Accounting Information Systems: The Processes and Controls, 2nd Edition

ETHICS AND CORPORATE GOVERNANCE (STUDY OBJECTIVE 8)

Creating a corporate governance system is a matter of doing what is right. However, maintaining positive corporate governance during tough times is an extremely challenging task. Corporate leaders may be faced with situations where their corporate governance principles and their ethical values are tested “when the going gets tough.”

Arguably, the most challenging ethical issue within corporate governance is the potential conflict of interest for managers in their role as financial stewards of the corporation. It may become difficult for managers to always act in the best interest of the shareholders, especially in times when shareholder interests and management interests are not aligned. Managers are often placed in a very difficult position, because their jobs include lofty goals that are tied to the company's earnings. Thus, managers may be inclined to act in ways that protect their jobs or the jobs of their employees. Actions taken in the personal interest of management often come at the expense of the shareholders.

In recent years, a troubling number of accounting executives have abandoned or ignored their fiduciary responsibility to the corporate shareholders. In most cases, these executives did not set out to do wrong, but they let their personal interests take priority over their corporate duties. Unfortunately, this is often how fraud unfolds: A high-ranking corporate official, with help from those working for him, may ...