Is There a Conflict Between the New Public Management and Ethics - Essay Example

Is there a conflict between the new public management and ethics? Introduction In the recent years, corporate governance and ethics of the public companies has invited public attention owing to its significance for the economic prosperity of the organizations (Albrecht & Albrecht 2009, p.25). The news in the past two years has shown a sad tale of corporate ethics or lack of it. Some of the public companies which have been in the news for lack of effective corporate governance and ethics include WorldCom, Enron, Qwest Communications, Merrill Lynch, Computer Associates, Global Crossing, Adelphia Communications and Boeing among others (Adams & Balfour 2011, p.404). Corporate collapses, declining stock markets, corporate power abuses, doubtful accounting practices, criminal investigations point out that the whole economic system on which investment returns have relied upon is demonstrating signs of tension which have weakened investor’s confidence (Ketz 2006). Based on the information, this essay will argue that there is a conflict between the new public management and ethics. The paper will use conflict of interest, inexperienced and incompetent directors, corporate failure and fraudulent accounting practices as the benchmark for that conflict. Public management and ethics According to DeGeorge (2010), ethics are defined as a collection of principles and concepts which guide humans in recognizing what behavior assist or injure conscious creatures. In the perspective of a company, it is the principles which help the company and stakeholders understand what is good for them and what harms its image (DeGeorge, 2010). These principles can either be written or are just made part of the organizational culture which new members of the company can observe on the existing members. The company must integrate ethical practices in its production, marketing, selling, human resource management, workplace conditions and waste management, etc. This is what emerges as the business ethics to which member of the organization subscribes to. According to Haufler (2013) the public sector is defined as the section of the economy that offers basic services of the state. The composition of the public sector differs in various countries, although most nations have a public sector comprising of healthcare, military, police, public roads and primary education services. In most cases, Public sectors organizations managed by officers who only care about personal interests and may not care whether these institutions collapse. Some experts claim that personal greed and situation in which these public officers find themselves are to be blamed for conflict between the new public management and ethics. Is there a conflict between the new public management and ethics? Conflict Interest Conflict of interest is one of the factors that have undermined ethics in new public management. Moore et al (2006, p.7) described conflict of interest as the circumstances upon which an individual has a personal or private interest enough to look to influence the objective transaction in his or her executive duties, for instance a public administrator or a staff. Conflict of interest leads employee to face a clash between differing interests, allegiances or point of view. Malpas (2012, p.30) postulates that the 21st century corporate scams like Enron and other current corporate failures have pointed out the significance of conflict of interest as an international issue. One of the key governance concerns brought to focus by the Enron bankruptcy was the deliberate conflict of interest entailing having officers of a public company both managing and also is equity holders of companies which carried out considerable financial transactions with Enron Company, Code of Ethics of Enron openly forbids any transactions which entails associated parties unless “the CEO and chairman determines that his involvement ‘does not negatively impact the best interest of the firm’(Malpas 2012, p.32). Despite knowing this, some officers went ahead to be involved in deals which undermines public confidence on the firm. In yet another case of conflict of interest involved WorldCom. The telecommunications sector started declining and the stock of WorldCom began declining in 1998 (Ketz 2006). Bernard Ebbers who was the CEO came under growing pressure from different banks to close margin calls on the WorldCom stock which was applied to fund his personal businesses venture including timber and yachting among others. The firm profitability was hit when it was prompted to discard its intended merger with the Sprint Company in 2000 (Ketz, E.J 2006). Even though, some conflict of interest is as a result of personal greed, some are resulted by low payment offered by the companies to their workers. There are situations where a public officer handle large sum of money may be as an accountant yet the money being offered to them as remuneration is not a enough meet their needs. As such, conflict of interest will come in and the officer will find himself using dubious accounting practices so as to defraud the company. Even the most moral of individuals could give in to temptations when the prospective benefits are large (Adams & Balfour 2011, p.412). It might be unattainable to get rid of every conflict of interest but preventing them will positively improve the chance with which individuals will conduct their work morally. Organizations which are strictly concerned with ethics must first make sure that there exits few cases of conflicts of interest. Incompetent Directors Inexperienced and incompetent directors are another reason which has caused conflict between the new