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Business ethics is the study of business situations, activities & decisions where issues of right & wrong are addressed Crane & Matten (2004). Business ethics help us improve ethical decision making by providing managers with the appropriate knowledge & tools that allow them to correctly identify, diagnose & provide solution to the ethical problem & dilemmas they are confronted with. Ethics is defined as "inquiry into the nature & grounds of morality where the term morality is taken to mean moral judgments, standard & rules of conduct" (Taylor P 1975). Ethics is also called the study & philosophy of human conduct, with an emphasis on determining right & wrong. One difference between an ordinary decision & an ethical one lies in "the point where the accepted rules no longer serve, and the decision maker is faced with the responsibility for weighting values & reaching a judgment in a situation which is not quite the same as any he or she has faced before (Alderson W 1965). This essay focuses on Soft system & Hard system methodology & tell us the circumstances in which either would be appropriate and I have explained the stages of problem solving & soft system methodology & how the company's uses them to solve their problems.
Hard system thinking is a process which is expressed in a logical framework consisting of a set of requirement relating to the system that are intended to outline the boundary of the area that is to be considered Jennings & Wattam (1994). In Hard system analysis, the system in question is linked closely with the organisation's objectives & goals. Hard system assumes that the problems associated with such systems are well defined & they have a single & optimum solution. The essence of hard system approach is to assume that every system can be disaggregated into the number of subsystems & that the components of those subsystems can be identified & as far as possible, quantified to provide an explanation of the working of those subsystems
Soft system thinking is a process that helps those involved to share their perceptions & to engage in debate from which agreed proposals for improvement will emerge & be implemented Jennings & Wattam (1994). It is a systematic approach for tackling the real-world problematic situations. For such problem situations it is unlikely that a solution can be found that 'solves the problem' in the sense that an optimal or best solution can be found and implemented can logically be agreed to meet all aspects of the situation. Soft system methodology was developed by Peter Checkland (1981) as a strategy for analyzing complex problem situations & identifying acceptable improvements that could be made to those situations. SSM is a straightforward seven stage methodology as shown in the diagram below (Fig 1):
The system analyst reflects the problem situation in the first stage to come to an initial view of the kind of problem that is present. Identification of problem themes may be stimulated by questioning 'what kinds of problem seem important in the situation. A list of themes can be made & to provide a clear insight into the selected problem theme the analyst requires a systematic viewpoint from which to examine the theme with the use of rich pictures in stage two to represent all elements that are relevant. This is provided by adopting of notional system in stage third, a system that would have some effect on the selected problem theme, a relevant system. The relevance of the system is dependent upon whether or not it is helpful in eventually developing improvements. A number of such notional systems should be generated, each based upon either the primary tasks of the organization or issues that face the organization. This stage mainly focuses on the issues that arise in business & Checkland uses the mnemonic CATWOE to describe the human activity and situation.
- Customers (and other stakeholders), i.e. people who are affected by the transformation
- Actors, i.e. the people who perform the activities in the transformation
- Transformation process, stating what is changed and to what
- World-view or perspective from which the transformation is meaningful
- Owner(s), i.e. the person or people who control the transformation
- Environmental / external factor, i.e. anything that constrains the transformation.
In the fourth stage conceptual models are used where we specify the processes needed for system to solve the problems, it actually offers a source of ideas for change from 'actual'. It can be divided into conceptual model 1 which consist of front line activities & conceptual model 2 which consist of back up activities. The conceptual model identifies what the System needs to accomplish including its activities and their interactions. These activities describe what has to happen for the system to meet the goals and aims defined in the root definition. It helps changes 'what ' problems into 'How' problems also help the problem solver to assemble a set of verbs which best describes the most fundamental activities necessary for the achievement of the system. In Stage 5 & 6 Compare & Identify the desirable & feasible changes, and in view to do that the conceptual model made in last stage is with the activities actually in place, and any mismatch is identified as 'problem' rather than the symptom. In this stage the models are compared with the real world in stage 1 & 2 as shown in the picture above to identify the changes. In the first phase of the process, the method of 'Strategic Assumption Surfacing and Testing' (SAST) is used (Mason and Mitroff, 1981). The function of SAST method is to raise conflicts to the surface so that can be further anatomized & resolved. In stage 6, changes which are identified in stage 5 are evaluated for feasibility. It is the stage where the negotiations between the problem solver & problem owner take place to create the climate for change to get the desirable & feasible changes to be enacted in stage 7. The stage seven involves developing the (revised) change model into a concrete plan, and taking action to implement it. SSM is not prescriptive about the nature of implementation as practitioners have been offering guidance & this guidance tends to use the problem solving technique of SSM to overcome implementation problem.
