Case Analysis
The Finova Group was formed in the year 1992 as a firm who deals with commercial finance. It was established as a Greyhound Financial Corporation (GFC) as a spin-off. There was a restructuring of the company and several other spin-offs were also included such as Dial Corporation. The company had its headquarters in Phoenix in Arizona. The growth of the company was huge due to a large number of people who became the customers of the company. The loan portfolio of the company was at a growth from the year 1993. It started at an amount of $1 billion as loans and also as acquisitions and had a stock offering of $226 million by the year 1994 (Jennings 2014). Finova was rated A in the year 1995 by Duff & Phelps due to its portfolio reaching $6 million and the convertible shares of amount $115 million. Finova was also named as the fastest growing and the most profitable company among the Platinum 400 companies in the year 2000 of January. Finova maintained a constant reputation in the market and provided many benefits to the employees of the company. An on-site gymnasium was present where the employees could exercise. The children of the employees were also provided tuitions where $3000 per child was given if they attended any one of the three selected Universities under the Future headers Grant Program of Finova. Finova also provided generous incentives and bonuses to its employees based on the stock price that has been received by the company.
Finova had a very different strategy than that of other financial companies which were not able to get loans from banks since they were too small or even too new in the market for the banks to trust them (Wishlade et al. 2017). They concentrated mainly on the midsize businesses whose annual sales were between $10 to $300 million. The first Annual Report of the company established the goals which were to grow their income every year by not less than 10%, to get better credit ratings, to provide a greater return to their shareholders and to enhance the quality of their loan portfolios. Finova also aimed to work for the betterment of the community and its people and not just focus on their own profit. They believe that by focusing on the community they would be able to maintain a good client relationship (Chiu, Peña and Wang 2015). The CEO of the company prided on doing well for the society and has always maintained that the company will always continue to focus on the goals that have been depicted in the Annual Report.
The issues regarding the company’s financial reporting started from 1996 to 1998. The company has 16 different divisions of finance because of its decentralized system. If anyone of these divisions failed to meet the goals of the company then the whole company along with the other divisions would suffer. Furthermore, in such scenarios, the other units have to work harder to compensate for the lack of work from the other departments. The riskiest department of the company was their Resort Finance division. This is the sector which raised questions on th3 financial reporting of the company. Finova also faced various issues in several of its lending sectors because of their strategies towards lending of money (Chen, McInnis and Yust 2014). Moreover, the company also received a great deal of attention when they delayed the release of their annual report and fired their long-time auditors citing the reason that they should have reported the discrepancies in the numbers long back without waiting just for the time of the release (Ge et al. 2016). Several other issues led to the decline in the stock prices of the company. The credibility of the company was also at stake and the Ethics and Company Culture began noticing the disagreements that the management had with the auditors of the company.
Finova had to face many backlashes from the media and also had to take a hit of almost $80 million the company has to undergo many lawsuits with accusations that the loan defaulted almost eight months ago. The company was unable to pay the loan because of the compensation packages and the bonuses that were tied to it. By the year 2001, Finova reported a loss of $1 billion for the whole year. It declared bankruptcy of Chapter 11 on the 7th of March, 2001. It was the eighth largest bankruptcy in the history.
The main issue with the company was not their financial decisions but their ethical considerations on which they failed drastically. Various ethical issues have been violated in this case of Finova. They have not only violated laws but have also hampered their reputation in the market and among the people by taking the help of unethical practices which will always be the reason for their downfall. This case could also be aligned with several ethical theories for its better understanding. To get a deeper understanding of the ethical issues of the case certain ethical theories have been discussed. Among all the other theories, there are mainly three kinds of theories which can be used in a business environment to understand the different unethical ways that have been adopted in a business scenario. The theories are as follows:
1.Utilitarian Theory – This is also known as the consequence-based theory this theory was initiated by several people in the 18th century such as David Hume, John Stuart Mill and others. This theory looks after the utility or the consequence of an action. This theory states that the right and wrong of an action is based on its consequences (Mill 2016). It says that the action which can be considered the best is the one which has the maximum utility. It also says that no one should suffer from the action and everyone should benefit from it and only then would the action be considered right. The theory of utilitarianism considers that every person should be treated equally and therefore every action should benefit the people involved equally. Like every other theory, this theory also had certain debates on whether the maximum utility would in actual be equally beneficial to all or it would be considered right or ethical if actions were taken just to maximise utility (Westermarck 2017). However, this theory is one of the oldest and most commonly used theory in the ethical concept of businesses.
