issues in ethical behaviour and corporate governance 07[1]

Good Morning!!

“The self is not something that one

finds. It is something that one

creates”.

Thomas Szasz

Issues of Corporate Issues of Corporate GovernanceGovernance

Session 6Session 6

Learning ObjectivesLearning Objectives

1.1. Identify the stakeholders Identify the stakeholders who have an interest in who have an interest in organisation activityorganisation activity

2.2. Understand the general Understand the general regulatory and commercial regulatory and commercial environmentenvironment

3.3. Appreciate the role of ethicsAppreciate the role of ethicsin businessin business

Learning Objectives (cont.)Learning Objectives (cont.)

4.4. Be aware of the use of codes of Be aware of the use of codes of ethical conductethical conduct

5.5. Explain recent business ethical Explain recent business ethical issuesissues

6.6. Apply the concept ofApply the concept ofcorporate governancecorporate governance

Learning Objectives (cont.)Learning Objectives (cont.)

7.7. Describe the current debateDescribe the current debatesurrounding corporate surrounding corporate

governancegovernance

8.8. Outline current guidelines andOutline current guidelines and practices of corporatepractices of corporate

governancegovernance

Topic OverviewTopic Overview

This topic investigates the This topic investigates the commercial environment in which commercial environment in which entities operate; corporate entities operate; corporate governance and the responsibilities governance and the responsibilities of decision makers.of decision makers.

Overview contOverview cont

The business environment The business environment consists of a range of consists of a range of government agencies, government agencies, professional bodies and professional bodies and business associationsbusiness associations

Stakeholders who have an Stakeholders who have an interest in business activityinterest in business activity

Inside users (i.e. owners) are a group Inside users (i.e. owners) are a group of users who have an interest in the of users who have an interest in the performance of an entity performance of an entity

There are also outside users – There are also outside users – collectively known as stakeholderscollectively known as stakeholders

Stakeholders who have an Stakeholders who have an interest in business activity interest in business activity

(cont.)(cont.)Stakeholders include:Stakeholders include:

Investors Investors

CreditorsCreditors

Employees (and Trade Unions) Employees (and Trade Unions)

Customers Customers

Stakeholders who have an Stakeholders who have an interest in business activity interest in business activity

(cont.)(cont.) Government – e.g. FIRCA Government – e.g. FIRCA

Special Interest Groups e.g. Special Interest Groups e.g. environment groupsenvironment groups

Community – is the entity contributing Community – is the entity contributing to our welfare and economic prosperityto our welfare and economic prosperity

The general regulatory and The general regulatory and commercial environmentcommercial environment

Government agencies that Government agencies that influence the business environment influence the business environment include:include:

1.1. The Reserve BankThe Reserve Bank

2.2. Public Enterprise MinistryPublic Enterprise Ministry

3.3. Accounting StandardAccounting Standard

Board (FIA)Board (FIA)

The general regulatory and The general regulatory and commercial environment commercial environment

(cont.)(cont.)

4.4. Fiji Competition and Consumer Fiji Competition and Consumer Commission Commission

5.5. Fiji Taxation Office (FIRCA)Fiji Taxation Office (FIRCA)

6.6. The Fiji Stock Exchange (FSX)The Fiji Stock Exchange (FSX)

3. Accounting Standards Board 3. Accounting Standards Board (ASB)(ASB)

• The ASB (the members ofThe ASB (the members ofwhom are appointed by the whom are appointed by the professional bodies) issue the professional bodies) issue the accounting standards. accounting standards.

4. Fiji Competition and 4. Fiji Competition and Consumer Commission Consumer Commission

(FCCC)(FCCC)• The FCCC administers the The FCCC administers the Trade Trade

Practices Act Practices Act and the and the Prices Prices Surveillance regulationsSurveillance regulations. These Acts . These Acts cover anti-competitive trading; unfair cover anti-competitive trading; unfair market practices; mergers and market practices; mergers and acquisitions; product safety and liability acquisitions; product safety and liability

5. Inland Revenue (FIRCA)5. Inland Revenue (FIRCA)

• The Inland Revenue collects taxes; The Inland Revenue collects taxes; VAT; supervises self-managed VAT; supervises self-managed superannuation funds, etc.superannuation funds, etc.

7. The Fiji Stock Exchange 7. The Fiji Stock Exchange (FSX)(FSX)

• The FSX supervises the public The FSX supervises the public listings of companies. listings of companies.

N.B. the FSX is itself a publicly N.B. the FSX is itself a publicly listed company.listed company.

The general regulatory and The general regulatory and commercial environment commercial environment

(cont.)(cont.)As well as government agencies, the As well as government agencies, the highly organised and regulated highly organised and regulated accounting profession itself impacts accounting profession itself impacts heavily on business decision making.heavily on business decision making.

Appreciate the role of ethics in Appreciate the role of ethics in businessbusiness

Ethics is fundamental to the study of Ethics is fundamental to the study of business: We must consider the business: We must consider the ethics underpinning business such ethics underpinning business such as:as: VirtuesVirtues DutiesDuties Morals andMorals and JusticeJustice              

Codes of Ethical ConductCodes of Ethical Conduct

The accounting professional body in The accounting professional body in Fiji, FIA have a Fiji, FIA have a Code of Code of Professional ConductProfessional Conduct

Codes of Ethical Conduct Codes of Ethical Conduct (cont.)(cont.)

The eight fundamental principles The eight fundamental principles espoused in the code cover:espoused in the code cover:

1.1. TThe Public Interesthe Public Interest

2.2. Integrity Integrity

3.3. Objectivity Objectivity

4. Independence4. Independence

Codes of Ethical Conduct Codes of Ethical Conduct (cont.)(cont.)

