Corporate Governance & Ethics
A PAPER PRESENTED BY JESUNIYI YEMISI Bsc, MBA,
ACIB @INTERNATIONAL EDUCATIONAL SEMINAR
ACCRA GHANA.
Learning Objectives
What
is Business
Analysis?
Introduction
to Corporate
Governance & Ethics
Understanding the Codes of Conducts.
Understanding Conflict of Interest Guidelines
Decoding the Whistle blowing process
Understanding Corporate Governance and Sustainability
2
INTRODUCTION
• The issues of corporate governance continue to attract
considerable national and international attention.
• Corporate governance is about effective, transparent and
accountable governance of affairs of an organization by its
management and board.
• It is about a decision-making process that holds individuals
accountable, encourages stakeholder participation and
facilitates the flow of information.
INTRODUCTION
• The recent corporate crisis (Volkswagen, FIFA, etc) has further
reinforced the message of governance of firms.
• Which is always aimed at protecting the interests of all
stakeholders, which include shareholders, depositors, creditors,
regulators and the public.
Definition of Corporate Governance
• Corporate governance refers to the broad range of policies and
practices that stockholders, executive managers, and boards of
directors use to;
I. manage themselves and
II. fulfill their responsibilities to investors and other
stakeholders.
• Creating corporate governance standards of excellence and
filing shareholder resolutions , is one of the vehicle to influence
board behavior as well as a broad range of social issues, e.g.
employment ethics practices, environmental policies, and
community involvement.
Business Ethics
• Business ethics is a form of applied ethics.
• It aims at inculcating a sense within a company’s employee
population of how to conduct business responsibly.
• Some organizations choose to recast the concept of business
ethics through such other terms as integrity, business practices
or responsible business conduct.
Business Ethics
• The concept of Business Ethics can be described
as framework of rules and practices by which a board of
directors ensures accountability, fairness, and transparency in a
company’s relationship with all stakeholders like a company’s
financiers, customers, management, employees, government,
and the community.
Business Ethics
 The framework consists of;
• explicit and implicit contracts between the company and the
stakeholders for distribution of responsibilities, rights,
and rewards
• procedures for reconciling the sometimes
conflicting interests of stakeholders in accordance with
their duties, privileges, and roles,
• procedures for proper supervision, control, and informationflows to serve as a system of checks-and-balances.
Codes of Conduct
• The cornerstone of any company’s ethics program is
its set of values.
• The key mechanisms for articulating those values are
ethics codes, also known as codes of conduct and
standards of business.
• Ethics codes help create globally consistent codes
which can be regarded as “fixed reference points” for
employees.
• This code serves as a set of concrete statements about
how the companies conduct business.
Conflict of Interest Guidelines
• A conflict of interest is often defined as any situation
where an employee’s/board member’s personal interest,
or those of a family member, close friend, business
associate, corporation or partnership in which an
employee/member holds a significant interest, or a
person to whom the employee/member owes an
obligation could influence the employee’s/member’s
decisions and impair the employee’s/member’s ability to
fulfill the business and social objectives of the company
or represent the board fairly and without bias (Voien,
2000).
Conflict of Interest Guidelines
• Recent corporate scandals around the globe have brought
to the forefront the importance of having strict conflict of
interest standards in place.
• Employers use conflict of interest guidelines to inform new
employees of potentially harmful situations, and to make it
clear that employees are to avoid these clouded situations.
• New employees should fully understand the conduct and
behavior that the employer expects from the outset.
• Communicating appropriate policies and procedures can
help eliminate unacceptable behavior and work habits, and
may be helpful if it becomes necessary to dismiss
employees who cannot meet minimum standards.
Compliance /Ethics Officers
• It is important for employees to know who is in charge of
handling potential ethical violations.
• A compliance/ethics officer manages a company’s ethics
policies and ensures that every employee is well-informed
of company values and standards.
• The officer ensures that employees who violate the codes of
conduct are held accountable and disciplined for unethical
behavior.
• They also maintain confidentiality when a whistle blower
reports a possible violation.
Whistle Blowing Process
• Whistle blowers are people who often at great personal risk,
choose to disclose information about improper government
or industry actions that are harmful to public health, the
environment, the economy or others (Dworkin & Near,
1992).
• It is important for companies to protect the rights of its
employees and provide an anonymous open line of
communication for those that have been exposed to
violations of company policies or government laws.
Whistle Blowing Process
• The reporting steps should be clearly laid out for all
employees and easily accessible should a sudden crisis
occur.
• Companies should disclosed their whistle blowing process
and make employees the priority by structuring the process
to protect the whistle blower.
