Re: Reforming Corporate Ethics
It is a matter of urgent concern that corporate ethics is still not fully followed up to satisfactory levels either due to ignorance of some business people or because they have been taken for granted. By definition, legal environment consists of ethics in business, is the motivation on opinions and ideas on perspective of wrong and right in the business environment entailing virtues and recognizing the governing laws. Business ethics tend to have varied perspective whereby it is associated with developments, corruption and also organisation’s systems. The levels and rate of unethical business conduct in the United States of America is alarming and also very saddening. Moral decay is evident in the fabric of the society and its time somebody comes up and strongly stood up for the right thing.
Business ethics simply can be seen as the discipline and art of using ethical principles in solving critical moral dilemmas (Fernando, 2009). The society we are today fails to understand that people can still make good profits while being ethical. Being in the era of post-Enron; society has received information and enlightened in the way to do business and align to the set laws so that they can avoid mistakes such as those committed by Enron. A lot of people had high regards to the highly reputable Enron by then and did not predict of any corruption to take place. Shareholders money was stolen, embezzled or lost, in being vigilant and avoiding future misfortune events such as this is rational to develop appropriate post-Enron standard policies to curb such events in businesses in the future. This can be achieved by first identifying the factors that ensure that business ethics are built on the whole organization from the chief executive officer, directors, shareholders at large and the employees involved. Humiliating scandals taint the image of an organization or business and shows the urgency of needed reforms in corporate governance and accounting. Organisations should be distinguished to either be ethical or not by corporate excellence which centres the culture of the organization. Organization's values provide a sense of direction for the employees to follow and practice because it is the norm and in line with the business objective. Also in relation and correspondence to the organisation’s stakeholders, in knowing if they are ethical or probably not, attaining stakeholders expectations and needs in the organization through the management is a parameter of measuring also. Organisations have been seen to effectively change its normal way of doing business to facilitate and enable making integral decisions that corporate social responsibility is observed and also ethical issues. In most developed societies, consumers demand that businesses should show immense ethical responsibility widely including the environment, community and how it is treated by the organization and also the way employees are generally treated by the organization. As per corporate governance, corporate ethics are depicted when managers get accountable to the owners for using assets and displaying ethical standards in business operations.
Laws in some cases are not the finality in decision making and monitoring and evaluating business ethics. The Sarbanes Oxley Act also called the investor protection and accounting reforms public company act and corporate responsibility are also called Sox, Sarbox and Sarbanes-Oxley which stipulates that the top management are required to ensure that the information regarding finances is accurate and reliable; it also increases the severity of punishment given to offenders. Public businesses find the SOX Act really expensive and time consuming and to avert this they are changing to private ventures. Private organization tends to be favoured because the transactions are done and controlled by the businesses and their manager making the decisions like that of determining the number of the stakeholders the term used in going private is called ‘going dark’ (Rupert, 2012) Business culture should entrench corporate governance in the way they do things to effect ethics crucial for survival. Corporate governance being the way system corporations tends to be controlled and directed, further clarifies responsibilities and distribution rights in the organization and also the rules used and apparent procedures in decision making and administration (Tricker, 2012). It seeks to outline the relationship of stakeholders and also corporation's goals that are used in the business. Accountability should be paramount in solving any critical problems arising in the organization at any time. The famous Enron scandal in the year 2001 exposed the moral decay in business showing corruption at its heights and depths making the corporation bankrupt. Shareholders lost nearly forty billion making the company gain the title largest bankruptcy organization.
Economic meltdown also called the great recession which began in the year 2007 December was shown by the downward trend in the economy and a reduced worldwide GDP per capita. The world economy was affected and imbalance in financial crisis and the mortgage crisis. According to you Mr. President, the cause of the crisis in the years was due to organizations culture to ignore and disregard potential cost, risk and consequences. Your plan was to reinvest and recover and develop a better remuneration regime though blaming the Wall Street (Hart,2009).