5.5. ConfidentialityConfidentiality

6.6. Technical and professional Technical and professional standards standards

7.7. Competence and due care Competence and due care

8.8. Ethical behaviour Ethical behaviour

Recent ethical issuesRecent ethical issuesin businessin business

Key ethical issues facing entities Key ethical issues facing entities today include: today include:

1.     1.     WhistleblowingWhistleblowing

2.2.          Insider tradingInsider trading

3.3.          Bribery Bribery

4.4.          Ethical investmentsEthical investments

5.5. Triple bottom line Triple bottom line

Recent ethical issues in Recent ethical issues in business (cont)business (cont)

Socially responsible business Socially responsible business

behavior has enjoyed heightenedbehavior has enjoyed heightened

interest over the last decade interest over the last decade ––

Recent ethical issues in Recent ethical issues in business (cont.)business (cont.)

1.1. Whistle blowing Whistle blowing –– the act of an the act of an employee exposing an organisation’s employee exposing an organisation’s unethical practicesunethical practices

2.2. Insider trading – i.e. ‘inside’ knowledgeInsider trading – i.e. ‘inside’ knowledge

Recent ethical issues in Recent ethical issues in business (cont.)business (cont.)

3. Ethical investments 3. Ethical investments –– investors only investors only buying into companies that have value buying into companies that have value systems in placesystems in place

4. Bribery 4. Bribery –– payment for a ‘favour’ payment for a ‘favour’

Recent ethical issues in Recent ethical issues in business (cont.)business (cont.)

5.5. Triple bottom line accounting Triple bottom line accounting –– economic, social and economic, social and environmental performance of an environmental performance of an entity should be reportedentity should be reported

Concept of corporate Concept of corporate governancegovernance

Corporate governance refers to the Corporate governance refers to the direction, control and management direction, control and management of an organisationof an organisation..

Concept of corporate Concept of corporate governance (cont.)governance (cont.)

Directors owe the following legal Directors owe the following legal duties to their company:duties to their company: to act in good faith, in the best interests to act in good faith, in the best interests

of the companyof the company

to act with care and diligence and to act with care and diligence and

to avoid conflicts between their role as a to avoid conflicts between their role as a director and personal interests director and personal interests

Current debate surrounding Current debate surrounding corporate governancecorporate governance

A central part of corporate governance is A central part of corporate governance is to ensure the maximisation of shareholder to ensure the maximisation of shareholder value.value.

So company directors need to:So company directors need to: Assess their obligations carefully andAssess their obligations carefully and Follow corporate governance guidelinesFollow corporate governance guidelines

Current guidelines and practices Current guidelines and practices of corporate governance (cont.)of corporate governance (cont.)

Guidelines cover items such as:Guidelines cover items such as:

Functions and structure of the Functions and structure of the boardboardof directorsof directors

Conduct of directorsConduct of directors

Role of shareholdersRole of shareholders

Current guidelines and Current guidelines and practices of corporate practices of corporate

governance (cont.)governance (cont.) Compensation of senior officers and Compensation of senior officers and

directorsdirectors

Role of company accountants and Role of company accountants and auditorsauditors

Audit committeesAudit committees

Customer and supplier relations, etc.Customer and supplier relations, etc.

Current guidelines and Current guidelines and practices of corporate practices of corporate

governance (cont.)governance (cont.)

A summary of the ASX corporate A summary of the ASX corporate governance guidelines for example governance guidelines for example includes:includes:

Lay solid foundations for respectiveLay solid foundations for respectiveroles and responsibilities of board and roles and responsibilities of board and managementmanagement

Current guidelines and Current guidelines and practices of corporate practices of corporate

governance (cont.)governance (cont.) Structure the board to add value Structure the board to add value

Actively promote ethical and responsible Actively promote ethical and responsible decision making decision making

Safeguard integrity in financial reportingSafeguard integrity in financial reporting

Current guidelines and Current guidelines and practices of corporate practices of corporate

governance (cont.)governance (cont.) Promote timely and balanced disclosure of Promote timely and balanced disclosure of

all company material matters all company material matters

Respect the rights of shareholdersRespect the rights of shareholders

Recognise and manage risk Recognise and manage risk

Current guidelines and Current guidelines and practices of corporate practices of corporate

governance (cont.)governance (cont.) Encourage enhanced performance of Encourage enhanced performance of

board and management board and management

Remunerate fairly and responsiblyRemunerate fairly and responsibly

Recognise the legitimate interests of Recognise the legitimate interests of stakeholdersstakeholders

The Corporate Responsibility Index The Corporate Responsibility Index

strategic management toolstrategic management tool enhance the capacity of businesses to enhance the capacity of businesses to

develop, measure and communicate develop, measure and communicate best practice in the field of corporate best practice in the field of corporate social responsibility. social responsibility.

through benchmarking corporate social through benchmarking corporate social responsibility strategy, and responsibility strategy, and

implementation process implementation process four key impact areas of community, workplace, four key impact areas of community, workplace,

marketplace and environment. marketplace and environment.

The role of the AccountantThe role of the Accountant

Providers of information to capital Providers of information to capital market participants.market participants. Accuracy/ reliabilityAccuracy/ reliability

Concern – Firm acts as bothConcern – Firm acts as both Independent auditorIndependent auditor Management consultantManagement consultant

Loss of independenceLoss of independence

Loss of independenceLoss of independence

Recommend:Recommend: Audit committeeAudit committee Mandatory audit partner rotationMandatory audit partner rotation Disclosure of both audit and non-audit feesDisclosure of both audit and non-audit fees StatementStatement

Tutorial questionTutorial question

Question 1 & 2 of Solomon ch 3Question 1 & 2 of Solomon ch 3