The Ethics of Financial Management: Making Moral Financial Decisions

Posted on Sep 22, 2023 at 10:09 PM

The ethics of financial management is an equally complex and sensitive topic for anyone to tackle because it engulfs controversial issues like "What is ethical? What parameters identify company integrity? What kind of principles and standards should a business work by?" and more. 

In this article, we glimpse the depth of the ethics of financial management and how we can all follow it to create trust and integrity. 

What are the ethics of financial management?

The term “ethics of financial management” refers to the moral code of conduct that guides and governs the behaviour of professionals or managers. It mainly covers the principles and values an organisation should follow to maintain its competence in the industry, including integrity, credibility and fairness among its stakeholders.

In the corporate world, reputation is everything; it plays a crucial role in deciding which organisation is trusted and which is not. This is why all organisations must consider the importance of ethical standards when dealing with their stakeholders.  

In fact, ethics plays a significant role in financial management, including the planning, controlling, financial modelling, credit management and performance evaluation of all economic activities within an organisation.

Moreover, financial management ethics involves other aspects of business life, like taking adequate measures to ensure employees and other persons of the establishment can meet their objectives while respecting the rules set by various regulatory bodies such as honesty, professional truthfulness, justice, respect and accountability. 

Why is ethics important in the financial management process?

There are several reasons why ethics is essential in the financial management process: 

For starters, it is an excellent ad for organisations wanting to maintain their reputation, but why? Well, it boils down to a simple equation: when an organisation behaves ethically, it gains the trust of its stakeholders and customers. 

In a similar context, when a business acts ethically, it will be able to receive more business from existing clients or attract new ones who are looking for ethical companies to work with.

The second one is that it can help with public growth and profitability because people in various markets are more likely to recommend a company they trust to have good relationships with, leading to increased sales and market share. 

The third reason ethics is essential in the financial management process is that it helps organisations avoid costly lawsuits that could impact their profitability or even put them out of business altogether.

Ethics is one of the Pillars of Financial Success.

What are ethical issues in finance?

You might wonder, “You keep talking about ethics, but what kind of specific problems are we discussing here?” Well, many ethical issues influence the financial management process, including:

• Financial fraud and corruption

• Employee theft or embezzlement

• Insider trading

• Conflicts of interest in investment decisions

•  Market and wealth manipulation 

• Accounting and transactions fraud 

• Misrepresentation of financial statements 

• Tax evasion and avoidance

• Stealing funds

Avoiding these main challenges when it comes to ethics is the best way to ensure that the financial management process is ethical and trustworthy.

How do you use ethics of financial management in your business life?

Suppose you're a CEO or a senior manager in a financial company. In that case, you need to practice ethics while offering clients essential services and handling complicated money transactions.

You need to be held accountable and responsible for all your actions. This requires a great deal of professionalism, but if you want to uphold a reputation of confidentiality and trustworthiness, you need to take steps to ensure that your company's financial management is ethical and in compliance with both corporate and legal regulations; these practices can help you manage:

• You need to conduct your operations in an honest, fair manner. This applies to any asset, service, decision or interaction with a client.

• You should avoid conflicts of interest and keep your business separate from personal activities. 

• You must ensure that all transactions are conducted legally with complete transparency and diligence.

• You need to disclose any crucial information related to your client's accounts and transactions.

•  You should ensure that your employees know what is acceptable conduct about your client's personal information and what type of conduct will result in disciplinary action (you can do that through training, working with experts, or even pursuing a financial management diploma (UK)

• You should have a code of ethics incorporated in all parts of your company and encourage individuals to take responsibility for their actions should any unethical behaviour ever happen

• Always be up to date with government laws or any policy that is related to your services.

• Promote these concepts internally and externally on all your company's platforms (social media, etc.) to enhance the perception of your company as trustworthy.
  
  

The ethics of financial management is an integral part of any business, and it is one that you should not take lightly.  It can be challenging to pinpoint what constitutes good ethics and morals, but if you follow the guidelines above, you will have an excellent foundation to build your business.