The paper aims at discussing the potential ethical dilemma between corporate profitability and social responsibility during managerial duty. The fundamental question is what behavior is more crucial to a company’s success and image: being socially responsible or gaining more profit despite the ethics code and corporate principles. Therefore, I select the current event of international management nature, namely the financial fraud scandal that happened with Wirecard, and analyze it from an ethical perspective.
Without a doubt, corporate profitability is critical to a company’s success. Nonetheless, the annual balance sheet of a company is no longer the most important document. Colombo (2021) emphasizes that social change has raised awareness of the need for a better world in both environmental and economic terms, leading companies to prioritize social responsibility. The primary value of social responsibility is reputation, which serves as a road map for any business seeking to succeed (Colombo, 2021). Essentially, a firm’s reputation can be positive or negative, and the quality with which a firm conducts business today is the predictor that directs moral judgments. Colombo (2020) acknowledges that it has been established that a company’s reputation primarily influences stakeholders’ choice of companies. Therefore, a company’s success is determined by its quarterly earnings, but the profitability cannot be separated from its internal and external esteem and ethical behavior.
Many companies that eventually recognized corporate responsibility as a critical factor increased their profitability by cultivating trusting relationships among stakeholders, making their headquarters more environmentally friendly, and ensuring appropriate workspaces for their staff members. According to Ali et al. (2019), company reputation and customer satisfaction partially mediate the relationship between corporate social responsibility and financial performance. Thus, corporate social responsibility has a significant impact on firms’ financial performance by cultivating a positive impression among relevant parties and lowering total costs. It is important to note that corporate social responsibility is also focused on creating additional productive capacity by bringing people into the company where gender, race, and orientation become irrelevant characteristics while ethical practices matter. Such businesses become more trustworthy and appealing in the eyes of the world and, thus, more successful (Colombo, 2020). Nevertheless, the dilemma between corporate profitability and social responsibility during managerial duty still exists; the case of Wirecard is an ideal example.
Discussion of Wirecard’s Unethical Behavior
Wirecard, a German financial services company, is a prime example of the ethical problem that exists between corporate social responsibility and corporate profitability. The company’s ineffective corporate governance failed to serve its stakeholders, and its management’s unethical conduct of earnings manipulation brought attention to the company’s significant financial collapse, resulting in corporate profits and reputation destruction (Jo et al., 2021). Wirecard, one of Germany’s leading fintech firms in providing digital platforms for financial commerce, declared bankruptcy in June 2020 after “revealing that €1.9 billion of cash on its balance sheet had gone missing” (Jo et al., 2021, p. 96). Furthermore, Wirecard’s Chief Executive Officer was arrested on charges of stock manipulation and false financial reporting.
In the case of Wirecard, management manipulated its income statements and concealed the Firm’s losses from the community in order to keep the share price rising. Furthermore, Wirecard used the round-tripping scheme for several years in the Singapore office to mislead its external auditors and generate misconceptions of its business revenue (Jo et al., 2021). Hence, Wirecard’s demise was caused by a fraudulent activity that grew so large that a financial crisis was unavoidable. The motivation behind malpractices was to enhance corporate profitability; nonetheless, the financial manipulations destroyed Wirecard’s success.
While regulations implement and establish specific methods to decrease financial reporting misconduct, the central concern is management’s encouragement to violate the law. Laws and regulations may limit the opportunity to take action; nonetheless, they cannot control the behavior of fraudulent management (Jo et al., 2021). The significance of ethical behavior cannot be exaggerated. Jo et al. (2021) argue that, as with other corporate frauds that result in the company declaring bankruptcy, the ones who suffer are Wirecard’s personnel, creditors, and shareholders, who experienced significant losses due to the company’s unethical practices. When auditors, legal advisors, or staff detect signs of fraud, they should notify higher-level managers or authorities. I believe that training and educating the team on the code of ethics and corporate social responsibility is vital. Thus, Wirecard should implement ethics and corporate social responsibility programs to encourage employees to participate in ethical practices actively and immediately report unethical conduct.
To conclude, firms that promote corporate social responsibility and care about the community are more likely to succeed. Stakeholders, in my opinion, can only be attracted if the pursuit of business is also matched by the goal of modern society and if an ethical code is demonstrated as a company’s founding principle. The case of Wirecard proved that corporate social responsibility is more crucial than the company’s profitability. Thus, corporate social responsibility strongly influences a company’s financial performance by building a positive image among shareholders and increasing societal value. When firms face an ethical dilemma, they must prioritize social responsibility for corporate profitability.
Ali, H. Y., Danish, R. Q., & Asrar‐ul‐Haq, M. (2020). How corporate social responsibility boosts firm financial performance: The mediating role of corporate image and customer satisfaction. Corporate Social Responsibility and Environmental Management, 27(1), 166-177. Web.
Colombo, L. (2021). Corporate social responsibility is not only ethical, but also a modern business tool. Forbes. Web.
Jo, H., Hsu, A., Llanos-Popolizio, R., & Vergara-Vega, J. (2021). Corporate governance and financial fraud of Wirecard. European Journal of Business and Management Research, 6(2), 96-106. Web.