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Disclosure of financial information is an important component of accounting practices. In some cases, companies time the release of the information in an attempt to manipulate stock prices. The following paper discusses the violation of the full disclosure principle by Boeing.
Based on the information from the case study, it is possible to identify three main groups of stakeholders. The first group includes the stockholders of McDonnell Douglas, who received payment in Boeing stocks issued to pay for the acquisition. The second group includes the management of the Boeing company as well as all employees associated with the decision to withhold financial information. The third group includes the stockholders of Boeing stocks who obtained them prior to the acquisition of McDonnell Douglas.
The main ethical issues are related to the decision to withhold Boeing’s financial information. According to the case study, production line inefficiencies have resulted in significant cost overruns (Kimmel, Weygandt, & Kieso, 2015). The disclosure of this fact was considered a major threat to the company’s valuation on the market. By extension, the decline of stock prices will require the revocation of a major deal, which is highly undesirable for Boeing. In other words, Boeing management’s decision can be considered unfair practice aimed at the concealment of important information from its stockholders in order to avoid the expected complications.
The main accounting principle relevant to the case is the full disclosure principle. According to it, a business is required to provide all of the financial information necessary for financially informed stakeholders to make respective decisions. The disclosure is made through one of the established information channels, such as a financial statement or a dedicated section in the company’s annual report. Importantly, the principle also requires the disclosure to be timed in accordance with predefined schedules. Understandably, the nature and amount of information considered necessary can change over time. Nevertheless, failure to comply with it in order to mislead the stakeholders is considered a violation.
It is important to note that the information in question was eventually released, resulting in the anticipated decline in the price of stocks. However, the time chosen for the announcement made it impossible to revoke the deal with McDonnell Douglas. Such an approach is unethical for two reasons. First, it compromises the integrity of the acquisition by allowing the management to keep the price of stocks high artificially. Second, and, perhaps, more importantly, it relies on emotional and psychological aspects of human perception. In the example above, one of the factors expected to reduce the adverse effects for the company was the funeral of a public figure. From this perspective, it can be considered an attempt to manipulate human emotions for financial gain, which is unethical from a humanitarian standpoint.
Considering the information above, it would be more appropriate for the CEO of Boeing to disclose the information once it becomes available to the company’s accounting department and acknowledge its implications for the recent acquisition. Admittedly, such a strategy would not help to avoid the revocation. However, in the long term, it would have a positive effect on the company’s reputation.
Finally, it is important to identify possible implications of the decision for investors and analysts. It is possible to assume that Boeing’s top management’s actions did not violate any obligations. However, it constitutes an example of unfair business practice and, by extension, suggests that similar unfair practices might be used by the company in the future. As a result, the market valuation of Boeing can be considered unrepresentative, repelling potential investors and, by extension, inhibiting growth.
As can be seen, Boeing management’s decision is ethically flawed. In addition to violating the full disclosure principle, it compromises the trust of its stockholders. Such actions are known to have adverse long-term effects and are to be avoided.
Reference
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2015). Financial accounting, binder ready version: Tools for business decision making (8th ed.). Danvers, MA: John Wiley & Sons.
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