Problem solving & decision making are important skills for business & life. Organisations need a great many decisions to be made. Decisions are required so that an organization can function, adapt, progress take advantage of opportunities & overcome crisis. Many decisions are repeated several times during a day while other occurs infrequently & may take place over several years. Problem solving often involves decision making, and decision making is especially important for management & leadership. The problem solving process can be divide in different ways & the stages have been given various labels, to be a successful problem solve we need to understand what the stages involve & follow them methodically whenever you encounter a problem. To be a successful problem solver we must go though these stages:
Problem Identification (Recognizing & Defining the Problem)- Many managers start off on the wrong foot in dealing with problems because of their preconceived ideas of what is causing the problems. In most situations, only the symptoms are visible, the problem is much less apparent, as a result managers attack symptoms instead of root causes (White C 1983). A problem should be perceived, diagnosed & communicated to those with a stake in solution. Before any action can be taken to solve a problem, you need to recognize that a problem exists. A number of problems go unnoticed or are only recognized when the situations become serious. Once the problem is recognized, we need to define the problem whether it's a close problem or open ended problem.
Finding possible solutions- Finding solutions involves analyzing the problem to ensure that you fully understand it and then constructing courses of action which will achieve your objective. Closed problems generally have one or a limited number of possible solutions, while open-ended problems usually can be solved in a large number of ways. There seldom seems to be enough data available for 100 percent foolproof course of action, yet those decision must constantly be made (Pollock T 2004). List the symptoms that indicate there is a problem; find out if a similar problem has never been solved before & how. After gathering a reasonable number of symptoms, look for the reasons behind them, then talk to everyone involved & narrow your information down to best possible solutions.
Choosing the best solution- At this stage we evaluate the possible solution & select that which will be most effective in solving the problem. Here we have to identify all the features of an ideal solution & eliminate solutions which do not meet the constraints. A problem is only solved when a solution has been implemented, and before that we need to gain the acceptance of the solution from the people involved.
Implementation- Once the solution is reached; it is the time to implement it. Implementing your solution is the culmination of all your efforts, so its important that we do proper planning and preparation to implement the solution & take the appropriate action & monitor its effects carefully & at last review the ultimate success of the action. Once the plan has been put into effect, the situation has to be monitored to ensure that things are running smoothly. Any problems or potential problems have to be dealt with quickly. When the action is completed it's necessary to measure its success, both to estimate its usefulness for solving future problems of this type and to ensure that the problem has been solved.
Despite the countless of information systems development methods that have surfaced over recent years, and the growing interest in the use of soft systems methodology (SSM), the awareness of computer-based information systems in real world situations continues to be somewhat challenging.
The fundamental difference between the soft systems thinking of the 1970s and 80s to its counterpart, that is, the hard systems thinking of earlier approaches to real-world problem situations, is soft systems aims to promote an open and unconstrained attitude towards change so that everyone's contribution is encouraged. Soft systems also have the ability to conceptualize the social processes of a particular organisation in context allowing for a specific group of individuals to conceptualize their own world and choose the relevant, purposeful actions they wish to undertake (Checkland 1999).
According to Avison and Fitzgerald (1995), an information systems development methodology is defined as 'a system of procedures, techniques, tools and documentation aids which help system developer to implement a new information system'. Despite there being numerous information systems development methodologies around, no one standard methodology is used or can be applied to every problem situation. Even in one organisation, a standard methodology cannot be applied to everything. It is the real-world constraints evident in real-world problem situations that reflect which methodology is to be used. (Checkland 1999) The main problem for most analysts is which methodology or which combination of methodologies to adopt and apply to a particular problem situation.
Soft system methodology & Hard system methodology have different features & in which situation either of them will be used usually depends on the real world problem situations but here we have make suggestions as to when such methodologies would be more appropriate to apply. We have classified the system problem situations into five classes depending on their level & structure of requirement & problem definition.
Class One- Well structured problems situations with a well defined problem & clear requirement.
Class Two- Well structured problems situation with clear objectives but uncertain user requirement.
Class Three-Unstructured problem situation with unclear objectives.
Class Four-Situations where there is a high user interaction with the system.
Class Five-Complex problem situations, combing two or more of classes 1-4, requiring a contingency approach to information systems development.
