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8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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2.1.2010 A Search Right & Three CheersPresentation
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING ETHICS IN BUSINESS
Ethics is the field of philosophy that studies systems, norms, or
values that distinguish between what is good and bad or right and
wrong. The field of business ethics focuses on examining conduct
and policies and promoting appropriate conduct and policies within
the context of commercial enterprise, both at the individual and the
organizational level.
Business ethics is a form of applied ethics where researchers and
professionals use theories and principles to solve ethical problems
related to business. Consequently, a central question of business
ethics is "How do businesses determine what is appropriate or
ethical conduct for any given commercial task?" Business ethicscovers all levels of business activity, including the obligations and
responsibilities of businesses to customers, employees, other
businesses, national and multinational governments, and the
environment.
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
EVOLUTION OF ETHICS IN BUSINESS
Derived from the views of Protestants John Calvin (1509-1564) and
Martin Luther (1483-1546), the Protestant work ethic that was
imported from Europe to North America during the 17th, 18th, and
early 19th centuries was a set of beliefs that encompassed secular
asceticismthe disciplined suppression of gratification in favour of
ceaseless work in a worldly calling according to God's will.
This work ethic emphasized hard work, self-reliance, frugality,
rational planning, and delayed gratification that formed the
foundation of modern capitalism and allowed American and
European societies to accumulate economic capital. The Protestant
work ethic dominated white American society through the 1800s.
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
EVOLUTION OF ETHICS IN BUSINESS
This ethic aided in the emergence of an upwardly mobile
bourgeois classcomprised of successful farmers,
industrialists, and craftsmenthat was preoccupied with
social conformity and materialism.
At the same time, a much clearer definition of success and
failure developed that was wrapped up in material terms; this
definition would play a major role in the societal evolution of
the Asian world inclding India somewhere in 1960s.
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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2.1.2010 A Search Right & Three CheersPresentation
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
EVOLUTION OF ETHICS IN BUSINESS
This ethic aided in the emergence of an upwardly mobile
bourgeois classcomprised of successful farmers,
industrialists, and craftsmenthat was preoccupied with
social conformity and materialism.
At the same time, a much clearer definition of success and
failure developed that was wrapped up in material terms; this
definition would play a major role in the societal evolution of
the Western world.
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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2.1.2010 A Search Right & Three CheersPresentation
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING CORPORATE GOVERNANCE
Corporate governance is the set of processes, customs,
policies, laws, and institutions affecting the way a corporation
(or company) is directed, administered or controlled.
Corporate Governance also includes the relationships among
the many stakeholders involved and the goals for which the
corporation is governed. The principal stakeholders are the
shareholders, management, and the board of directors. Other
stakeholders include employees, customers, creditors,suppliers, regulators, and the community at large.
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING CORPORATE GOVERNANCE
Corporate governance is a multi-faceted subject.
An important theme of corporate governance is to
ensure the accountability of certain individuals in
an organization through mechanisms that try toreduce or eliminate the principal-agent problem.. A
related but separate thread of discussions focuses
on the impact of a corporate governance system in
economic efficiency, with a strong emphasis on
shareholders' welfare
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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2.1.2010 A Search Right & Three CheersPresentation
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING CORPORATE GOVERNANCE
Corporate governance is a multi-faceted subject.
An important theme of corporate governance is to
ensure the accountability of certain individuals in
an organization through mechanisms that try toreduce or eliminate the principal-agent problem.. A
related but separate thread of discussions focuses
on the impact of a corporate governance system in
economic efficiency, with a strong emphasis on
shareholders' welfare
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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2.1.2010 A Search Right & Three CheersPresentation
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING CORPORATE GOVERNANCE
In A Board Culture of Corporate Governance, business author
Gabrielle O'Donovan defines corporate governance as 'an
internal system encompassing policies, processes and
people, which serves the needs of shareholders and other
stakeholders, by directing and controlling managementactivities with good business savvy, objectivity, accountability
and integrity.