Difference in focus between early corporate governance
and the current focus of corporate governance
• Two decades ago, the term corporate governance meant
little to all but a handful of scholars and shareholders. Today,
it is a mainstream concern — a staple of discussion in
corporate boardrooms, academic roundtables, and policy
think tanks worldwide.
• Several events are responsible for the heightened interest
in corporate governance. During the wave of financial crises
in 1998 in Russia, Asia, and Brazil, the behavior of the
corporate sector affected entire economies, and deficiencies
in corporate governance endangered the stability of the
global financial system.
Difference in focus between early corporate governance
and the current focus of corporate governance
• Just three years later, confidence in the corporate sector
was sapped by corporate governance scandals in the United
States and Europe that triggered some of the largest
insolvencies in history.
• And, the most recent financial crisis has seen its share of
corporate governance failures in financial institutions and
corporations, leading to serious harm to the global
economy, among other systemic consequences.
• In the aftermath of these events, economists, the corporate
sector, and policymakers worldwide recognize the potential
macroeconomic, distributional, and long-term
consequences of weak corporate governance systems.
Difference in focus between early corporate governance
and the current focus of corporate governance
• The crises, however, are manifestations of several structural
factors and underscore why corporate governance has
become even more central for economic development and
society’s well-being.
• The private, market-based investment process is now much
more important for most economies than it used to be; that
process needs to be underpinned by better corporate
governance.
• With the size of firms increasing and the role of financial
intermediaries and institutional investors growing, the
mobilization of capital has increasingly become one step
removed from the principal-owner.
Why is Corporate Governance Important?
• Good Corporate Governance ensures that the business
environment is fair and transparent and that companies can
be held accountable for their actions.
• Conversely, weak Corporate Governance leads to waste,
mismanagement, and corruption.
• It is also important to remember that although Corporate
Governance has emerged as a way to manage modern joint
stock corporations, it is equally significant in state-owned
enterprises, cooperatives, and family businesses.
• Regardless of the type of venture, only Good Governance
can deliver sustainable Good Business Performance.
The Benefits of Corporate Governance
 Companies Compliance can benefit the owners and
managers of companies and increase transparency and
disclosure by:
• Improving access to capital and financial markets
• Providing help to survive in an increasingly competitive
environment through mergers, acquisitions, partnerships,
and risk reduction through asset diversification
• Providing an exit policy and ensure a smooth intergenerational transfer of wealth and divestment of family
assets, as well as reducing the chance for conflicts of
interest to arise which is very important for the investors.
The Benefits of Corporate Governance
• Also, adopting good Corporate Governance practices leads
to a better system of internal control, thus leading to greater
accountability and better profit margins.
• It will pave the way for possible future growth,
diversification, or a sale, including the ability to attract
equity investors – nationally and from abroad – as well as
reduce the cost of loans/credit for corporations.
• Many businesses seeking new funds often find themselves
obliged to undertake serious corporate governance reforms
at a high cost and upon the demand of outsiders, often in a
time of crisis.
• When the foundations are already in place investors and
potential partners will have more confidence in investing in
or expanding the company’s operations.
Corporate Governance: Shareholders Benefits
• Good corporate Governance can provide the proper
incentives for the board and management to pursue
objectives that are in the interest of the company and
shareholders, as well as facilitate effective monitoring.
• Better Corporate Governance can also provide Shareholders
with greater security on their investment. Better Corporate
Governance also ensures that shareholders are sufficiently
informed on decisions concerning fundamental issues like
amendments of statutes or articles of incorporation, sale of
assets, etc.
Corporate Governance: Benefits to National Ecomony
• Empirical evidence and research conducted in recent years
supports the proposition that it pays to have good Corporate
Governance.
• It was found out that more than 84% of the global
institutional investors are willing to pay a premium for the
shares of a well-governed company over one considered
poorly governed but with a comparable financial record.
• The adoption of Corporate Governance principles - as good
Corporate Governance practice has already shown in other
markets - can also play a role in increasing the corporate
value of companies.
Corporate Governance: Benefits to National Ecomony
“If a country does not have a reputation for strong corporate
governance practices, capital will flow elsewhere. If investors
are not confident with the level of disclosure, capital will flow
elsewhere. If a country opts for lax accounting and reporting
standards, capital will flow elsewhere. All enterprises in that
country will suffer the consequences.”
(Arthur Levitt, former chairman of the US Securities &
Exchange Commission)
The Importance of Business Ethics to Best Corporate
Governance Practice
An ethical approach is fundamental to sound business
practices as it underpins the structures and systems used to
ensure good governance and without it governance will fail.
 Rule One
• is that the business morality or ethic must permeate an
organization from top to bottom and embrace all stakeholders.