2. Deontological Theory -This theory is also known as a duty based theory. This theory was developed by Immanuel Kant. It was derived from the Greek word deon meaning duty or obligation. This theory states that an action can be considered moral or right if the right and the wrong of the action are judged under a set of rules rather than depending on the consequences of the action (Greene 2015). This theory is known as a duty based theory because rules often bind an individual to do their duty. Therefore this means that the actions of the individual would only be considered right if they follow the rules and by doing so they are fulfilling their ethical duty. In this theory actions are a more important factor than the consequences of the actions. The set of rules can be the ones that have been set by the society, the government or even a personal set of values and rules which the individual might not like to break since they would bring conflict in his actions (Trevino and Nelson 2016). Therefore, these following these rules would help determine the positive and negative effects of the actions of the individual and whether the individual has been able to do the right thing and take the right actions.
3. Communitarian Theory -This is also known as a community-based theory. This is a new member in the ethical theory section and has emerged lately. This theory emphasizes the relationship between the community and the business or the individual. This theory states that the behaviour or the identity of an individual is shaped by the relationship that they have towards the community (Van Gunsteren 2018). The development of the individual separately is also emphasised in this theory. The community can be the family or the people of a single community or a group of people who are in close impact with the individual or in this case the business. The community helps the individual to form its opinion and the welfare of the community should be kept in kind during those decision making processes since the community is the one who will be able to judge the right from the wrong. Extreme forms of individualism are not supported in this theory and the only kind of ethical decisions are implied as those which are formed with the assistance of the community rather than those done individually since the community has more knowledge (Cornell 2016).
These ethical theories help to get a clear view of the actions that were taken in this case. The company violated all kinds of ethics of a business environment and in turn, harmed their employees and the future of their company as well. The employees would not be able to easily get any jobs in any big firms to die to the mark that they have received by being associated with Finova even if though they might have not been a part of the actions that were taken by the company. Therefore their actions have had dire consequences for the employees as well for the future of the company (Crane and Matten 2016). Hence, it can be said that they had clearly violated the utilitarianism theory since the consequences were not right which made the actions wrong as well. Moreover, the company also violated the deontological theory since they were also unable to fulfil their duty and follow the ethical and legal rules that are present in a business.
The officers and the managers waited for a long time before they would write off the loan because their bonuses and compensation packages were attached to the share prices. They held off the write off so that they were able to maximise the packages since it was computed before the decision of the write off was taken and they did not want to suffer (Bryman and Bell 2015). That is why they waited for the auditors to notify the write off so that they would get enough time to maximise these plans. Moreover, the executives missed several issues for the write off of the loan. They were unable to understand the proceedings of the management since the management made sure to hide it well. The officials and the managers were mostly benefited from these actions since they were able to gain their compensation from the share prices by withholding information about the write-off (Davies 2016). They received their share of the money which they had anticipated and planned. Hence, the interest of the upper management was served by this decision to hold back the information to report the write off at the correct time.
Several incentive plans and bonuses were tied to the stock prices of the company. Every employee was given special compensation to keep them loyal and motivated towards the organisation. These incentives had a great effect on the reported earnings of the company because they were the reason that a huge amount of money was spent by the company (Shaw and Barry 2015). The company had to keep their employees satisfied for which they established different kinds of the plan which in turn made the company spend huge amounts of money which made them decide to delay informing about the write-off.
