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• Position: Ethical issue in financial management

Put yourself in the shoes of this hypothetical CFO: Your COO needs your financial forecast tomorrow for a meeting with outside analysts. If you call it as you see it, your company's stock price could dive. Read what two financial executives and an ethicist advise the CFO to do, in our first of a series of case studies in ethics.

THE QUANDARY

It just doesn't look good," Tim Fredricks thinks as he scans the draft of an analysis he's preparing for a meeting with the COO tomorrow. Tim, CFO at GT Systems, is reviewing trends and sales and inventory reports from the past two quarters to help him forecast revenues for the coming year. The data makes him nervous, but he doesn't want to overreact.

Results for the two quarters are below plan, but not enough to alarm observers in the local and national financial communities. With a few assumptions that could easily prove accurate, though, the forecast for the coming year would yield substantially lower numbers. If Tim makes these assumptions, he knows that other people, including the marketing staff, might disagree, not because their judgments are better but because their jobs often lead them to conclude the glass is half full rather than half empty.

Tim's analysis, as well as his gut reaction, are leading him toward submitting a fairly conservative report that would forecast results well below plan. He wonders, though, exactly how much to say in his meeting with the COO, Sharon Wallace. He knows Sharon likes "one-handed" financial officers, not the kind who offer too many hedges and options in their reports.

Two issues complicate Tim's decision. First, Sharon is meeting with financial analysts tomorrow afternoon for an informal conversation, which is why she needs Tim's forecast. Tim knows he should be honest in his assessment, but he also knows the imprecise information in front of him leaves a lot of latitude. The bottom line, given Sharon's meeting tomorrow, is that too strong a determination by Tim could directly affect the stock price.

Second, Sharon is attending a press conference tomorrow evening to launch this year's United Way drive. GT Systems is a major player in the local community, and Sharon recently agreed to chair the United Way campaign, taking her turn in a long line of GTS executives. If Tim's analysis proves correct, however, GTS might lay off a significant number of employees during the campaign.

Here is Tim's dilemma: What should he say in his forecast and to Sharon in...