Ethics and conduct in corporate finance - Fair dealing, tran...

Learning Outcomes

After reading this article, you will be able to identify and explain the significance of fair dealing, transparency, and market integrity in corporate finance. You will understand key ethical principles and the practical conduct expected of finance professionals, including how ethical failings can impact organisations and stakeholders. The article also covers common exam requirements and potential pitfalls in this important ACCA topic.

ACCA Advanced Financial Management (AFM) Syllabus

For ACCA Advanced Financial Management (AFM), you are required to understand ethical standards and professional conduct in corporate finance, especially around trust, fairness, and integrity. Key syllabus areas relevant to this article include:

• The principles of fair dealing and how they ensure equitable treatment of stakeholders in financial transactions
• The importance and implementation of transparency in reporting, communication, and disclosures
• Market integrity, including what compromises it and how to uphold it as a finance professional
• Application of ethical principles in day-to-day financial management and decision-making
• The consequences of ethical breaches for individuals and organisations

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following best describes fair dealing in the context of corporate finance?
   1. Achieving the highest possible profit in all transactions
   2. Ensuring all parties receive access to relevant information and equal treatment
   3. Prioritising the interests of management over other stakeholders
   4. Withholding sensitive information for competitive advantage
2. What is the main objective of transparency in financial reporting and communications?
   1. Satisfy regulatory bodies only
   2. Protect company secrets
   3. Enable stakeholders to make informed decisions
   4. Reduce reporting requirements for the company

3. True or false? Market integrity focuses solely on preventing insider trading.

4. Give an example of a situation in which fair dealing and transparency might conflict. Suggest how a finance professional should respond.

Introduction

Ethics and professional conduct are at the core of corporate finance. High standards are essential to maintain the confidence of investors, regulators, and the public. Fair dealing, transparency, and market integrity are not abstract ideals—they are practical requirements that guide decision-making and behaviour for financial managers and organisations. Failures in these areas can lead to legal penalties, reputational loss, and erosion of trust, all of which diminish shareholder value and can destabilise entire markets.

Key Term: fair dealing
Treating all parties equitably in financial transactions, ensuring decisions and actions are objective, free from bias, manipulation, or concealment.

FAIR DEALING IN CORPORATE FINANCE

Why Fair Dealing Matters

In corporate finance, fair dealing means all stakeholders—shareholders, creditors, employees, customers, suppliers, and regulators—are given equal consideration during financial decision-making. This principle supports efficient, trustworthy markets and supports compliance with legal obligations.

Unfair practices, such as selective disclosure, price manipulation, favouritism, or misleading communication, undermine trust in financial markets and expose both individuals and companies to risk.

Fair Dealing in Practice

• Disclose all required information to relevant parties on time
• Treat counterparties equally, regardless of relationship or influence
• Take action to prevent and report conflicts of interest
• Apply company procedures consistently, without bias

Key Term: conflict of interest
A situation where personal or professional interests could improperly influence the performance of professional duties.

Key Term: selective disclosure
The practice of providing material information to only some stakeholders, rather than all, which breaches principles of fairness.

Worked Example 1.1

A finance manager at Darnell plc is involved in pricing a bond issue. The manager receives unofficial pressure from a major current investor to provide early information about the offer terms before public disclosure.

Question: Is it ethical to give this information to the investor? What risks arise?

Answer:
No, it is not ethical. Providing preferential access to information breaches the principle of fair dealing and could constitute market abuse. Risks include regulatory sanction, reputational damage, and undermining of trust in the capital markets.

TRANSPARENCY: DISCLOSURE AND COMMUNICATION

Transparency means providing accurate, timely, and clear information so internal and external stakeholders can make informed decisions. This applies to financial statements, forecasts, risk disclosures, and all relevant communications.

Transparent conduct includes:

• Timely and honest disclosure of financial results and key events
• Clear, unambiguous communication without omitting material facts
• Readiness to correct errors and update information when needed

Transparency protects the company and its officers from legal and reputational risk, and is essential for long-term value creation.

Key Term: transparency
The practice of making relevant information accessible, understandable, and verifiable by stakeholders, promoting accountability and informed decision-making.

