Corporate Governance and Business Ethics
1.Introduction
Concept of corporate governance and business ethics has gained significant importance. Corporate governance has enjoyed a long tradition in the world of management sciences. Good corporate governance is key to the integrity of corporations, financial institutions and markets, and central to the health of our economies and their stability. With the growing strength of consumer movements and rising levels of awareness among stakeholders, corporations are realizing that stakeholders and consumers are no longer indifferent to unethical practices like financial irregularities, tax-evasion, poor quality products and services, kick-backs, non-compliance with environmental issues, and hazardous w orking conditions. (RD Jajoo, 2008) Corporate governance and business ethics are important elements for well-functioning of the society.
2.Business Ethics and Corporate Governance
The fast-moving economic development provides huge opportunities for corporate to grow. Meanwhile, the competition requires the company to find the most suitable way for its long-term development. Recent business scandals and financial crises continue to provide ample cause for concern and have a
ll fuelled interest in the ethical aspects. More and more attention is being paid on business ethics.
2.1 Definition of Corporate Governance
Traditionally, it is defined as leadership and control of a firm with the aim of securing the long-term survival and viability of that firm. “Corporate governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed, a nd how performance is optimized. Good corporate governance structures encourage companies to create value (through entrepreneurism, innovation, development and exploration) and provide accountability and control systems commensurate with the risks involved.”(Quoted from ASX Corporate Governance Principles and Recommendations) Sometimes corporate governance is regarded as a control mechanism that ensures the optimum use of the human, physical and financial resources of an enterprise. Complexity increases if we embed the economic approach of corporate governance in a philosophical context. Economic sciences have failed to provide a clear definition of the corporate governance concept.
2.2Relationship between Business Ethics and Corporate Governance
Business ethics is defined as the application of a moral code of conduct to the strategic and operatio
nal management o f a business. Business ethics and therefore business morality generally result from an individual's own moral standards in the context of the political and cultural environment in which the organization is operating. Johnson, Scholes and Whittington (2006) divide business ethics into three levels: the macro level, the corporate social responsibility level and finally the
individual level. At the highest (macro) level, we ask the fundamental question of the
role of business in society and what governance model works best to deliver the most
benefits in a moral and responsible way. At the corporate level, the interpretation of
those rules and standards is often what defines business ethics, affected by the specific circumstances and socio-cultural context in which the business or public sector
organisation is operating. At the individual level, this separation creates a distinct
ethical model - business ethics - which, depending on factors like personality, peer
pressure and the socio-political environment, can be closer or further away from the
individuals own moral/ethical code of conduct.
Every organization, as they grow has many stakeholders like shareholders, employees, customers, vendors, community, etc. Business ethics and corporate governance are
two significant factors that impact a company and how it operates. Business ethics is
the application of general ethical principles to business dilemmas and encompasses a
broader range of issues and concerns than laws do, as everything that is legal is not
ethical. (Dr Ramakrishnan, 2007) Corporate governance is the internal framework a
company designs and implements to govern and protect those invested into the
company. The relationship between business ethics and corporate governance comes
from an organization’s owner or executive managers, who create the governance and decide which ethical principles employees will follow.
3.Examine the ASX Principles and Recommendations
The ASX Corporate Governance Council was formed on 15 August 2002, bringing
together 21 groups from disparate business backgrounds and carrying the varying
aims and priorities that accompany those constituencies. Companies are encouraged
to re-examine their corporate governance practices and to determine whether and to
what extent the company may benefit from a change in approach, having regard to the
company’s particular circumstances.The best practice recommendations have been
articulated to apply to companies and other types of listed entities. Each principle is
explained in detail, with implementation guidance in the form of best practice
recommendations a re not mandatory and recommendations. A lthough the Council’s
cannot, in themselves, prevent corporate failure or mistakes in corporate
decision-making, they can provide a reference point for enhanced structures to
minimize problems and optimize performance and accountability. (Quoted from ASX
Corporate Governance Principles and Recommendations)
3.1 Analysis of ASX Principles and Recommendations
The eight principles are put forward for corporate management and they have
s
different focuses. First, the board shall be able to provide guidance for the company’development and accountability. The board of directors' key purpose is to ensure the
company's prosperity by collectively directing the company's affairs, whilst meeting
the appropriate interests of its shareholders and stakeholders. In addition to business
and financial issues, boards of directors must deal with challenges and issues relating
to corporate governance, corporate social responsibility and corporate ethics. Second,
governancethe company shall make disclosure of its financial situation, performance, ownership
and governance. Communications shall be arranged to promote effective communication with shareholders. Third, risks for the company shall be identified and
managed and improve effectiveness. The company shall adopt a policy or mechanism
that can attract or retain talents and potential employees.
