INTRODUCTION
• In business, decision makers are faced with moral and
ethical decisions daily. Not only are they faced with
questions between deciding what is right or wrong, but
there is an increasing challenge where they have to
choose between what is - right , fair and ethical
• This challenge creates dilemmas for decision makers
BASIS OF CORPORATE GOVERNANCE
South Africa : Apply or Explain basis
USA : Comply or Else basis
“Apply or explain basis”
The King III Report is based on an “apply or explain” basis. It gives an opportunity for companies to apply the recommendations and also to explain themselves should
they not apply.
“Comply or else basis”
In the USA, the Sarbanes-Oxley Act was on a “comply or else” principle. This forced all
companies to comply and made no provision for extraordinary circumstances.
PRINCIPLES OF CORPORATE GOVERNANCE
Ensure that leadership is based on ethical foundation
Ensure that the company is and is seen to be a
responsible corporate citizen
Ensure that the company’s ethics are managed effectively
Act as the focal point for and custodian of corporate
governance
Ensure that the company complies with applicable laws
and consider adherence to non-binding rules, codes and
standards
Ensure the integrity of the company’s integrated report
Act in the best interest of the company
Impact on Economy,
Society and Environment
Doing Business Ethically
Cognisance of the Natural
Environment e.g. global warming
Impact on Stakeholders
Sustainability
ETHICAL VALUES
Ethical values
AccountabilityBe able to justify their
decisions and actions to shareholders and other
stakeholders
FairnessEnsure fair consideration to the legitimate interests
and expectations of all stakeholders of the
company
ResponsibilityDecision makers should
take responsibility for their actions and be willing to take corrective actions
where required
TransparencyBeing transparent in the
decisions being made including full disclosure of information and ensuring acceptable performance,
and sustainability
DECISION MAKERS
• Companies Act: Section 66(1) : the business and affairs of a company must
be managed by or under its board, which has the authority to exercise all of
the powers and perform any functions of the company.
– Company directors are responsible and accountable for their actions and
decisions and for the successful performance of their company
– Directors are entrusted by shareholders to ensure that companies are
successful, therefore directors have a fiduciary duty to run the company
– Director would assumes the following two roles:
An agent – Directors have the powers to act on behalf of the company
A trustee – Directors have been given powers to control company assets
and manage the company as shareholders investment.
THE ROLE OF THE DECISION MAKER
Companies Act
Exercise independent judgment without undue influence
Independent judgment
Avoid Financial and self interest Ensure fairness and transparency
Act in the best interest of the company
They should not use information acquired in their
capacity for personal gain
Act in good faith towards the
company and its stakeholders
Best interest… avoid conflicts
between personal and company interests
should not prefer their own interests over that
of the company
THE ROLE OF DECISION MAKERS
- KING III AND COMPANIES ACT
KING III COMPANIES ACT
•King III provides guidance for decision makers which includes the following;
Act in the best interest of the company
That minority shareholders are protected
Should do business ethically rather than being satisfied with legal or regulatory compliance
Act with intellectual honesty and independence of mind
Provide effective leadership based on ethical foundation
Broad focus on interest of stakeholders as opposed to shareholders
Oversight role of institutional investors
•Companies Act provides principles and rules when decisions are taken
Most of the decisions are taken based on resolutions
•Decision makers should Act in good faith and for a proper purpose
Act in the best interest of the company
Act with a degree of care, skill and diligence
•Directors may be liable should they fail to comply with the provisions of the Act (sec.77)
CHALLENGES FACING THE DECISION MAKER
Shareholders
Profits
Incentives
Price fixing
Fronting
Challenges
SARS & Auditors
CHALLENGES FACING THE DECISION MAKER
Challenges
SHAREHOLDERS•Growth
•Asset value•Mergers and acquisitions
•Investments
FINANCIAL PERFORMANCE•Share price
•Profits•Revenue
•Stock markets•Earnings
AUDITORS•Clean audit reports
SARS •Pay less VAT, Normal tax and
other taxes
BANKS•Bank overdrafts
•Loans
INCENTIVES•Bonuses•Salaries
•Share Based Payments•Promotions
TENDERS•BBBEEE scores
•Fronting
•Bribery – government departments
COMPETITION•Industry competition
•Price fixing•Industrial espionage•Acquisition of small
