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THE ETHICAL CHALLENGES OF ASSET ALLOCATION
The ethical challenges of asset allocation
Ethics provides for a set of moral principles that govern and guide the behavior of people or firms in the current world. The ethical issues help to develop principles that people and firms are expected to follow to ensure that their conduct is right. Right and wrong behavior in the allocation of assets in the current world will be the main focus of the study. Epidemics and pandemics are extraordinary issues that should be factored by planners and policy makers when managing different assets. Ethics provides for social responsibility, environmental management, social governance and morality in the society [ CITATION Sar07 l 1033 ].
With the current changes in the world today, risk is a major issue facing the different assets and investment risk is becoming a matter of great importance in society. Whereas, the modern free market economy system has become the most effective and efficient system used for allocating resources in the different markets around the world, there has been an increase in the social inequalities, negative environmental impacts and other negativities around the world. Exceptional social pressures and environmental issues such as energy, food and water securities, changes in climate, human rights, ageing population, difficulties in accessing the natural resources and labor standards have become major issues that businesses are forced to consider and manage in their daily activities. Shareholder value is one of the main reasons for business development. However, there has been an increase in poor cooperate governance which has heightened the financial crisis in the world. As such, this has led to an increase in ethical issues such as corruption, transparency, shareholder rights, boards’ structure, risk management, business ethics, shareholder rights and executive compensation.
The attraction of policy makers and investors is a corporate issue that needs to consideration to ensure that no unethical undertaking is made on the management of assets. The liberalization of the economy in most countries around the world has helped to increase the wealth and economic efficiency of these countries. Assets usually impact the investment decisions that are usually made by investors for three different reasons. These reasons are the fact that the increased options that are provided by the assets for the value-driven investments, their great potential for diversification and their promising prospective for growth.
Conflict of duty is another factor that should be considered in the allocation of assets. In every organization, there is always a conflict of duties and responsibilities between the shareholders and the directors of the company. What is expected is that the directors should keep the interests of the shareholders before their personal interest. However, in most cases, some of the directors usually develop a conflict of interest in the management of the organization. Some of the common conflicts of interest that impact the investments are the fiduciary duty and compliance. Fiduciary duty is usually a perception that is developed on investments that may not end up providing the appropriate risk-adjusted financial yields.
Environmental effects and the risk factors of the assets are also an important factor that should also be considered by policy makers in the allocation of resources. Some of the risk factors that are provided in the allocation of asses include the capital risks, the exit risks, impact risks and unquantifiable risks. The capital risks provide the risk that there would be loss in the original investment amount. The exit risks are provided for investments that may end up not end up being liquid enough to meet the future cash flow demands of the firms. As such, it is important to ethically consider the risks and environmental issues that may influence the proper allocation of the assets within the organization.
Sarma, P. V., & Rajani, S. (2007). Corporate governance : contemporary issues and challenges. New Delhi: Kanishka.
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