Corporate ethics and values in the recent post-Enron era have greatly changed. As a policy analyst, changes that have evolved due to public policy have received a lot of support from the senior management; this was not the case in the business era of Enron. Sox really helped and the reason for this was to greatly increase skirmishes over procedures among the clients and auditors. The very top management can now freely interact with employees and directly appreciate the meaningful contribution done by the stakeholders and all their tireless efforts to make the organization be successful (Feldman, 2012). In promoting and enhancing this to great lengths, laws such as SOX influence board governance and effective management compensation. In this era, organizations have found changes in their operations where accountants and company's attorneys can be held accountable so that to foster accountability and effectiveness in a business operation. Internal resistance has been a common phenomenon whereby ethical aspects such as whistle blowing in an organization can be a good thing or a bad thing. Some individuals could have contempt and bad intentions towards an organization or its management driving him or her to dig dirt and expose those in the top positions and disabling them.
Trends such as separation of the chief executive directors from the selected board of directors have been witnessed in the post-Enron times models of corporate governance. This is known to reduce the natural divergence of interest that builds conflicts. Also, this enables the selected CEO to be able to concentrate purely on organizational objectives and avoid disruptions which can be well handled by the board of directors in the corporation. Another thing that has cropped out of the post Enron time is the concept of executive pay in enabling corporate ethics. According to the Swiss referendum in the year 2013 dismissing corporate rip-offs, executive pay and a firm's performance tend to be positively well associated with the existing plans of share options. Instead of the manager focusing on the short term companies performance a correlation is evident between the upholding of ethics due to better incentives rather than the case where there is poor compensation and probably enticed to engage in corrupt dealings (Zyglidopoulos, 2009). The post Enron times have registered modern practices in corporate governance in the plight to curb corruption vices and subsequent funds misuse. In restoring and reviving the confidence of the public; laws were passed such as the SOX, also the transformational introduction of ethics was seen taking effect in the corporate governance. Ethics in business is very important because of many reasons beneficial to the organization and its success.
In forecasting potential challenges in corporate governance and subsequent corporate ethics, a proactive approach is necessary because the global trends of globalization; and ICT advancement are leading to a dynamic business environment which needs effective and timely planning. Accountability in the management should be the key to build trust and confidence first of all. Corporate ethics in the business undertaking need a commitment in identifying corruption dealings that can be bad for an organization and also strategies to mitigate it and get back the company from the ground (Arbogast, 2013 ). Formation of groups of confidants is essential not only in ensuring full support but also in giving of information which is much required in planning and strategizing. Proactive corporate governance should be backed up by more laws and policies enabling the art of forecasting future challenges are well addressed. Ethics in business and making profit fairly and squarely should go hand in hand ensuring that plans that are put up are well followed to help avert challenges in the turbulent business environment. Sadly, for a company like Enron, which lacked ethics and accountability, it was in a bad habit of apparently booking costs of the projects that had been cancelled in reality as assets. This was known as snowballing which was used to fool the specialised analysts in order to increase fraudulently the overall stock price. The company’s down fall was because it lacked effective structures and measures to project for the future and forecast what the future holds.