public management and ethics. Dellaportas (2005) maintains that directors bear the complex task of safeguarding the interest of the public whilst meeting the different needs of the same public. Public expectations keep on rising as they need better state services at low costs. However, some directors cannot meet the public expectation because there are not familiar with accounting and reporting practices or they got their job through influence and not out of merit. Once one is appointed a director not based on merit, there are not expected to do much; in fact, some do not even know about the ethical codes of the organization (Dellaportas 2005). Similarly, some directors have other jobs, particularly non-executive directors which distract them from upholding public officer accountable. Weiss (2009) contends that some of these public companies are surrounded by political issues and cover up of unethical issues and the top management or directors have got their jobs as political rewards. Such directors are agents of politicians, hence they are using the post to enrich themselves and drive the agenda of the politicians. Public sector ethics is normally regarded as political ethics; hence judgment is political in nature (Weiss 2009). Public sector ethics are political ethics in nature and many public servants are appointed or elected politically, meaning they may work leaning on the side of people who elected or appointed them. Schwartz (2007, p.43) claims that some few years back there were objections that some people working for the US Pentagon in buying of weapons from firms are later provided with jobs from the same firms. The recent situation entailed a public officer with Boeing who explicitly “talked” a vacancy with the Pentagon weapons buyer (Weiss 2009). With inexperienced and incompetent directors in place, and the company is involved in unethical issues, they are able to find their way out courts or prison. Most of these directors are politically connected and can influence their way out. The law gives the public officer who has violated the public ethics an opportunity to defend himself, and if they are not able, the law allows the judge to prosecute them (Ketz 2006). In countries with high levels of corruption, the directors can bribe the judges to be set free. Corporate failure Corporate failures have also led to conflict between the new public management and ethics. According to Adams & Balfour (2011, p.407), corporate governance is defined as a system in which businesses are controlled and managed. Normally, corporate governance structures spell out the division of rights and responsibilities amongst different shareholders (Adams & Balfour 2011, p.411). Hence a company which has defined its corporate structure and culture stand a chance of reducing unethical practices. Unlike in much private company, many public companies have failed in incorporating corporate culture which encourages ethical behavior. Many people even link public companies with a den of corruption. Some of the public companies do not set a code of ethics which members should subscribe; making it hard to convince employees and the management that the company does not condone unethical practices (Albrecht & Albrecht 2009, p.31). Corporate leaders somehow forget that business ventures are about values and ethics, and leaders who have failed to understand that fact are paying a price because they are losing investors’ confidence. Albrecht & Albrecht (2009, p.27) argues that the 21st century corporate failures like has been witnessed in Parmalat, Enron, WorldCom, Global Crossing, Adelphia Communications and Boeing have heated up debate on the issue with role of the manager, auditor and any other public officers over the factors like integrity and independence. This resulted to the Governments and professional bodies across the globe to formulate a new code of ethics. For instance, Sarbanes Oxley act was enforced by the US Congress so as to enhance the quality of the financial reports and maintain the confidence of the investors (Albrecht & Albrecht 2009, p.41). Similarly, professional bodies like ICAEW, ICAS and ACCA have drafted the code of ethics to help companies promote ethical conducts (Dellaportas 2005). Thus, corporate failure can be regarded as a common problem facing countries across the world. Some public companies believe that their sole corporate responsibility is about making profits alone. Their managers acting on behalf of owners can do anything to make that profit. In that course, they do not care about issues of pollution and even the level of safety their product can offer (Malpas, J 2012, p.37). Recently, Coca-Cola Company has got accusations for unethical conduct particularly in its Asian market. In 2006, the corporation was criticized of distributing some of its products with residues pesticides in the environs of New Delhi by the Centre for Environment and Science (Malpas 2012, p.38). With higher rates of cancer reported in that region at that time, Coca-Cola Company was greatly blamed for the act. Some of the public companies have gone ahead to ignore the expert call that business should not just be about making profits, but should also be concerned about the human social welfare. Weiss (2009) posits that corporate social responsibility forms the key pillars of the corporate governance that must be embedded in the corporate culture. When this fails, there will always be tension between the company and the public. From an ethical point of view, at a basic level, the major issue of corporate governance involves questions regarding the relationships and creating trust both inside and outside the company (Weiss 2009). Fraudulent accounting practices Fraudulent