business
THE IMPACT OF ORGANISATIONAL CULTULRE ON
ETHICAL CONDUCT
Organisational Culture
Definition • Drennan (1992:3) “way things are done around here”
• Robbins (1997) “common understanding”
• Schein (2004) “to deal with change requires a change in culture”
Impact on ethical conduct
• Creates moral awareness on companies
• Ensures fairness and transparency
• Results in balanced decisions being taken
Positively influence organisational culture to promote ethical conduct
• In organizations ethical decisions are influenced by organizational culture
• Organisational culture influence decision-making processes
Benefits• Enables decision makers to make the right decisions
• Enables decision makers to resist pressure in behaving unethically
• Creates a decision making environment that has strong moral values
ATTRIBUTES OF AN ETHICAL LEADER
Ethical leader
They build relationships that are characterized by
trust, respect and support
They tie ethics to the long-term success of the business by providing examples from
their own experiences
They take into account the ethical impact of
their decisions
They are taught to be honest and trustworthy
Responsible for transmitting ethical culture in their organizations, and
ethical dimensions of organizational culture
They make decisions based on ethical values
CONVERGING GLOBALISATION AND ETHICS
GLOBALISATON
Globalization has transformed the
way we do business
The challenge is to devise ethical and
economically sound policies that
will guide companies doing business in the global village
Markets should function based on ethical principles
The internalization of ethical values within the
consciousness of the individual and the
community could be the only hope for humanity
Culture should be guided by morally universal values
ETHICAL QUESTIONS
– How are moral judgments even possible?
– Why be moral at all?
– Do moral values exist objectively or only subjectively?
– Are moral values relative to something, like culture or individuals?
– Can morality exist independently of culture?
– Do people have a free will which would make moral judgments
possible?
Some case studies
• Ford Pinto’s Exploding Gas Tanks – unethical conduct
… the court suggested that Ford’s top decision makers were aware that the Pinto
was unsafe and concluded it would be cheaper to incur the loses from lawsuits
than to recall and fix all the affected cars…..
• BeechNut and Its Bogus Apple Juice - unethical conduct
….BeechNut executives tried to suppress conflict. When this failed they eliminated
the most apparent source of conflict: LiCari. This sent a message : Do not speak
out or raise ethical questions. They ignored the risks of hiding the tainted
concentrate from the Food and Drug Administration(FDA) and of selling a tainted
product to developing countries in violation of federal law.
• The 2006 bread collusion – unethical conduct
… Tiger Brands was fined approximately R100 million for colluding with certain
other major bread producers. In addition, Tiger Brands and Premier Foods agreed
to assist and provide information to the Competition Commission of other players
in the industry who were involved in collusive activities, particularly price fixing……
Some case studies ( continued )
• On the duty to investigate tender fronting and fraud – unethical conduct
…..In Viking Pony Pumps (Pty) Ltd t/a Tricom Africa v Hidro-Tech Systems (Pty)
Ltd and Another in a unanimous Constitutional Court ruling- in a judgment written
by Justice Mogoeng Mogoeng – made it clear that there was a heavy onus on
organs of state (municipalities, parastatals, provincial and national departments)
to investigate allegations of tender fraud when they are made aware of it……
• Record price-fixing penalty for Pioneer – unethical conduct
…..South Africa's Pioneer Foods had to reduce the sale price of bread and flour
products by a total R160-million, as part of a R1.05-billion settlement reached in
its price-fixing cases…
• SA investigates World Cup airline price-fixing – unethical conduct
In 2006, SAA was fined 55m rand ($7m; £4.5m at current prices) after being found
guilty of price-fixing with German carrier Lufthansa. The airline was also fined on
two-charges of anti-competitive behaviour
Recommendations
• Decision makers should ensure ;
– fairness and transparency in decisions
– Compliance with code of ethics, laws and statutory
duties
– Comply with organizations policies and procedures
especially on ethics
– Conflict of interest is properly addressed
– Decisions taken are for the benefit of the company rather
than self benefit
– Decision makers should have the right composition,
skills and reliable information
– Consider the moral and economic imperatives of
corporate citizenship
– Determine the nature and dimensions of the dilemmas