Discussion and 2 replies

Week 2 Discussion Forum

With no less than 300 words, post an initial reply to the question below by Thursday at 11:55 p.m. Central Time. Then please respond to at least two classmates' post with a sentence or two about their post by Sunday at 11:55 p.m. CT. In most cases responding to the instructor posts will also count. Please note that you will not see your classmates’ messages until you create your initial post.

Online Forum Discussion: 

It's common for the planning system to put financial executives in uncomfortable ethical positions. Plans are vehicles for communications to outsiders and they are usually put together by the finance department. But outside communications are ultimately the responsibility of the chief executive officer (CEO). That means that a CEO who doesn't like what a plan says can apply his or her “judgment” and tell outsiders something else.

Problems arise when CEOs use judgment to further their personal ends or just refuse to accept unpleasant realities. Chief financial officers (CFOs) get caught in the middle, because although they work for CEOs, they're supposed to have an overriding responsibility for truth and fairness in financial representations. They also have to stand up next to the CEO when the message is delivered and at least act as if they support every word.

Here's an illustration. Suppose the planning process at a division of a large corporation reveals that it's likely to lose market share and a great deal of money in the future. If the information is revealed to parent company executives in an upcoming meeting, they're likely to replace the division's president whose strategy is probably responsible for the poor performance. On the other hand, if a falsely optimistic plan is presented, the current president and his policies will continue in place, but the eventual loss is likely to be much larger.

The president plans to present the optimistic version of the plan. The division CFO feels this constitutes misleading corporate management. What is her ethical responsibility?

To appreciate this dilemma, it's crucial to understand that all plans are to some extent matters of opinion. No one can say with certainty that the division president is proposing to lie. He's just supporting a planning position that most people would find unrealistic if they knew all the details. The fact that it serves his own personal ends makes him suspect, but it doesn't prove he doesn't believe in the better plan. Optimistic people tend to believe what they want to in spite of overwhelming evidence to the contrary all the time!

If the CFO refuses to go along and insists on presenting the more likely plan herself, she'll be setting up a confrontation with her boss in front of senior management. That will probably destroy her relationship with the president forever. And she may not win. Remember that the corporate managers put the president in charge because they valued his judgment above that of others. They may still do that in spite of strong evidence that he's wrong. The fact that the CFO may eventually be proven right doesn't help because the damage will be done, and she'll be long gone by then.

On the other hand, if the CFO doesn't stand up and give her opinion, there's no doubt the unduly optimistic plan will be accepted. That will probably mean deeper losses for the company, which might lead to closing the division and laying off its employees. At that time, the corporate people will probably want to know why the division's management team didn't see the problem coming.

What are the CFO's options? What would you do?