Introduction
Working capital management refers to a business strategy aimed at monitoring and enhancing the use of a company’s assets and liabilities. Effective managerial activities ensure that a corporation has enough resources for its daily operations (Vazquez et al., 2016). The case study of Colorado Alternative Products (CAP) deals with a situation where a decision regarding the company’s working capital management needs to be taken. Besides, a conflict of interest is involved as a new CAP’s CFO Veronica Singer gets an offer from her close friend, an employee at Fiduciary Responsibility Effectiveness Experts (FREE), Archibald. The CAP company’s ethical issue should be resolved after a careful assessment of possible outcomes of the alternatives.
The Ethical Dilemma
An ethical dilemma is a situation that involves conflict and a need to choose between two courses of action. In the case of CAP, its CFO is confused about an offer she received from another firm’s employee. On the one hand, the company’s CEO seems to be putting pressure on her, demanding efficient work from her department despite the fact she has recently assumed the office. On the other hand, agreeing to Archibald’s offer to take the FREE cruise might be a hasty decision since it tacitly suggests that Veronica will be obligated to accept the proposition after the conference. Besides, personal interest might be the main reason for the suggestion to outsource working capital management functions to FREE. In this regard, CAP’s CFO is facing an ethical dilemma.
Outsourcing Some of the Working Capital Services
In my opinion, the question about outsourcing CAP’s services should be approached with consideration of the company’s specifics and FREE’s performance. As Pakdel (2019) indicates, working capital management remarkably influences profitability as it defines “the firm’s investment in short-term assets such as cash, short-term securities, accounts receivable and inventory” (p. 1). Outsourcing some of CAP’s processes can allow for better revenue realization and reduced cash outflow. However, poor management could lead to the loss of control over the business services (Le, 2019). Therefore, I believe that CAP should outsource some of its working capital functions if FREE can offer reliable and efficient working capital services as it will directly impact the firm’s profitability.
Taking the FREE Cruise
A decision on whether CAP’s CFO should take the FREE cruise can be taken based on the advantages and disadvantages of the two alternatives. Veronica is certain that she can get the necessary information about FREE’s services if she attends the conference. However, the evaluation might be biased, and a conflict of interest might be involved since Archibald would be getting commissions after the agreement. At the same time, the CFO should act in the company’s best interest. She is pressured to take an urgent decision and does not have enough time to do proper research. Considering the circumstances, registering for the conference and gathering unbiased data during the free time on the cruise might be an optimal decision.
Recommended Solution to the Case
Given the case study scenario, if I were to decide, I would accept the proposition to participate in the conference and learn more about the company. However, I would also try to collect impartial information about FREE’s and other companies’ services, comparing and analyzing it. In doing so, the CFO could get some time to reflect on the options and suggest an optimal solution for CAP.
To conclude, working capital management is an essential contributor to the company’s growth and profitability, and resolving an ethical dilemma about outsourcing some of the services needs a careful assessment of both alternatives. In the case of CAP, Veronica might achieve the best outcomes by participating in the conference but remaining unbiased in her eventual decision. If FREE does not seem to benefit CAP with its suggested services, the CFO should not accept the offer based on the personal connection to its employee.
References
Le, B. (2019). Working capital management and firm’s valuation, profitability and risk. International Journal of Managerial Finance, 15(2), 191-204. Web.
Pakdel, M., & Ashrafi, M. (2019). Relationship between working capital management and the performance of firm in different business cycles. Dutch Journal of Finance and Management, 3(1), 1-7. Web.
Vazquez, X. H., Sartal, A., & Lozano-Lozano, L. M. (2016). Watch the working capital of tier-two suppliers: A financial perspective of supply chain collaboration in the automotive industry. Supply Chain Management: An International Journal, 21(3), 321-333. Web.