Recommendations to the president on how to advance overall corporate governance includes remedies such as; ensuring strict managerial ethics and code of conduct such as integrity and possibly having tests to find integrity capacity in managers before occupying a position. The audit committee should be responsible and can be relied on to establish the way forward and ensuring that the goals are in line with the ethics. Analysis on political and moral perspective can give a greater perspective on corporate governance and establishing effective judgments in dealing with forecasting and planning for the company's ethical conduct at all times. Financial audit and economic forecasting can be also very important in corporate and ethical governance leaving no chance for corrupt dealing, mismanagement or any form of embezzlement because accountability and ethics are observed and maintained at all times. Cases and instances which go against the ethical conduct set to follow are severely punished to act as a warning to others who might get tempted to participate in a corrupt deal that may bankrupt the organization and seriously damage its reputation. Risk management in any business requires a certain degree and level of competence in disaster management and financial planning. Corporate governance and executive pay fosters the effective corporate ethics in an organization, whereby levels of accountability are more likely to be persistent in the organisations that offers executive pay, this form of motivation enables the top manager to feel valued and highly respected and to show that image of social responsibility, by being accountable and gaining trust of stakeholders and all involved. Also as according to the SEC restructuring of the regulations with suggestions for organizations that they should have a tremendous majority of directors who are independent and impartial. Also that the apparent independent and impartial directors; should conform to the required and expected definition of impartial and independent directors. The directors will sit on the audit committee, nominating and compensation committee. It is also important to ensure the financial literacy of the members of the audit committee. It is also highly recommended that the board needs to hold more sessions in the absence of the management (Obstfeld, 2012). Withholding and observance of the principles of professional ethics are highly recommended to facilitate corporate ethics which may include trust and confidentiality, objectivity and impartiality, full disclosure and openness refraining from conflicts especially of interests, and professional responsibility fidelity (Fernando,2009). Another way forward and recommendation that can help from economic recession while adhering to ethical standards; is to raise and increase the interest rates and increase employment. The establishment of regulatory bodies and unions and also antitrust laws have led to society's development in a great and meaningful way. Businesses need to entrench the ethical practice to their corporate culture to facilitate higher productivity, success and enhance teamwork. During trying times, ethics should be upheld, to achieve this effectively, managers and the top organization leadership, stakeholders and even the employees need some form of training in ethics to equip all in the organization with valuable ethics and may use that in planning and decision making. It is important to note that strong organisations uphold ethics and a good public image can be effectively made by the practices of ethics. With these few recommendation it is my strong belief that businesses in future will be well equipped with the necessary skills, knowledge and abilities that ensure running of business ethically and for the good of all stakeholders who will affect and influence positively in the business operations. Also the formation of more effective and updated policies to maintain the moral values in the business is required, laws are only applicable in a given time frame and when they become a little outdated, they fail to become effective and should be revised to be relevant. This explains why there was the economic meltdown and recession, yet policies had long been made to help in the decision making process. With changing times, more relevant an effective laws should be implemented and used in strategic forecasting and decision making while upholding values and ethics.
The critical role played mainly by the corporate governance directed to the corporation’s stakeholders normally makes the economy robust, especially when the responsibility is positive. Viewing from this perspective therefore, effective corporate governance tends to be a good and effective tool for general socioeconomic growth and improvement. It should directly ensure that the existence of a good relationship is always present among the CEOs, shareholders, board of governors and other executives so as to ensure that no matter what goes on, it will be because of the individuals’ decision made apparent by the entire corporation. This characteristic will avoid any party from undertaking tasks in the organisation that may pilot to collapsing and crippling of the entire corporation in the future. To maintain and develop effective corporate governance which ensures accountability at its maximum and upholds social responsibility. Some principles are needed such as performance orientation, integrity, accountability, mutual respect, loyalty and commitment to organisation, integrity and trust (Rezaee, 2008). By having openness in an organization, things will move and be conducted in light and with integrity rather than getting some individuals or groups of populace corrupting an organization.
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Feldman, D., & Rupert, T. J. (2012). Advances in accounting education: Volume 13. Bingley: Emerald.
Fernando, A. C. (2009). Business Ethics: An Indian Perspective. Prentice Hall.
Fleming, P., & Zyglidopoulos, S. C. (2009). Charting corporate corruption: Agency, structure and escalation. Cheltenham, UK: Edward Elgar.
Hart, P. ., & Tindall, K. (2009). Framing the global economic downturn: Crisis rhetoric and the politics of recessions. Acton, A.C.T: ANU E Press.
Obstfeld, M., Cho, D., & Mason, A. (2012). Global economic crisis: Impacts, transmission and recovery. Cheltenham: Edward Elgar.
Rezaee, Z. (2008). Corporate governance and ethics. Hoboken, N.J: Wiley.
Tricker, R. I. (2012). Corporate governance: Principles, policies and practices. Oxford: Oxford University Press.