The Importance of Business Ethics to Best Corporate
Governance Practice
• Thus leading to;
Long-term growth: sustainability comes from an ethical
long-term vision which takes into account all stakeholders.
Smaller but sustainable profits long-term must be better
than higher but riskier short-lived profits.
• Cost and risk reduction: companies which recognize the
importance of business ethics will need to spend less
protecting themselves from internal and external behavioral
risks, especially when supported by sound governance
systems and independent research.
The Importance of Business Ethics to Best Corporate
Governance Practice
• Anti-capitalist sentiment: the financial crisis marked another
blow for the credibility of capitalism, with resentment
towards bank bailouts at the cost of fundamental rights such
as education and healthcare.
• Limited resources: the planet has finite resources but a
growing population; without ethics, those resources are
depleted for purely individual gain at huge cost both to
current and future generations.
The Importance of Business Ethics to Best Corporate
Governance Practice
 Rule Two
• Business should be targeting an appropriate goal which
properly reflects the expectations of the stakeholders.
The Importance of Business Ethics to Best Corporate
Governance Practice
 Rule Three
• Good corporate governance requires that an effective
strategic management process be in place.
Third Golden Rule of Corporate governance
• By this we mean that the company is organized and run
according to rules which means setting a goal which
matches the duly considered expectations of the
stakeholders.
• work out a feasible strategy to achieve that goal
• put in place an organization which can carry out the strategy
and attain the goal
• set up a control and reporting function to permit
management to drive the organization effectively and make
necessary adjustments to the strategy or even the goal
• Anything less rigorous than the above strategic
management definition will only achieve success by
accident and will be vulnerable to all kinds of unexpected
events.
Corporate Governance for
Sustainability
•Corporate citizenship is becoming increasingly important to
business sustainability. It provides benefits that are both
tangible—such as reducing waste and increasing energy
efficiency—and intangible—such as improved employee
productivity.
•Corporate citizenship can help to improve the bottom line.
Many firms view corporate citizenship as little more than public
relations, but a minority are beginning to recognize its potential.
Leading companies have moved from a do-no-harm reactive
mode to a more proactive approach.
Corporate Governance & Strategy
•There are many lessons to be learned from the leading
companies. In particular, they build on four foundations:
leadership at all levels, employee engagement, solid
measurements and public-private partnerships.
•All these draw a co-relationship between Corporate governance
and Ethics
• To be successful, corporate citizenship must be driven from the
top. But leaders of this initiative are needed at all levels of the
firm.
•Significant companies find ways to channel the passion of their
employees into corporate citizenship activities.
Corporate Governance & Strategy
•Such activities help firms to recruit better-quality workers and
retain them.
•To convince senior executives that corporate citizenship is
effective, the financial benefit must be clear.
• Companies must set ambitious goals, along with ways of
keeping track of progress towards them.
•Companies have discovered that financial advantages can
accrue from forming partnerships with nontraditional
stakeholders.
Corporate Governance & Strategy
•These include local, state and federal government, as well as
activist groups and non-governmental organizations e.g. Nigeria
LNG’s Let’s Care initiatives to the IDP Camps in Nigeria
•The principles and values anchoring good corporate governance
practices are central to building better companies and better
societies.
•The business landscape has changed dramatically, particularly
consumer priorities and the corporate governance framework
that guides the way that companies conduct business nationally
and globally
Corporate Governance & Strategy
Sustainability initiatives generate important financial value and
are good for business.
 Examples are many and varies:
• Wal-Mart is saving upward of US$25 million in fuel costs by
introducing efficiency standards in its truck fleet
• GE has saved US$100 million by introducing energy
management measures;
• BP saved US$650 million over three years by reducing GHG
emissions
Corporate Governance & Strategy
•SAP’s sustainability strategy produced 90 million Euros of direct
savings to the company in the first year of the program
• Apple’s iTunes has sold over 8.5 billion songs, the equivalent of
85 million CDs that would have been made, shipped, and
someday discarded in landfills
• Nine of the recent World Cup teams sponsored by Nike wore
jersey’s made entirely from 13 million plastic bottles saved from
going to landfills, sharing its intellectual property openly to
accelerate sustainability practices.
CONCLUSION
• For any corporate organization to stay healthy in
order to maintain sustainable growth it becomes
imperative for organizational leaders to ensure:
• Regular reporting processes in place.
• Corporate policies are complied with
• Internal control processes are not compromised.
• Performance management is the organizational
watch word.
INTRODUCTION TO B.A
36
CONCLUSION
The connection between Corporate Governance, Ethics and the
long term sustainability of an organization cannot be overemphasized.