Ethical Implications of Takeovers - Essay Example

Ethical Implications of Takeovers Ethical Implications of Takeovers Ethical issue requires an individual or person to choose between alternatives that must be viewed as right or wrong. It is evident in this case that after Lisa Michaels was promoted to her dream job as a financial manager, she had the role of integrating financial and accounting functions related to all mergers and acquisitions. Lisa being ethical found herself unprepared for the different corporate cultures she would soon encounter. The acquired company approach to compliance with financial rules and regulations was not at par with the standards Lisa believed was ethical or appropriate. This paper thus discusses the issues facing Lisa when challenging current policies and procedures of the acquired company from both ethical and professional perspectives. One ethical issue Lisa applied was ensuring that the corporate assets were secure. In her one year in charge as the financial manager, she faced a significant acquisition with a total cost of $10 billion. Her company acquired a prestige fragrance company. Lisa’s challenge in this case was to ensure that the acquired company came together with the parent organization in an ethical, appropriate manner. She also had to ensure that there were no unethical practices on the part of the project. Also, the management team responsible for the acquisition and integration of the company. Additionally, she had to ensure that the acquired companies were not practicing inappropriate accounting practices in order to inflate their sales or earnings. One of the stakeholders involved in ethical issue is Lisa, but he faced opposition from the controller Mr. Anderson. Lisa prepared a meeting with the parent company with a focus on accounting manual and a plan for valuation of the company’s assets. It was apparent that these documents were of little interest to Mr. Anderson. He was polite and professional, but his management style was clearly dictatorial. Anderson had worked for twelve years in the Prestige Fragrance Company and attained some several promotions. He was a CPA, who had a background in major accounting firm and had contributed a lot in the growth of the company. All this earned him respect from the Board of Directors, but it was evident that he was not happy to be in part of a smaller division in a much larger company. Lisa was very concerned about the acquired assets and the unusually high proportion of “other assets” on the balance sheet. This made her to review her preliminary observation with Anderson. She was of the view that often items in this category were overlooked by the management because they were none-core assets. Though Anderson provided a list of the “Other Assets” in the acquired balance sheet, it was not easy to examine and understand the nature of each of the entries on the list. Also, it was difficult to understand their relevance to the company’s operations. Lisa continued with her research on the “Other Assets” and she late realized that many marketing expenses had been capitalized. Lisa also discovered about the controversial and expensive commercials. It involved both print and television to raise consumer awareness of the prestige fragrances. The cost appeared in the financial statements as material and other instances as several million dollars. After that discovery, she decided to discuss the matter with Mr. Anderson again. Anderson took the findings lightly and suggested that this was not an issue to cause worry. Lisa was also concerned about “Other accrued liabilities” account due to its reliability on estimation and judgment. She took the action again and went to the Mr. Anderson and asked for the standing journal entries that supported the documentation of the account. The feedback she got was not fulfilling as Anderson told her that she doesn’t understand the company’s business and that those journal entries were a standard practice. This made Lisa realize that it was a challenge to review the conservative accounting policies of the Home and Personal Care Products. Also, to give clarity to the CFO of the acquired company why she did not believe these costs should be capitalized. An alternative course of action that Lisa should take is seeking a court order that will make the controller to step aside so as to have more clarity on some issues. It is evident that if the controller Mr. Anderson continues to stay in the office he will manipulate other junior employees so as not to give out the necessary information. Also, due to his dictatorial management style he might be the proprietor of the mismanagement of funds in the company and may have used them for personal gain. It is also apparent that his influence to the Board of Directors may help him to be immune to the previous Audit practices in the company. Lisa also should ask for a meeting with the Board of Directors to clarify her stand on good corporate governance. This will give her a chance to raise questions on the issues that she has found out during her research about the operations of the company that is to be emerged. Lisa should ensure that he outlines some of the benefits in practicing good corporate governance in the company. One is that all stakeholders get to have the confidence with the management of the company. Also, it gives a company the competitive edge in the market space as its operation and management are clear to the public. Good corporate governance also attracts investors, and this would boost the future expansion plan of the company. The investors have the confidence to invest because a system has been set up to give value for their money. It is evident that the meeting will be of impact to the ethical issues of the company (Boatright, 2010). The best course of action that I would advise Lisa is to outsource an independent audit firm to give a report on the various issues in the Prestige Fragrance Company. This will hinder chances of biasness that may be claimed on Lisa’s findings. It is apparent that the audit firm will identify any unethical issues practiced by Mr. Anderson in the previous years in the company. The professionalism in the audit firm will ensure that no stone is left unturned. Though the process might take time and money, it is worth using for the better of the future of business. Another advantage of hiring an audit firm is that it will give a report with recommendations of the issues that might be found not going right. The report may be a guideline to the Board of Directors on the issues to implement in the organization culture and operations. The impact of the process will be that the accounting policies of Home and Personal Care Products shall be reviewed where necessary also the clarity in the operations will be evident (Boatright, 2010). In conclusion, it is evident that ethical issues are core for a business to have a competitive edge in the market space and attract investors. Lisa, who is the Finance Manager, embraces ethical issues on the financial rules and regulation of the company they had acquired. He faces some challenges from the controller Mr. Anderson, who does not provide the necessary documents that are of concern in the accounting policies of the company. I would recommend her to mobilize the hiring of an audit firm that will be independent in its operation so as the Board of Directors may have the confidence in reviewing the conservative accounting policies. References Boatright, J.R. (2010). Finance Ethics: Critical Issues in Theory and Practice. New Jersey & Canada: John Wiley & Sons. Read More