Many firms divide the decision -making responsibilities of management among several different officers, which often include those in manufacturing, marketing, finance, personnel, and engineering.
A sample organization chart emphasizing the finance function. The finance function is usually headed by a vice president of finance, or chief financial officer (CFO), who reports to the president.
In some corporations the CFO may also be a member of the board of directors. In addition to overseeing the accounting, treasury, tax, and audit functions, today’s CFO often has responsibility for strategic planning, monitoring and trading foreign currencies, managing the risk from volatile interest rates, and monitoring production and inventory levels. CFOs also must be able to communicate effectively with the investment community concerning the financial performance of the company.
The Practice of Financial Management
During the 1980s and 1990s, interest in the ethical dimensions of business practice exploded. Front -page stories of the stock trading scandals involving the use of insider information that led to the downfall of Dennis Levine and Ivan Boesky, the Treasury bond trading scandal at Salomon Brothers that severely damaged Salomon’s reputation and resulted in its top managers being forced to resign, and the billions of dollars of questionable loans made by savings and loan executives that caused the collapse of much of the savings and loan industry have focused attention on the ethical practices followed by business and financial managers. Webster’s defines ethics as “the discipline dealing with what is good or bad, right or wrong, or with moral duty and obligation.”a John J. Casey defines ethics as follows:
“At its best, business ethics is excellence in management applied with fairness and dispatch. It involves hard -headed thought, not a sentimental reaction. It also involves articulate, effective communication to all parties....”b Casey identifies a number of techniques that managers can keep in mind when addressing the ethical dimensions of a business problem.
Other action guidelines that have been suggested for managers include to
Ethical considerations impact all kinds of business and financial management decisions. Some financial decisions with important ethical dimensions, such as the loan administration policies apparent in many failed savings and loan institutions, command national attention.
However, financial managers encounter day-today decisions that have important ethical dimensions. For example, as a new bank loan officer, should you recommend approval of a loan to a longtime friend, even though she does not quite meet the normal loan standards of the bank? As an account executive for a brokerage firm, should you recommend to your clients the securities of firms that have poor environmental management records or that deal in such products as alcohol and tobacco? Should you tell your father-in law that your firm is likely to become a candidate for a takeover before this is publicly announced? As a division manager being evaluated in part on a return -onassets calculation, should you lease assets to keep them out of the asset base for evaluation purposes and thereby enhance your apparent performance?
Should your firm aggressively use allowable accounting practices to mask a fundamentally deteriorating level of performance? Should your firm move its plant from the Northeast to the Southeast in an attempt to break the union and save labor costs?
This brief sampling of the areas of business and financial -management decision making that possess important ethical dimensions provides a feel for the breadth of ethical issues facing financial managers. In most cases, the answers to these questions are not clear-cut. Actual decision making is very complex and involves many trade-offs among parties with competing interests. However, explicitly recognizing the costs and benefits associated with each of these decisions and making the decision in an atmosphere of balanced objectivity and fairness can help financial managers avoid apparent or real breaches of their ethical trust.
Sample Organization Chart
The chief financial officer often distributes the financial management responsibilities between the controller and the treasurer. The controller normally has responsibility for all accounting-related activities. These include such functions as
It should be emphasized that the specific functions of the controller and treasurer shown in Figure are illustrative only and that the actual functions performed vary from company to company. For example, in some companies, the treasurer may have responsibility for tax matters. Also, the board of directors of the company may establish a finance committee, consisting of a number of directors and officers of the firm with substantial financial expertise, to make recommendations on broad financial policy issues.
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