Global Financial Management and Ethics in Governance

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Global Financial Management and Ethics in Governance

Introduction

Since the worldwide financial recession of 2008, the global economic order has witnessed increased instances of trade wars, volatility, protectionism, and nationalism. The international economic situation is increasingly becoming challenging, making it hard for companies to expand to external markets. The paper assesses and discusses various aspects that help to distinguish financial management in companies, obstacles to entry of a firm to a new country, and methods of financial administration.

Factors Resulting in Different Financial Management in International Businesses

Currency Risks

Financial managers in international companies have to handle disbursements and receipts in multiple currencies and therefore must deal with concerns related to fluctuations in the exchange rate. Such variances in currency denominations do not occur in domestic markets (Weil, 2019). Therefore, international companies should pursue hedging strategies such as buying the futures on a particular currency, exploring selling options, or investing in certain kinds of derivatives to avert the currency risks.

Legislative Changes

New legislations are a norm and even more frequent in some countries. The intention of such changes could be positive; for instance, to strengthen the countrys economic situation or make the nation more attractive for foreign investment. However, some of the legislative enactments might impact the business negatively, especially when there is political infiltration to serve certain individuals interests (Weil, 2019). Irrespective of the intent, the companies operating in such nations will nonetheless have to comply and this could considerably hurt their operations.

Labor Laws

Labor laws might be an obstacle for a multinational company, especially if they are created in response to domestic political pressures to appease certain people. For example, some countries might impose specific requirements for hiring a domestic workforce as part of the rules for operating in the country (Weil, 2019). Such situations create hurdles in recruiting competent personnel that might go a long way in influencing the overall financial status of the company.

Political Risks

A company operating in the local markets does not need to show too much concern for the government clutching its asserts unless it is involved in tax fraud or other malpractices. However, the situation is different for companies operating in international markets (Weil, 2019). Some governments might impose harsh penalties such as confiscating assets due to political instability and lack of adherence to the rule of law.

Accounting and Tax Requirements

National regulators repeatedly present different financial reporting outline in many countries. For instance, some Greek archipelagos operate as independent regions for tax and other compliance needs. Value-added tax reimbursements are placed under various actions as directed by the tax agency (Weil, 2019). The Greece mainland has different rates and this could present a different set of requirements. Companies operating in such environments should therefore remain cognizant in their financial management when operating in international markets.

Legal and Economic Implications

Every nation has its exclusive lawful and financial systems and these discrepancies can create considerable challenges in operations. For instance, differences in tax regulations in countries may lead to a particular economic transaction showing an extraordinarily dissimilar after-tax implication based on the nation where the transactions happen (Weil, 2019). Legal differences make actions that are needed in one section of the business illegal in another country.

Barriers to Entry

Technology Challenges

When establishing a new business, most proprietors require a certain level of expertise. For instance, a restaurant owner might have worked in other hotels, thereby gaining considerable experience in the management of such premises. However, in sectors such as software, there is a considerable knowledge barrier (Corporate Finance Institute, 2022). Therefore, starting a new software investment requires the owner to have a strong command of technological knowledge to enable a deep comprehension of the venture and for effective daily management.

Government Regulations

The government may establish obstacles to entry within specific sectors to restrict competition. Such a situation is often common with utility firms such as electricity, water, and garbage collection services. Therefore, the government regulates such sectors to give the prevailing companies the monopolistic powers to facilitate consumer access to key services. Furthermore, economies of scale considerably contribute to legal monopolies by issuing credence to a few players (Corporate Finance Institute, 2022). For instance, the U.S. authorities only grant approval to the countrys Postal Services for the legal role to distribute first-class emails.

Start-up Costs

Start-up costs constitute financial resources needed for machinery, advertising, infrastructure, research, development, etc. Businesses may address capital needs by outsourcing some of the operations to firms that can influence current investments. Most of these expenses are sunk overlays that cannot be recovered when a business exits the market (Corporate Finance Institute, 2022). For example, certain sectors such as petroleum, airlines, and banking have enormously high start-up expenses. New entrants require huge capital just to facilitate market entry.

How Financial Management Varies from Country to Country

Firstly, the regulatory framework in various countries differs and this could influence substantial financial management in people and companies alike. For instance, certain nations have strict banking regulations, which in turn impacts various businesses that might want to access credit. Countries with permissive rules cultivate an enabling atmosphere for borrowing and lending. Secondly, taxation regulations also influence financial management within countries. For example, some countries might have a higher tax rate that can affect the profitability of businesses whereas those with reduced tax rates encourage investment. Thirdly, economic situations contribute to shaping financial management. For example, countries having advanced economies may attract more investment while those with feeble economies might simply concentrate on limiting risk and preserving capital (Sageder & Feldbauer-Durstmüller, 2019). Cultural differences also play a substantial role in financial management.

Ethics in Finance and Corporate Governance

Finance governance refers to the approaches used by a company to collect, manage, and control financial information. It is a significant practice in establishments since it helps in tracking financial operations and transactions. Finance governance ensures that the numbers produced and reported by the company are reliable and correct. Therefore, an organization must incorporate sound financial governance if it were to remain stable. Alternatively, corporate governance comprises processes, practices, and rules through which the company is controlled and directed. For example, the board of management bears the responsibility of ensuring the firm is well governed (Rietdijk, 2020). It signifies that corporate governance emphasizes the role of the management and the values implemented at the company. Corporate governance seeks to improve accountability and balances the interests of every stakeholder.