accounting practices also have resulted to conflict between the new public management and ethics. Ketz (2006) argues that accounting fraud practices is the act of falsifying accounting records and documents for personal financial gain. In the recent years, the financial field has faced some of the biggest scams in history with all emerging from well-known, reckless and intentional misrepresentation and falsification of the accounting records and from quest of individual financial greed and gain. Even though accounting profession has had a strong emphasis on the internal controls, recent saddening business failures that have demoralized the credibility of auditors in their reporting role have weakened public confidence in accounting and auditing field (Hooper & Xu 2012, p.756). Many people, however, are getting concerned on lack of ethical practices in the world of business, especially in the financial system, because there are several incidences of unethical behavior. Due to this reason, numerous scandals of fraudulent accounting practices have been a reported in different companies. As mentioned earlier, the low pay at times have clashed with ethics. Here is an accountant being paid insufficient salary yet he handles large sum of money the company makes. In this case, they can use fraudulent accounting practices to swindle the company. This is an act of greed and self-centeredness overriding the goals of the organization (Dellaportas 2005). On the other hand, public accounting officers are influenced by their peers who are rich, and in a bid to get to that level, they get themselves defrauding the company. Albrecht & Albrecht (2009, p.29) report that from 1999 continuing to 2002, WorldCom Company under the direction Chief Financial Officer, Scott Sullivan, Controller, David Myers and the Director of General Accounting, Buford Yates used dubious accounting techniques to mask its falling financial situation by incorrectly professing financial development and profitability to raise the cost of stock at WorldCom. This fraud was achieved two major ways. First, the accounting department of WorldCom misreported 'line costs' (interrelating expenditures with other telecommunication firms) by capitalizing the expenditures on the balance sheet as opposed to appropriately expensing them (Albrecht & Albrecht 2009, p.30). Second, the firm inflated profits with false entries from ' the corporate unallocated profit accounts'. The first detection of potential illegal action was by the company’s own department of internal audit who discovered nearly $3.8 billion of fraud in 2002. WorldCom board of directors and audit committee were informed of the swindle and acted fast. Duska (2007) claimed that in that process Chief Financial Officer, Sullivan was sacked while Myers resigned. Also the Securities and Exchange Commission started an investigation on the matter. According to Duska (2007) in 2003, it was approximated that the total assets of WorldCom was inflated by about $11 billion. In yet another case, in 2009 the former NASDAQ chairman, Bernard Madoff was charged with eleven financial crimes and confessed to running one of the biggest Ponzi scam in the recent times (Bray 2009). The prosecutors approximated the size of the scheme to be $65 billion. Madoff and the accountant of NASDAQ were all charged with the scam and detained because of preparing fake accounting documentations for the fabricated trading activities (Bray 2009). This kind of act is intentional may lead to conflict between the new public management and ethics. Hooper & Xu (2012, p.771) assert that as the chairman who hold and influences decisions, such unethical practices can run proliferate down the company and taint its image. Junior employees would use the statement like “if the chairman can do it, we too can do it”. These scams have destroyed jobs, weakened investor confidence, destroyed good records of ethical practices that some companies have had in the past and shake the international economy. The hope is not lost and effective and efficient internal and external accounting controls can still be used to assist detect and prevent accounting scams. Conclusion In conclusion, the failure in the corporate governance has become a real threat to the new management of public companies. The failure of Enron, WorldCom, Enron, Qwest Communications companies, apart from portraying the largest corporate scandal globally, they also popped up several questions concerning the effectiveness of modern auditing, accounting and public sector ethics. Even though numerous managers currently understand the significance of ethics in business, with regards to corporate survival, some still do not see the need. Business ethics are actually a necessary ingredient for the success of business, and as the 21st century unfolds, it will remain to a blueprint for market advantage. References Albrecht, C & Albrecht, C 2009, International ethics, fraud, and corruption: a cross- cultural perspective, Cross Cultural Management Journal, Vol. 16, no. 3, p. 25- 46. Adams, G.B & Balfour, D.L 2011, Open secrets: The masked dynamics of ethical failures and administrative evil, in Susan Maret (ed.) Government Secrecy (Research in Social Problems and Public Policy, Volume 19), Emerald Group Publishing Limited, p.403-419. Bray, C 2009, Madoff pleads guilty to massive fraud, The Wall Street Journal DeGeorge, R 2010, Business Ethics, Seventh Edition, Prentice Hall. Dellaportas, S 2005, Professional ethics and self-regulation, in Dellaportas, S., Gibson, K., Alagiah, R., Hutchinson, M., Leung, P., Van Homrigh, D. (Eds), Ethics, Governance & Accountability: A Professional Perspective, Wiley,Milton. 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