ICPAK ETHICS AND CORPORATE GOVERNANCE CONFERENCE Business Ethics and Corporate Governance By Felicitas T Irungu.

ICPAK ETHICS AND CORPORATE GOVERNANCE CONFERENCE

Business Ethics and Corporate Governance

By Felicitas T Irungu


Business Ethics and its impact on the behavior of individuals in the organisation and the organisation as a whole

Ethical behaviour shows that an organisation considers the moral dimensions of its activities and how it ought to be acting.

Implications of businesses acting ethically:

• adapting business behaviour; responding to ethical pressures; implementing ethical practices;

• influence of stakeholders and pressure groups; impact on competitiveness; reputation; public image;

• ethical trade; value-added; complying with relevant legislation and codes of practice


Social implications of business ethics

Ethics in finance, eg bribery, executive pay, insider trading, lobbying; ethics in human resource management, eg discrimination, worker surveillance; ethics in production, eg animal testing, genetically modified (GM) foodstuffs, planned obsolescence; ethics in sales and marketing, eg spamming,

shills, product placement, green washing; ethics in intellectual property eg software piracy, counterfeiting,

peer-to-peer file sharing.

Implications: global, eg environment; corporate, eg legal and regulatory compliance, policies and practices; individual (employee, consumer)


Ethical concerns in dealing with different communities

• local; regional; national; global; pressure groups, eg Greenpeace, Friends of the Earth;

• impact of overseeing bodies, eg Government, United Nations, European Union, World Trade Organization (WTO), World Health Organization (WHO)

Issues• corporate social responsibility; globalisation; cultural imperialism;

ecology; environment; fair trade; corruption; child labour; outsourcing; personal attitudes; whistle blowing, cross cultural management

ICPAK ETHICS AND CORPORATE GOVERNANCE CONFERENCEEthics Culture in organisations

• Disclosure of non-financial information is key to give the whole story of the business

• Promoting ethical values in the business through enforcement of the code of ethics and code of conduct

• Everybody in the organisation has a responsibility for promoting the ethics culture in the organisation

• Ethics needs to be incorporated in the processes and procedures

• Regulation for ethics should be standard across the entire organisation (global) rather than country specific in group company or multi location situations


Ethics Culture in organisations

• Application of the code of ethics ensures consistency in application of ethical behaviors and enhances ownership in the entire organisation

• More transparent enforcement of the code is required

• Implementation of the code requires support in the organisation through ethics training, ethics tools, ethics framework, ethics coaching

• More ethics education is required at the grassroots and the lower levels in the organisation

• The best way to promote ethics behavior is by ‘leading by example’ or ‘walk the talk’

• Governance structures should promote the ethics culture


Lessons from the Global Crisis

• Need for a mechanism to address ethical issues in business

(economic pressures can lead to unethical behavior)

• If an organisation practices ethical behavior those who deal with them embrace ethical behavior

• Managing people includes managing their ethics. Managing their ethics involves managing their behavior to enhance sustainable business

• Reporting ethics issues in the organisation should be encouraged• Reporting non-financial data /info enhances ethical culture e.g

employees survey data, number of meetings, customer satisfaction data, hence a more integrated form of reporting


Lessons from the Global Crisis

• Records should be maintained for ethical information – meetings, ethical dilemmas, survey data etc

• Communication on ethics should be enhanced in organisations• Cases of business ethics have high costs to business in terms of

reputation damage, public protest towards governance failure etc• Analysis and acting on ethical information is crucial - resolving an

ethical problem requires the analysis of particular circumstances and the study of specific facts.

• Ethics architecture is required – ethics framework, ethics hotline, ethics code etc

• Ethics needs support from the top leadership of the organisation


Ethics tools: Code of Ethics, Ethics Hotline, Ethics Checklist, Ethics helpline

• Organisation Code of Ethics

• Code of Ethics for Professional Accountants

• Other Codes for other professionals like engineers, lawyers, architects etc

• Code of Ethics for doing business in Kenya

• Ethics hotline to facilitate reporting ethical matters identified either by employees in the organisation or for professionals to raise ethical matters with their professional bodies

• Ethics checklist to guide in identification of ethical issues

There is need for the organisation to have a mechanism to protect whistleblowers.


Code of ethics

The Code of Ethics shall apply to:

• Directors and managers of the company including non-executive directors.

• All employees of the company [including professionals and consultants].

• The owners and shareholders of the company [where they are different from the directors or managers].

• Suppliers and lenders of the company.• Other relevant stakeholders.


Objectives of the Code of Ethics

• To set out the values, ethics and beliefs upon which the company premises its policies and behaviour.

• To set down and promulgate the basic ethical principles to be observed.

• To secure adherence to uniform principles of good practice.• To promote and maintain confidence in the integrity of the

corporation.• To harmonise the concepts of social responsibility, public

accountability and profitability.• To prevent and resist the development of undesirable practices.• To lay down standards for personal and corporate behaviour.


