Sarayu Sharma: January 2013

Continuation of Assignment 1

2. Definition of corporate governance

Definition of corporate governance from business dictionary

"The framework of rules and practices by whit a board of directors ensures accountability, fairness, and transparency in a company's relationship with its all stake holders (financiers, customers, management, employees, government and the community)"

Contrary of being a law, corporate governance is a set of rules within its company walls. It is set to help the company achieve its objectives and at the same time maintain the interest of the internal and external users of the company. It is a set of regulations needed by each company to function promptly.

There are three main objectives for corporate governance:
1. To build up an element of trust and confidence
2. Enhance a stakeholders' value
3. Enhance corporate performance and accountability

In any business, trust is an important element. Without it a company fails. First, there has to be trust between the company shareholders to run a business together. Then, it comes down to management level : trust between coworkers, trust between the upper management and lower management. Finally the trust between the company and stakeholders. The later is very important as this helps the company itself to function and achieve its objectives.

One can enhance a stakeholders' value by establishing a long term stability. The company has constantly keep their stakeholders' updated on the current activities of the company. This will also help to create a bigger circle of trust. In a recent article by Mahendra Gupta (SAVIOM), he has mentioned that a company should adopt to resource management software to increase the stakeholders' value. Below is the link
http://www.saviom.com/article-21.htm

In the world of business performance and accountability of a company is regarded in a high level. A company should strive to improve its performance so that stakeholders' of the company can continue relying on it. When the company is performing well, it will be accounted on its own to the community.

References and other reading material

(Shleifer & Vishny, 2012)
http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1997.tb04820.x/full

(business dictionary website)

http://www.businessdictionary.com/definition/corporate-governance.html

(cgmalaysia)

http://cgmalaysia.blogspot.com/

Assignment 1
Question:

1. Define business ethics and why is business ethics is considered “oxymoron”

If a person is to identify which is the most correct definition for a term, it would acquire his lifetime of education. With vast technology, the internet provides us with many different definition and a term as complex as Business Ethics has multiple definition. First let’s look into it as separate terms.

The business dictionary defines business and ethics as follow:

" An organization or economic system where goods and services are exchanged for one another or for money. Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit. Business can be privately owned, not-for-profit or state-owned."

"The basic concepts and fundamental principles of right human conduct. It includes study of universal values such as the essential equality of all men and women, human or natural rights, obedience to the law of land, concern for health and safety and increasingly, also for the natural environment"

http://www.businessdictionary.com/

Hence business ethics is defined as

“The critical, structured examination of how people and institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or profits (firms), when the actions of individuals or firms affect the others”

Where business ethics is applied in order to ensure that a certain required level of trust exists between consumers and market participants with businesses. For example, the procurement department of a company selects raw materials for the company from external vendors. The selection has to be done fairly and no bias situation should occur when finalizing the vendor.

If we were to examine each and every definition on business ethics they all state the common
terms which is
1. Avoid breaking the criminal law in one’s work-related activity;

2. Avoid action that may result in civil law suits against the company;

3. Avoid actions that are bad for the company image.

However, this term arises much contradiction where it just stands as a fictional term rather than applying it to norm of life. It is not likely to teach anyone to be ethical. The job of teaching morality rests entirely on the shoulders of parents and one’s early social environment. By the time philosophers/educators enter the picture, it is too late to change the moral predispositions of an adult as morality is cultivated since young.

“Try not to become a man of success, but rather try to become a man of value.”
Albert Einstein

“In failing circumstances no one can be relied on to keep their integrity.”
Ralph Waldo Emerson

Above we can see how a scientist regard ethics in a high manner and how a poet regards the same value may fail in crucial circumstances. Hence, this is the reason many consider this term to be oxymoron.

Oxymoron - A rhetorical figure in which contradictory terms are combined, as in a deafening silence and a mournful optimist.

In business world many consider that ethics can’t be applied. In a world where profit has to be made, ethics can only bring bad turnouts.

“The fact of the matter is that today, stuff-selling mega-corporations have a huge influence on our daily lives. And because of the competitive nature of our global economy, these corporations are generally only concerned with one thing... the bottom line. That is, maximizing profit, regardless of the social or environmental costs.”
David Suzuki

"A man of business lies all the time. He lies to put trades to his advantage or to construct circumstances just so. A man may lie to make his position look better than it is, or weaker than it is, depending on his goals. None of these are the same as lying in a way that may harm another man. These lies are merely the rules of business . . ."
David Liss

The main purpose of a business activity is to maximize profit. Many cases have been recorded till date on how ethics cannot be applied in business. Some of the famous cases on wrong conduct of business are The Benex Scandal on money laundering, WorldCom on accounting scandal and a recent Malaysian case involving Sime Darby on corruption.

The benex scandal as it is famously known was due to huge amount of money was made into “Benex Worldwide” accounts at the Bank of New York. The money was later traced to a Rusian mafia who then distributed the money across many European companies. A total sum of $7 and $9 billion was estimated to be laundered between the years of 1996 and 2002.

Corruption has become a serious issue here in Malaysia and many wrong business conducts are happening and one of the recent cases was involving the ex-Sime Darby General Manager. He was acquitted on five different counts for corruption involving more than RM180, 000. All the bribes were asked in the form of furniture and accessories such as wristwatches.

However, some also believe the opposite. Many companies have taken up crisis management when dealing with ethics issue involving their business. Such success cases were Johnsons & Johnsons on tainted Tylenol capsules, Ikea Retail Malaysia café on non-Halal food products, SK-II skincare products on harmful substances in their skincare products.

Johnsons & Johnsons took a drastic step where they educated the public immediately to stop consuming it’s faulty product and taking the product off the market. They then recreated a new packaging system and offered discounts to regain their image. Johnsons & Johnsons was not obligated to take such extreme measures when a loss over $100million occurred. This is how a company looked on its ethics 25 years ago.

The same ethics was applied by Ikea café under Ikea Retail Malaysia in the year of 2005 when one of their food products was contaminated and was not prepared with accordance to halal manufacturing process. Before the closure of Ikea café a statement was released conveying its concern on its Muslim customers and staff and will act accordingly to eliminate any doubts on the investigating matter. Following that, a “samak” or also known as cleansing ritual was held. However, Ikea wasn't facing much allegations because it was only one of their products that were contaminated. Even then, a Swedish company such as Ikea took immediate actions by behaving in a culture sensitive manner with the support of their staff to recover their image.
After reopening they started a more thorough screening on all their products.

“Every individual endeavors to employ his capital so that its produce may be of the greatest value. He generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security, only his own gain. And he is in this led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than he really intends to promote it."
Adam Smith (“invisible hand" metaphor)

Therefore, we can see that ethics can be applied in business and it is how the company perceives to take it into actions. It isn't an oxymoron term but rather a term which should be complied when one is taking up a new business.

References

(Weinstein, 2007)

(definition of business)
http://www.businessweek.com/stories/2007-10-15/if-its-legal-its-ethical-right-businessweek-business-news-stock-market-and-financial-advice

(Ann, 2011)
http://www.mademan.com/mm/10-quotes-business-ethics.html

(News, 2012)
http://thestar.com.my/news/story.asp?file=/2012/4/12/nation/20120412184952&sec=nation

(Julian, 2011)
http://www.businesspundit.com/10-most-notorious-money-laundering-cases-of-the-20th-century/

(Low, 2007)

http://thestar.com.my/lifestyle/story.asp?file=/2007/5/6/lifefocus/17606171

Sarayu Sharma

Thursday, 31 January 2013

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Corporate governance

Business ethics