Relevance for the ACCA Exam

Expect scenarios in which you must distinguish between acceptable and unacceptable reporting practice, explain how misleading disclosures cause harm, or assess the adequacy of proposed communications to shareholders.

Worked Example 1.2

Lumos Ltd’s latest annual report omits a known legal dispute that could have a material financial impact. Management is reluctant to disclose the details for fear of negative press.

Question: Is this consistent with transparency? What should the finance executive do?

Answer:
It is not consistent. Omitting material information breaches transparency and potentially legal requirements. The finance executive should advocate for full disclosure as required by regulations and standards, to maintain stakeholder trust and legal compliance.

Revision Tip

Always consider both the content and the clarity of disclosures in exam scenarios. Brief, clear, and accurate reporting trumps technical detail that obscures the real situation.

MAINTAINING MARKET INTEGRITY

Market integrity means operating in a way that sustains confidence in market processes, transactions, and outcomes. Actions that undermine integrity include insider trading, fraud, price manipulation, and false or misleading reporting.

Professional finance managers are expected to:

• Uphold relevant laws and codes of conduct
• Avoid and report market abuse
• Take steps to prevent systems or controls from being circumvented

Key Term: market integrity
The condition where market participants have confidence that prices, transactions, and processes are fair, not distorted by misconduct or abuse.

Key Term: market abuse
Conduct including insider trading, market manipulation, or dissemination of false information that undermines confidence and fairness in financial markets.

Worked Example 1.3

A treasury employee learns non-public information about an upcoming merger and buys company shares for personal gain.

Question: Which ethical and legal principles have been breached?

Answer:
Both fair dealing and market integrity are violated. Insider dealing is illegal and unethical, damaging confidence in the market. The individual and employer may face regulatory penalties and reputational harm.

Exam Warning

Failing to identify market abuse (such as insider trading or selective disclosure) in exam scenarios is a common error. Always assess if any party has accessed confidential information or acted to distort market outcomes.

PROMOTING AN ETHICAL CULTURE

Ethical behaviour in finance is sustained by policies and individual conduct:

• Adopt and enforce a clear code of ethics and conduct
• Provide channels for whistleblowing without fear of reprisal
• Ensure training on ethics for all staff at every level

Key Term: code of ethics
A formal set of principles and guidelines designed to guide behaviour and decision-making, supporting expected standards of professional conduct.

Key Term: whistleblowing
The act of reporting unethical, illegal, or improper activities within an organisation to internal or external authorities.

Worked Example 1.4

A junior accountant at Pio Co discovers management is delaying the recognition of impairments to boost reported profits. The company has a code of ethics and a whistleblowing hotline.

Question: What should the accountant do?

Answer:
The accountant should follow company procedures to report the concern—first internally, or through the whistleblowing channel if necessary. Acting in line with the code of ethics protects both the individual and the reputation of the organisation.

CONSEQUENCES OF UNETHICAL CONDUCT

Unethical behaviour has both immediate and long-term effects:

• Fines and regulatory penalties
• Reputational damage, loss of investor or customer trust
• Lower share price or increased cost of capital
• Dismissal or disqualification of those involved

Prevention is always better than cure. Ethics must be at the core of every decision—short-term gains from unethical conduct will almost always lead to greater losses for both individuals and the organisation.

Summary

Upholding fair dealing, transparency, and market integrity is fundamental for finance professionals and organisations. These principles protect not only shareholders and the wider market, but also individuals in their careers. Understanding, identifying, and promoting ethical conduct is essential both in the ACCA exam and in corporate practice.

Key Point Checklist

This article has covered the following key knowledge points:

• Define fair dealing, transparency, and market integrity in corporate finance
• Recognise typical scenarios where unethical conduct can occur
• Explain the consequences of ethical failings for individuals and organisations
• Outline core actions required to ensure professional conduct
• Identify the role of codes of ethics and whistleblowing in supporting ethical behaviour
• Apply ethical principles to exam questions and case studies

Key Terms and Concepts

• fair dealing
• conflict of interest
• selective disclosure
• transparency
• market integrity
• market abuse
• code of ethics
• whistleblowing