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BUSN7045 Corporate Governance
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BUSN7045 Corporate Governance
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Course Code: BUSN7045
University: Australian National University
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Country: Australia
Question:
Assume you have been contracted as an independent corporate governance consultant to a company listed on the Australian Stock Exchange. As part of the consultative process to implement the Code of Ethics you have been employed to write a report on behalf of the Board for distribution to shareholders advocating the benefits of the adoption of a Code of Ethics. The Chairman has requested that your report should include examples and evidence from contemporary cases of corporate governance failure and malpractice that demonstrate the need for a corporate Code of Ethics.
Answer:
Introduction
The Australian Psychological Society (APS) Code Of Ethics instill ethical principles that sets a defined benchmark for guiding both the psychologists and the general public so as to develop an understanding about being ethical while practicing profession. Basically, this code is dependent on three ethical principles:
Respect for the rights and dignity of people: it defines the respect and dignity that a civilized person deserves as his right and includes the right considering justice and autonomy (Atkinson, 2012).
Propriety: This principle refers to the act of doing good with noble intentions that serves a feeling of accountability and responsibility to clients, to professional bodies and to the economy as a whole.
Integrity : This principle requires a professional to be in his good character as a professional body puts its trust in all these professionals any kind of misconduct would directly affect the image and reputation of such statute body itself(Datar, 2015).
Code of Ethics is not just an internal measure for an organization but also serves externally by reflecting its values and commitments as a corporate towards the society. It helps in clarifying the mission, principles and values of an organization. A well framed code of ethics defines a required professional behavior that an entity seeks to instill in its leaders and all other employees working under it. As a result, such ethical principles act as a benchmark against which the performances of such entities and individuals are measured.
Actually, such a code acts as a guidance framework that instructs a professional to take decisions and act in their professional competence. The existence of code works as a body that professionals refer to sort out their ethical dilemmas. It is also referred to as a valuable document adopted within a business structure (Girard, 2014).
Corporate Failure
Let us consider certain latest cases where the organizations got into litigations due to not behaving ethically. Uber, being one of the world’s leading private company, got into a litigation due to its ex-CEO, Travis Kalanick who was charged for not behaving in ethical terms with one of the uber drivers. He was travelling in uber black where he got into a conversation with the driver where the driver blamed his strategies that resulted in bankruptcy of such drivers. However, the CEO reacted ruthlessly and insulted him by using harsh statements (Horngren, 2012). Meanwhile, the conversation was recorded that went viral socially. Thus, the CEO’s action got the company into allegations of not having a code of ethics. The professionalism norms of the company were blamed and as a result, the investors forced the CEO to resign. However, the company still doesn’t have a clean ethical image and is continuously working towards adopting a strong ethical code (McLaney & Adril, 2016).
The Royal Commission into misconduct in the Banking, Superannuation and Financial Services Industry discovered about the ethical misconduct called ‘fee for no service’. In this case, customers were charged fees for financial services that weren’t actually provided to them in actuality. They were charging superannuation fees of which the customers were unaware. There wasn’t a proper provision for financial services provided. A range of hearings are going on for serving the society unethically. This unethical behavior shook the public confidence and trust in the companies and the overall banking sector as top big companies were involved in this litigation such as Commonwealth Bank, Westpac Bank ,etc.
Benefits
The above two cases are examples of corporate failures on grounds of ethics. As a corporate governance consultant and considering the research, whether an organization is liable to have a code of ethics or not, it is advisable to have one. The various benefits that adoption of code of ethics brings with it are (Parrino, 2013):
Compliance:The legislation body, say the Sarbanes-Oxley Act, 2002, requires the organizations to incorporate ethical principles within their business framework or provide justifiable reasons for not incorporating such principles.
Marketing:It is important for a corporate to win the public trust and for that, it’s determination towards its values and commitments shall be proved to the general public. Having strong ethical standards promotes a strong reputation and non malicious intentions of an organization that stakeholders whether internal or external are their top most priorities.
Risk Mitigation :A litigation due to professional misconduct can drag a company into various court proceedings and impose heavy fines and penalties over it. A code of ethics helps them to save themselves from such penalties as they can claim that they had a ‘good faith effort’ and are themselves against illegal actions. Thus, such adoption reduces financial risks over the organization.
Enhancing professionalism quality:For having sound judgements and trustworthy actions, working within the framework bounded by ethical principles enhances the quality of the work provided. Ethical principles guide professionals to abide by the law and regulations. This somewhere serves them with a strong reputation in the market. After all, fraud is never a constant thing, that is, some or the other day, it will be caught. Therefore, it is better to be safe than to be sorry. For example, an auditor has to practice his independence in his conflict of interests while serving its clients (Siciliano, 2015).
Long term Sustainability:One of the most important factor for an organization to survive is its approach. Profits can come to an organization by other means but that is something that will last for short term. For long term sustainability, an organization is not supposed to have profits solely but also its investors trust, the customer satisfaction, its employees job satisfaction, etc. Thus, all such factors comes when an organization qualifies itself sound in terms of professional conduct, quality wise and ethically.
Conclusion
Code of Ethics is not just an internal measure for an organization but also serves externally by reflecting its values and commitments as a corporate towards the society. It helps in clarifying the mission, principles and values of an organization. A well framed code of ethics defines a required professional behavior that an entity seeks to instill in its leaders and all other employees working under it. As a result, such ethical principles act as a benchmark against which the performances of such entities and individuals are measured.
Adoption of Code Of Ethics is no less than a long term weapon of an organization.
Recommendation
It is not important to just have a code of ethics but it is also important to implement it and abide by it with all the efforts. As an corporate governance consultant, considering the benefits of a Code of Ethics, it would be better if the Chairman considers the cases of corporate failures as well as the benefits and then, adopt a code of ethics for its organization (Taillard, 2013). It will enhance the reputation of the organization and would prove to be a long term weapon for it.
Bibliography
Atkinson, A. A. (2012). Management accounting. Upper Saddle River, N.J.: Paerson.
Datar, S. (2015). Cost accounting. Boston: Pearson.
Girard, S. L. (2014). Business finance basics. Pompton Plains, NJ: Career Press.
Horngren, C. (2012). Cost accounting. Upper Saddle River, N.J.: Pearson/Prentice Hall.
McLaney, E., & Adril, D. P. (2016). Accounting and Finance: An Introduction. United Kingdom: Pearson.
Parrino, R. (2013). Fundamentals of Corporate Finance, 2nd Edition. Milton: John Wiley & Sons.
Siciliano, G. (2015). Finance for Nonfinancial Managers. New York: McGraw-Hill.
Taillard, M. (2013). Corporate finance for dummies. Hoboken, N.J.: Wiley.
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