(Avison & Taylor 1997)
'Hard' approaches to information systems design and development involving methodologies based on traditional systems development life cycle (SDLC) are most suitable towards Class One type problem situations (Avison & Taylor 1997).The central focus of this methodology is to identify the 'best' solution for the problem at hand. Such an approach has proven to be successful, but only so when the description of this class matches that of the problem situation. Requirements need to be clearly stated from the beginning, and be easily understood and communicated. Users of the new system would usually have a limited contribution towards the
Development of the system and even the analysts themselves are to follow orders and not question the objectives of the system. Examples of such 'hard' solutions include the design and construction of a computer system, or a reduction in the time spent towards completing a task, etc. (Patching 1990)
At the opposing end of the spectrum, soft systems approaches are more of a match for Class Three type problem situations where situations are regarded as unstructured or soft, inevitably involving people, either as individuals or groups, working together towards a common goal. (Patching 1990) Hence, an emphasis is placed on getting participation from those involved (Avison & Taylor 1997). In this situation, the objectives of the information system are to be clearly communicated to all parties; it also does not make the assumption of an agreed objective or that a 'best' or ideal solution may be found. A 'soft' approach would involve clarifying what the problems are in the given situation, in the hope of making some kind of improvement. The most well known of the soft approaches is Checklands' Soft Systems Methodology (SSM), which recognises that the perspective (Weltanschauung) of a particular individual will influence their view of the problem situation and the objectives of the system. (Avison & Taylor 1997) Essentially, soft systems methodologies recognise the importance of human activity, which in some respects is the other 'soft' part of the equation. Patching (1990) supports this claim by stating that human behaviour is largely unstructured, and even though there may be prescribed procedures for certain tasks, individuals will seldom perform them in exactly the same manner.
SSM in general terms, is a participative approach where involvement from clients and representatives is crucial. Advancing through the systems thinking stages separately can easily result in 'the development of ivory-towered ideas and Inappropriate models' (Patching 1990) hence, involving people from the organisation during these stages will ensure that their views are reflected in the outcomes and their acceptance of the new system in place. It is also important to note that in some problem situations, they may share characteristics from more than one class definition; hence it is highly probable that several methodologies may be applied to that particular situation.
Soft systems methodology can be utilised as a tool to enhance an analyst's understanding of a problem situation during the early stages of investigation and also at subsequent stages of the development process where clarifications need to be made. The methodology provides clarity in potential areas of weakness, as well as an overview of the situation and a way of identifying relationships that may not initially be apparent through hard techniques. (Patching 1990). A structured or hard approach to such a task would inhibit the learning process that is to take place and would not allow for the situation to be viewed as a whole. Unfortunately, there is no best methodology that can be applied to all problem situations. (Jackson & Keys and Wood-Harper cited in Avison & Taylor 1997) It would seem difficult, if not impossible to implement a hard systems approach to an ill-defined problem situation where the analyst is unsure of the finer details of the current working system. Another limitation of using methodology classifications is that only a brief description of problem situation types are given - as a result, there is only a limited number of problem situation types, and features that may be important to the choice of methodology undertaken are omitted in the classification. (Avison & Taylor 1997)
If we assume that no human situation is ideal, it can be said that the soft systems approach can be applied in almost all situations where there is a need to enhance an analyst's understanding of a problem situation so that improvements can be made. (Patching 1990) It should also be noted that potential consequences of not fully understanding the problem situation before the development of a system may result in constructing systems that interfere with crucial work practices, whether deliberately or unintentionally through oversight. Consequences of such actions may lead to reduced levels of efficiency and effectiveness, lowered satisfaction and autonomy, along with escalating levels of stress and health related problems for those involved with the system. (Kuhn 1996)
The purpose of this section of my essay is to apply business ethic model to a current global business situation. More specifically, this report examines the ethical decision making process as it applies to Levi Strauss child labour practices in Bangladesh. First the issue of Child labour is discussed, followed by an application of the ethical decision making process to analyze and make recommendation for leadership action.
Business ethics is the study of business situations, activities & decisions where issues of right & wrong are addressed Crane & Matten (2004). By 'right' and wrong we mean morally right & wrong as opposed, for example, commercially, strategically, or financially right or wrong. Moreover by business ethics, we do not mean only commercial businesses but also government organizations, pressure groups, not for profit businesses, charities, and other organizations.
Levi Strauss & Co., the world's largest brand-name clothes manufacturer, gave the world blue jeans and grew enormously rich on the piece of U.S. culture. Indeed, around the world the name of the company's founder has grown to be synonymous with the pants he invented: Levi's. Levi Strauss markets apparel in more than 60 countries and it has 53 production facilities and 32 customer service centers in 49 countries. The aim of the Levi Strauss & Co. is to sustain responsible commercial success as a global marketing company of branded apparel. They aim to conduct their business ethically and demonstrate leadership in satisfying the responsibilities to the communities and to society (Directory of company Histories 1997).
Levi Strauss has global sourcing and operating guidelines that address workplace issues. The company uses these guidelines to select business partners who will manufacture its products. Establishes in 1992, its guidelines were (among) the first created by a multinational company for its business partners. The terms of engagement detail everything from environmental requirements to health and safety issues. Among them: wages, discrimination, child labour, and forced or prison-labour issues. To create these guidelines, the company used the Principled Reasoning Approach (a decision-making tool that Levi Strauss uses to teach its employees how to translate ethnical principles into behaviour). And to launch them, it conducted audits of contractors it was using worldwide.