Personal Conduct

• Personal standards and integrity• Professional expectation and duty of care to render faithful service• Confidentiality and trust• Loyalty, fiduciary responsibility and transparency• Duty to community• Compliance with the law• Declaration of personal interest and conflict of interest.


Corporate Behaviour

• Compliance with the law• Quality standards and responsibility to customers.• Integrity of relationships.• Transparency and accountability of the corporation• Conflict of interest• Privacy of records and information• Insider information• Policy on corruption, bribes, gifts and entertainment• Social responsibility and accountability, etc.


Relevant Legislation

Leadership and Integrity Act 2012

Public Officer Ethics Act 2003

Anti corruption

Anti money laundering

Foreign corrupt practices Act (FCPA) for US companies


Ethics Policy

The ethics policy is required to guide employees behavior in the organisation and in the organisations’ dealings with other parties.


Best Practices in Business Ethics - video


Governance

Governance consists of the traditions and institutions by which authority in a country is exercised, including: the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.

Worldwide governance indicators for governments (World Bank):

- Voice and Accountability

- Political Stability and absence of violence

- Government effectiveness

- Quality of regulation

- Rule of law and

- Control of corruption


Corporate Governance

Corporate governance is about the way in which boards oversee the running of a company by its managers, and how board members are in turn accountable to shareholders and the company, and this impacts on the company behavior towards employees, shareholders, customers, banks and other stakeholders.

Corporate governance is concerned with processes, procedures, systems and practices (formal and informal rules) that govern institutions, the manner in which these rules and regulations are applied and followed and the relations they create in organisations.


Good corporate governance

Good governance is founded upon the attitudes, ethics, practices and values of the society regarding:

- Accountability (leadership that can account) - Efficiency and effectiveness (leadership results)

- Probity and integrity (leadership that is honest, faithful and diligent) - Responsibility (leadership that is capable, representative,

responsible and conscious of their obligations) - Transparent and open leadership with accurate and timely

disclosure of information regarding the performance of the entire organisation.

Good governance affects the entire organizational cycle of strategic planning, resource utilization, value creation, accountability, and assurance. It needs to be built in all aspects of the organisation.

Governance is not just a compliance exercise but a driver to sustainable performance of an organisation.


Poor corporate governance


Post 2000 Environment: Weaknesses in Corporate Governance

Risk management

• poor track record and how the information from the risk management process was used in the organisation/market. Boards should monitor management practices and make changes as needed.

• Monitoring of governance by boards includes continuous review of internal structures of the organisation to ensure clear lines of accountability throughout the organisation.

• More attention paid by boards to internal controls regarding financial reporting and not the broader context of enterprise risk management.


• Shortcomings in the board oversight of risk management which requires good knowledge of the market and ability to foresee future prospects of the business, hence inability of the board to identify significant risks.

• Lack of or inadequate comprehensive and coordinated approach

by management to assess firmwide risk exposure to the organisation.

• Transmission of risk information through effective channels in the organisation not effective.

A survey by KPMG (2008) shows nearly 150 UK audit committee

members and over 1,000 globally only 46% were satisfied their company had an effective process to identify potential significant risks affecting their organisation and only 38% were satisfied with the risk reports they receive from management.


• There are concerns over the culture, tone and incentives underlying the company’s risk environment.

• There is need for board and audit committees to improve their effectiveness in addressing risks that may be driven by the company’s incentive compensation structures for instance executives remuneration closely followed with performance.

• Shortcomings in the comprehensiveness of the approach to transmitting risk information especially where the silo approach to risk is used as opposed to ERM.

• Risk management not being embedded in all aspects of the organisation.

Risk management should be the responsibility of every manager and should form part of decision making at all levels in the organisation. It should be transparent and all inclusive involving all stakeholders and decision makers.


• Risk management information not always available or accurate to the board to enable their effective oversight of the organisation. Accurate, relevant and timely information is required. Some organisations have Chief Risk Officers (CRO) to link the risk management process and the board.

• Quality of board members - competence of board members, skills mix etc to enable the boards exercise objective, independent judgment on corporate affairs.

• Supervisory boards inability to respond to changing business models. Board members need to have appropriate skills at appointment and thereafter remain abreast with relevant laws, regulations and changing risks either through in house training or external courses.


• Internal communication mechanisms should be established to communicate risk information.

• It is good practice for boards to develop and disclose a remuneration policy statement covering board and key executives. Such a policy speficies the relationship between remuneration and performance and should include measurable standards that emphasize the long term interests of the organisation and shareholders over short term considerations.

T H E E N D

ICPAK ETHICS AND CORPORATE GOVERNANCE CONFERENCE Business Ethics and Corporate Governance By Felicitas T Irungu.

Documents

ethics cultureicpak

code of ethics

ethics behavior

consumericpak ethics

ethics training

ethics framework

ethics tools

ethics education