Sound corporate governance is reliant on external
marketplace commitment and legislation, plus a healthy board
culture which safeguards policies and processes'.
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING CORPORATE GOVERNANCE
O'Donovan goes on to say that 'the perceived quality of a company's
corporate governance can influence its share price as well as the
cost of raising capital.
Quality is determined by the financial markets, legislation and other
external market forces plus how policies and processes areimplemented and how people are led.
External forces are, to a large extent, outside the circle of control of
any board. The internal environment is quite a different matter, and
offers companies the opportunity to differentiate from competitors
through their board culture.
To date, too much of corporate governance debate has centred on
legislative policy, to deter fraudulent activities and transparency
policy which misleads executives to treat the symptoms and not the
cause.
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING CORPORATE GOVERNANCE
It is a system of structuring, operating and
controlling a company with a view to achieve long
term strategic goals to satisfy shareholders,
creditors, employees, customers and suppliers, andcomplying with the legal and regulatory
requirements, apart from meeting environmental
and local community needs.
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING CORPORATE GOVERNANCE
Report of SEBI committee (India)on Corporate Governance
defines corporate governance as the acceptance by
management of the inalienable rights of shareholders as the
true owners of the corporation and of their own role as
trustees on behalf of the shareholders.It is about commitment to values, about ethical business
conduct and about making a distinction between personal &
corporate funds in the management of a company.
The definition is drawn from the Gandhian principle of
trusteeship and the Directive Principles of the IndianConstitution. Corporate Governance is viewed as ethics and a
moral duty
8/12/2019 Business Ethics and Corporate Governance-Definitions, Principles and Issues
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
PRINCIPLES OF CORPORATE GOVERNANCE
1. Rights and equitable treatment of shareholders:
Organizations should respect the rights of
shareholders and help shareholders to exercisethose rights. They can help shareholders exercise
their rights by effectively communicating
information that is understandable and accessible
and encouraging shareholders to participate in
general meetings.
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
PRINCIPLES OF CORPORATE GOVERNANCE
2. Interests of other stakeholders:
Organizations should recognize that they have legal and other
obligations to all legitimate stakeholders.
3. Role and responsibilities of the board:
The board needs a range of skills and understanding to be
able to deal with various business issues and have the ability
to review and challenge management performance. It needs tobe of sufficient size and have an appropriate level of
commitment to fulfill its responsibilities and duties. There are
issues about the appropriate mix of executive and non-
executive directors.
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
PRINCIPLES OF CORPORATE GOVERNANCE
4. Integrity and Ethical Behaviour:
Ethical and responsible decision making is not only important for
public relations, but it is also a necessary element in risk
management and avoiding lawsuits. Organizations should develop acode of conduct for their directors and executives that promotes
ethical and responsible decision making. It is important to
understand, though, that reliance by a company on the integrity and
ethics of individuals is bound to eventual failure. Because of this,
many organizations establish compliance and ethic programmes to
minimize the risk that the firm steps outside of ethical and legalboundaries.
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
PRINCIPLES OF CORPORATE GOVERNANCE
Disclosure and Transparency:
Organizations should clarify and make publicly known the roles and
responsibilities of board and management to provide shareholders
with a level of accountability. They should also implementprocedures to independently verify and safeguard the integrity of the
company's financial reporting.
Disclosure of material matters concerning the organization should be
timely and balanced to ensure that all investors have access to clear,
factual information.
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BUSINESS ETHICS AND CORPORATE GOVERNANCE
PRINCIPLES OF CORPORATE GOVERNANCE
Issues involving corporate governance principles include:
1. Internal controls and internal auditors
2. The independence of the entity's external auditors and the quality
of their audits
3. Oversight and management of risk
4. Oversight of the preparation of the entity's financial statements
5. Review of the compensation arrangements for the chief executive
officer and other senior executives
6. The resources made available to directors in carrying out their
duties7. The way in which individuals are nominated for positions on the
board
8. Dividend policy