Ethical Profits
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The obsession with profits has led to several undesirable and unethical business practices, which in a course of time will lead to a companys doom.
Business and Society have been interdependent for ages. There is no doubt that for a business to survive in the society it has to make Ðprofits. Without Ðprofits, a business would slowly crumble and die an unnatural death, no matter what the objectives of the business be. ÐProfit is like oxygen to the business and a lifeline to all.
Profit, in simple laymans parlance refers to excess of Income over Expenditure or Excess of Revenue over Costs. An accountants version of profit would be different from an economists definition of profit. As they say, 10 different accountants would arrive at 20 different profit figures for the same accounts, at the same time. Similarly, a businessmans definition of profit would be significantly different from the taxmans definition of profits. Even the businessman would wary his definition of profit for various purposes, at different times. For example if the business man wants to apply for a loan, or avail an overdraft facility or financing facility from a bank or a financial institution, he would want to show a relatively higher profit and would go to any extent to do so. The same businessman would be very conservative in his methods of computing his profits when it comes to preparing and filing his tax returns, the reasons being obvious.
ÐWindow dressing has been extensively used by corporations which need to report the results of their operations to their shareholders. The Balance sheet is shown to be healthier than it is. The Profit and Loss account or the Income Statement is “adjusted” to reflect a better operational result. The auditor of the corporation is invariably a party to these Ðadjustment and he lends his professional skills and expertise to finalize a Ðprofit figure which would best describe the results of the operations in a manner which he reports to be a Ðtrue and fair view of the Ðprofit or Ðloss of the corporation for a particular period.
Even the most private of the private enterprise is an organ of society and serves a social function
It is not a rocket science to Ðadjust profits to meet the requirements of the business. Time tested methods have been discovered, created or invented to alter the profits. Under/over valuation of inventory, excess/under provision of expenses, charging capital to revenue, revenue to capital etc are methods which result in under/over statement of Ðprofit, as may be. Of course this is a subjective matter and the treatment of these items would entirely depend on the person responsible for the same. However, a deliberate attempt to maneuver the Ðprofit and make it show a different figure from what is actually the case is not only unethical, but also detrimental to the stakeholders and society at large, as it has tremendous implications.
Though the dominant objective of business has been Ðearning profits, the obsession with profits must not be overwhelming and be the sole objective. An extremely high obsession with profits could jeopardize the balance with corporate governance, which is the mantra of most socially responsible companies. Also this motive could cause a tremendous imbalance with society at large, which could result in the business perishing sooner than later. It should thus be the focus of every legitimate business owner to keep the society alive through following ethical and acceptable business principles and adopt CSR through corporate governance or otherwise.
Business history is replete with instances of the mindless obsession with profit maximization has led to the collapse of corporations like Enron, WorldCom, Union Carbide etc. On the other hand corporations demonstrating social concerns have stayed, survived, and thrived in the long run. Corporate history has witnessed that business flourishes only where society thrives. Hence business corporations need to show and exhibit their concern for the well being of the society within which these operate. Corporate Social responsibility earns social capital