The perks that were given to the employees of Finova were well enough for the employees to be blinded to the actual curing of the company. The company offered them gymnasium facilities and also provided tuitions to their children. The company moreover gave 500 stock options to every employee that was hired in the company along with several another attractive services such as on-site massages, an unlimited amount of time off where volunteer work was paid and concierge services (Trevino and Nelson 2016). This seemed very generous to the employees who knew what was going on in the company and chose to ignore it. They also might have been ignorant in reality as the management might have chosen to keep the employees away from their unethical practices. However, it cannot be said that the works of the management were hidden from the employees since the management could not take such a stance without the help of the lower section of the company who are the employees. Of I would have been an employee of Finova I would have definitely been attracted to the perks that were provided by the company but I also would have been aware of the operations of the company. It would have been my ethical duty to stop the unethical proceedings that have been going in the company or to at least report it to the auditors so that they are able to take due action which would also help the company (Chell et al. 2016).
The management of Finova knew about the risks that they were being faced by them. They were able to anticipate the arrival of the risks that they were talking and decided to do it anyway. This was because they were not able to comprehend the amount of risk that would come to them (Hair et al. 2015). The management thought that they would be able to cope with the risks and held off the write off for a long time since compensation plans and packages were tied to it. The managers and the officers of the company did not willingly write the loan off since they wanted to maximize their compensation package.
The employees of Finova have either resigned from the company or been laid off by the company. Both the instances would have a very bad mark on the resumes of the employees when they go to another company in the future. This is because Finova is a company who has adopted unethical ways to gain profit for themselves and their company. This would not be accepted by any other company when they hire their employees. The employees of Finova would be considered unethical even if they are not. They could not be hired easily since they were also part of the unethical practices of the company even if they did not contribute to it directly, they did nothing to stop it (DesJardins and McCall 2014). This will not be accepted by any future company, especially if it has a strong and good image in the market. Therefore, the employees would have to approach companies who are still new and young and are in need of employees for their growth. I feel that even in such situations these young businesspeople would have to convince the businesses about their credibility and their loyalty towards the company but not to the extent that they adopt unethical practices again in the future.
Finova should concentrate more on their ethical practices than on their profits for the future operations since they have already faced various issues regarding their unethical practices. They should be more aware of the risks that they are taking since it could affect their company heavily. They are already a bankrupt company, therefore, if they wish to start their venture again they should be careful about their operations. They should also try and upgrade themselves technologically since there are several technologies which help to determine the risks that the company might face in the future depending on the situation of the market. This would be helpful for the company in forming its strategies through which they could focus both on their profits and also on their operations. Finova should also understand the condition of their market before they decide to take any decision since they would be able to make better strategies which would benefit their company. Moreover, instead of priv8ding more benefits to the employees, they should ethically use their employees with their skills and techniques which will help them to contribute more to the company. Finova should always keep in mind that profits are important for the success of an organisation, however, for the longevity of an organisation ethical reasoning and corporate governance are mandatory.
Conclusion:
Hence, it can be concluded that Finova has adopted various unethical practices which have made them suffer a great deal and ultimately lead them to bankruptcy. They concentrated more on their profits and the compensation that they were receiving and giving to the managers and officials rather than their operations and their employees. They have a huge downfall because of their actions and they receive severe criticism from the people due to their practices. However, they paid no heed to the risks and waited a long time before writing off their loan due to the various packages that were tied to it which made them suffer more. It has also been determined in this case that the company suffered less because of its strategies and more because of the unethical practices that it adopted for a long time. Moreover, the employees had no say in the actions of the management and either gave their support or was unable to oppose and kept quiet. This also made them a contributor since they took no action to stop the actions of the management. The recommendations that have been given could help the company to regain their lost position in the market but they have to be severely careful regarding their actions for them to get back to their original position which was favoured by everyone.
Business ethics is also known as corporate ethics which is determining the different ethical principles and the morals that should be followed in every business along with the several ethical issues that every business would come across (Crane and Matten 2016). It is applied to every person in the organisation and they normally emerge from the practices that are done by the employees and management and the unethical practices that are done by them. This report will conduct an analysis of the case study of Finova and determine the impacts and the effects of the case. The study will discuss the different theories that are aligned with this case study and give recommendations on the effects of the case followed by a conclusion.
References:
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