As the ramifications of the financial recession continue to resound, there is still a marked pattern among regulators and governments to create a policy that averts some behaviors regarding finance governance. However, policy and regulation cannot be the only solution; there is a dire need to instill ethics and culture change to address this challenge (Rietdijk, 2020). To create enhanced ethical needs in financial management, it must be recognized that moral virtue is central, especially to those persons employed and responsible for managing finances in organizations.

Ways of Improving Ethics in Finance

Recognizing and Making Integrity as the Core Value

Financial transactions, just like other businesses should be an engagement anchored in trust. Trust in a company is anchored in the conviction that the business manages its activities with honesty. For example, in the banking industry, if a customer feels that they have little or no trust in the company, they would likely not bank with that particular institution. Trust does not simply entail face-face engagement between a client and the organization. Customers are also concerned with the overall conduct of society (Rietdijk, 2020). Therefore, an organization should make it a fiduciary duty to instill integrity in its general conduct. Organizations should not only find comfort with just complying but should also incorporate integrity into their fundamental value. The public will exude confidence in an organization that has integrity.

Taking Control Over Compliance

Compliance plays a greater role in the perceived honesty of an organization. Many institutions tend to view compliance as an additional burden to their operations. Having perfect compliance will seal loopholes within the financial system. Organizations that want to engage in fraudulent financial activities will most likely evade the route of total compliance since that is a key way of enhancing financial ethics (Rietdijk, 2020). In essence, organizations disregard compliance to skip ethical questions that might bar them from engaging in appalling activities.

Being More Than Just Compliant

Once an organization takes control of compliance, they become in a better place towards realizing integrity and ethics in financial management. However, to ensure sustainability in such progresses, the company needs to implement and monitor other strategies as part of efforts towards ensuring total ethical conduct in financial management. While criminals are working every day to beat developed systems meant to instill ethical behavior, organizations should keep on becoming innovative to address such emerging challenges.

Establishing Enhanced Demand for Ethical Financial Products

Appropriate authorities need to establish superior mandate for appropriate investment products since such items can seem standardized and consumers are indifferent, competition does not certainly inspire best practices. For example, if a customer in the retail sector hates a certain brand or product, they can just move to the one that fits their current needs. The finance sector is somewhat different, engagement in this industry is a discrete (Association of Chartered Certified Accountants, n.d.). Regulators should encourage the creation of ethical financial products through guidelines and policies so that consumers recognize the real dissimilarities in product designs.

Ensuring a Cultural Change

The significance of cultural change has been looked at on both sides bad and good. There is an enhanced understanding of cultural change and its role in shaping judgment, behavior, and ethics. Without proper control, organizational culture tends to shape itself, with the intrinsic dangers that the actions displayed will be those that are undesired. For example, just before the 2008 financial downturn, there was an innate corrupt culture within the financial institutions and this reinvigorated the pursuit of high-risk acts and excessive profits. Unwarranted profits surpassed the value of consumer interests (Association of Chartered Certified Accountants, n.d.). The world recognized the significance of regulating financial institutions and the ethical duty to be part of the compliance process.

Ways of Improving Ethics in Corporate Governance

In todays business environment, the undertakings are not always trusted due to the infiltration of many criminals and schemes that can fleece earnings. Therefore, it is the integral interest of companies to establish a clearly-defined, actionable governance strategy that is anchored in ethical values of openness, honesty, and integrity in their operations. Performing such actions will create positive behavior that results in long-standing business prosperity and sustainability. Good governance also helps organizations to realize increased trust and public perception (Naciti et al., 2022). Precisely, institutions can use various strategies such as equitable compensation, implementing risk awareness campaigns, and appointing competent management to improve corporate governance.

Firstly, equitable compensation entails fair rewarding of workforce while considering other key aspects such as job performance and individual experience. Naciti et al. (2022) posit that organizations, which adhere to equitable compensation records better staff performance, improved skillsets, and increased business output. In the contemporary evolving office environment with more flexible work choices including hybrid methods, remote working, and office settings, ethical concerns in governance should always be addressed.

Secondly, companies should design governance strategies that can identify risks to all stakeholders, assess the possible severity of all risks, establish risk action plans, evaluate their effectiveness, and adjust the plan based on the need. Cultural aspects and forces that sideline risk preclusion should be removed. Doing so will make the organization operate at optimal heights with reduced exploitation, theft, and fraud. Thirdly, it is imperious that a sundry board of management is appointed to facilitate conducting of risk evaluation (Naciti et al., 2022). The move will help to assess and create a precise depiction of the risks that should be mitigated.

Conclusion

In conclusion, various factors such as rules and regulations, taxation regimes, labor laws, fiduciary duties, and accounting impede the global business environment. International companies seeking to venture into new external markets must design strategies to address these challenges. Start-up costs, government regulations, and technology present challenges to companies entering a new market. Therefore, companies should establish a clearly-defined, implementable governance plan that is anchored in ethical values of honest and integrity in their operations.

References

Association of Chartered Certified Accountants. (n.d.). Culture vs regulation: What is needed to improve ethics in finance? Web.

Corporate Finance Institute. (2022). Barriers to Entry. Web.

Naciti, V., Cesaroni, F., & Pulejo, L. (2022). Corporate governance and sustainability: A review of the existing literature. Journal of Management and Governance, 26(1), 55-74. Web.

Rietdijk, T. (2020). How to improve ethics in banks and financial institutions. Business Forensics. Web.

Sageder, M., & Feldbauer-Durstmüller, B. (2019). Management control in multinational companies: A systematic literature review. Review of Managerial Science, 13(5), 875-918. Web.

Weil, M. (2019). 5 factors that make international business complex. Financial Management. Web.

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