non-financial reporting . Triple Bottom Line But this raises additional issues: reporting refers to the growth in Social and Environmental disclosures alongside financial disclosures. o Are there any "rules" on what should be reported? o Will there therefore be any comparability year on year, or within industries? o Will information reported be balanced ... or will it inevitably be more positive than negative? o There have been developments in these areas in recent years. Environmental accounting and audit frameworks (such as EMAS and ISO14000) have been developed to provide some guidance. Auditing information is...

Why deal with stakeholders at all? As we saw earlier in the Chapter, the traditional view is that companies should be run for their owners, the shareholders, and that is all. However, we also saw that an alternative argument is that it might be good for business ("expedient") to keep staff happy, customers and suppliers happy, the local community happy etc. Instrumental Many believe that companies should demonstrate some CSR purely for profit reasons – that CSR looks good to the outside World and leads to higher sales. There is no moral element to this decision – the decision is taken purely for profit. Studies have shown that most consumers in the UK believe that companies are only fighting pollution, being nice to suppliers, and looking after employees because they think it makes them look like good companies and attract customers and profits.

Managing risk There are many techniques available to manage risk. Some look to manage overall risk, whilst others target specific risks. Avoiding risk Some risks can be totally avoided. If a business has identified that opening a subsidiary in Austria appears high risk, then not opening the subsidiary solves the problem! However, to totally avoid a business opportunity is often a rather extreme reaction – and if no risks are taken, the chance of returns being earned is small! Reducing risk Overall Risk Reduction Risk is the uncertainty caused by variable returns. One way to deal with uncertainty is to By operating in many different sectors, it is likely that when one sector is performing badly, another will be doing well, leading to a diversify . smoothing of profits. Advantages of Diversification ● Smoothing of profits, making forward planning easier ● May be economies of scale between some sectors, however diverse those sectors are. Disadvantages of Diversification ● Spreading r...

 Risk types Financial Risk The risk that a company will not be able to survive as a going concern. This risk has a number of elements: Credit Risk The risk that customers fail to pay their bills on time (or at all!) Market Risk The risk of changes in the value of a company’s financial assets (e.g. shares, bonds) Liquidity Risk The risk of running out of cash because inflows are not arriving in time to pay outflows! Currency Risk The risk of changing foreign exchange rates in the future. This could lead to: ● ● ● Transaction Risk – change in the value of a future receivable or payable Translation Risk – change in the value of the company’s Balance Sheet if year-end exchange rates have changed Economic Risk – change in the competitiveness of the company due to longer term changes in exchange rates Interest Rate Risk The change in the value of investments and loans as a result of changing interest rates. This is the risk of breaching laws and regulations and being fined (or eve...

FAMILY DOMINATED COMPANIES In family companies, it is often the case that: ● family members have special voting rights ● family members have guaranteed seats on the board. This can lead to both positive and negative governance issues. Positive ● with the family name at stake, there is likely to be a greater feeling of "ownership" on the Board, which may reduce the risk of unethical behaviour ● to continue the family name, a longer term view of management may occur. Negative ● a less independent board ● the board may have a dominant person / group of family members ● with board members often coming from a single family, there may be a lack of variety in ideas, and an unwillingness to change previous decisions ● family problems may become business problems ● there may be unsuitable people on the board, who were elected purely because of their membership of the family.

STAKEHOLDER ACCOUNTABILITY If we believe that stakeholders are important, and if we believe that stakeholders may also have some responsibility for company behaviour, we need to ensure that companies are reporting adequate information to these stakeholders. Over recent years, company Annual Reports have grown massively in size, and part of this growth has been in non-financial reporting . Triple Bottom Line But this raises additional issues: reporting refers to the growth in Social and Environmental disclosures alongside financial disclosures. o Are there any "rules" on what should be reported? o Will there therefore be any comparability year on year, or within industries? o Will information reported be balanced ... or will it inevitably be more positive than negative? o There have been developments in these areas in recent years. Environmental accounting and audit frameworks (such as EMAS and ISO14000) have been developed to provide some guidance. Auditing information i...