3.2 key Principles related to Ethics
Principle 3 of the ASX Principles and Recommendations requires the company to
actively promote ethical and responsible decision-making. The company should
clarify the standards of ethical behaviour required of company directors and key
executives and encourage the observance of those standards. Meanwhile, it should
publish its position concerning the issue of board and employee trading in company
securities and in associated products which operate to limit the economic risk of those securities. Business ethics is not only the principles of responsible business, but
actually having effective controls - including collecting primary research data - on
how each stakeholder group perceives the company's performance on a range of
issues which constitute business ethics. As we have said, this presents a challenge for business if people define business ethics differently. The way round this is to use
proxies - observations and opinions on manifestations of good ethical performance. Meanwhile, Principle 4 safeguard integrity in financial reporting is also manifestation
of business ethics. It is a process to ensure the independence and competence of the company’s external auditors. Particularly for larger companies, an audit committee
can be a more efficient mechanism than the full board for focusing the company on
particular issues r elevant to verifying and safeguarding the integrity of the company
financial reporting. Fraud financial reporting is always a sign of the company illegal
behavior and it’s a deceptive behavior towards its shareholders.
4.Roc Oil Company
4.1 Introduction of Roc Oil Company
Roc Oil Company Limited ("ROC") is one of Australia’s leading independent oil and gas companies headquartered i n Sydney, Australia and is listed on the Australian
Stock Exchange ("ASX"). ROC has production interests in Europe, Africa, Asia and
Australia. The company was established in 1997 as a privately owned company. In
1999, the company went public by acquiring $150 million in IPO at Australian Stock Exchange. In 2004, the company got listed on London Stock Exchange. In 2008, Roc
Oil merged with Anzon Energy Limited which included a takeover of its Australian
division Anzon Australia Limited (AEL). Roc Oil has assets a cross four continents
and a 180-strong workforce driving the organization.
4.2 Compare ROC and ASX Corporate Governance and Business Ethics
The public image of a corporation will quite accurately reflect the culture of that body.
It follows, then, that good corporate governance has to be in the bones and bloodstream of the organization since this in turn will be reflected in the culture. By
releasing its statements and reports, Roc Oil performs its duty and tries to be
responsible to its shareholders and other members. Best corporate governance practice
is not simply about a battle between distant, disloyal institutional shareholders a nd
greedy directors but about the ethos of the organization and fulfilling its clearly
agreed goals. It shall take ethical approach, strive for balanced objectives, which is
congruence of goals of all interested parties. Business ethics shall be incorporated in
every aspect of the company for its smooth and long-term development. For example,
its company statement echoes the ASX principles. It asks the board to make strategic
decision and be responsible for its shareholders. It release financial report annually
and make clear disclosures.
5.Conclusion
This paper discusses corporate governance and business ethics. The business morality
or ethic must permeate the entire operation from top to bottom and embrace all
stakeholders best corporate governance practice is an integral part of good
management practice also permeating the entire operation, and not an esoteric
specialism addressed by lawyers, auditors and sociologists. Best corporate governance
practice is about achieving the stakeholders’ goal, and delivering success in an ethical way. Hence it follows that it must entail a holistic application of good management.
Corporate governance is all about "promoting corporate fairness, transparency and accountability." The relationship between corporate governance and business ethics is
an independent one. Without business ethics, good corporate governance cannot be
achieved. The ASX principles are helpful for managing the company in a good order
and maintain profitability. Also they lay an emphasis on business ethics. By taking
Roc Oil Company as the example, this report better compares the company to ASX
principles and points out the importance of business ethics. Therefore, Roc Oil
Company shall adopt practices necessary t o maintain confidence in the company’s
integrity and assume the responsibility and accountability of individuals for reporting
and investigating reports of unethical practices.
References:
ASX Corporate Governance Council, Corporate Governance Principles and Recommendations with 2010 Amendments, ACGC, pp. 1-49.
Strategic finance,
Ballou, B. & Heitger, D. L. 2008, ‘Governance risk and reporting’，
May, pp. 36- 41.
Bonn, I. & Fisher, J. 2005, ‘Corporate Governance and Business Ethics: insights from
in Corporate Governance, Blackwell Publishing
the strategic planning experience’,
ltd. Volume 13 Number 6 pp. 730-738.
Dr Ramakrishnan. 2007.Inter-Relationship between Business Ethics and Corporate Governance. International Seminar At The Institute of Management, NIRMA
University, Ahmadabad, January 5-7, 2007
RD Jajoo. 2008. B usiness Ethics and Corporate Governance

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