Levi Strauss discovered that in Bangladesh it had two contractors using workers in the factories who appeared to be under-age. International standards have set a reasonable working age for factories at fourteen. (full case study in appendix)
1. Who is wrong in this situation- the contractor who is using child labor or The Levi's company who gave the work to the contractor?
2. Confronted by this situation, How would you (Levi's) handle it? Would you change your guidelines or ask the contractor not to use the child labour?
Levi's ask the Contractor to Fire the Child Labor
Hire New labour & continue the work
Levi's Stops the contract
Levi's pays the fees for the Children & promise to offer full time job at the legal age
Contractor in Bangladesh
Levi's ask the Contractor to not hire Child labor again
Bangladesh manufactures offered $1Million for underage workers
Ask Contractor to fire child labor Ask to stop Child Labor
$1M for Education
Hires new labor
As in this case child labor is a very controversial & open to widely different points of view. Some of the controversy regarding these issues in business ethics is no doubt due to different understandings of what constitutes morality or ethics. The terms 'ethics' & 'morality' are often used interchangeably.
"Morality is concerned with the norms, values, & beliefs embedded in social processes which define right & wrong for an individual or a community".
"Ethics is concerned with the study of morality & the application of reason to elucidate specific rules & principles that determine right and wrong for any given situation. These rules and principles are called ethical theories".
In order to clarify certain arguments Crane(2000), Parker (1998) have proposed clear differences between the two terms but at the same time Kelemen & Peltonen (2001) analyse the different usage of the concepts of 'Ethics' & 'morality' in the area of postmodern business ethics. They reveal strikingly different distinctions that in fact virtually provide a direct contradiction to one another.
In this way of thinking, morality precedes ethics, which in turn precedes ethical theory. All individual & communication have morality, a basic sense of right & wrong in relation to particular activities. Ethics represent an attempt to systematize & rationalize morality into generalized normative rules that supposedly offer a solution to all situation of moral uncertainty.
Potential solution to ethical problem
MoralityEthics Rationalizes morality â€¦to produce ethical theory â€¦can be applied to any situation
The relationship between morality, ethics & ethical theory
From the secondary research that has been conducted into the problem solving methods, certain conclusions have been made concerning specific areas that have been discussed. It has become apparent from the above essay that problem solving & decision making are important skills for business and life, and Soft system methodology & Hard system methodology have different features & in which situation either of them will be used usually depends on the real world problem situations, and hard systems are most suitable to use when there is well structured problems situations with a well defined problem & clear requirement where as the SSM in general terms, is a participative approach where involvement from clients and representatives is crucial. Soft system is mostly used when there is an unstructured problem situation with unclear objectives and in this situation; the objectives of the information system are to be clearly communicated to all parties.
Corporate Governance refers to the influence and power of stakeholders to control the strategic direction of the organization in general, especially the authority of the chief executive & other senior officers of the organization Lynch R (2009). This essay focuses on the OECD principles & Sarbanes-Oxley law which were passed in 2002 to prevent Managerial fraud, misconduct or incompetency which can have a devastating effect on the shareholder wealth. In past, many laws like Cadbury, Greenbury were made to protect the shareholders wealth but there were many loopholes as a result of which there were so many frauds happened before 2002, so this essay tell you whether or not with the introduction of Sarbanes Oxley law & OECD principles the shareholder wealth was protected & what problems the company's faced in accepting these laws.
The OECD is an exclusive forum where the governments of 30 democracies work together to address the economic, social and environmental challenges of globalization. The OECD is also at the forefront of efforts to understand and to help governments react to new developments and concerns, such as corporate governance, the Information economy and the challenges of an ageing population. The Organization provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies.
The OECD Guidelines for multinational enterprises are recommendations to enterprise from OECD governments to help ensure that multinational business operate in harmony with the policies of the countries where they operate. These voluntary standards cover the full range of MNE's operations: general policies, competition, Financing, taxation, employment & industrial relation, environment, and science & technology.
The Sarbanes-Oxley Act of 2002 also known as the 'Public Company Accounting Reform and Investor Protection Act' and 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes-Oxley, Sarbox or SOX, is a US federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is named after sponsors U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley. The bill was enacted in response to high profile Enron & worldcom Financial scandals to protect shareholders & the general public from accounting errors & fraudalent practises in the enterprise.
Under the Sarbanes-oxley act of 2002 & related Securities & Exchange Commision( SEC) rules , the company is required to disclose whether it has adopted a written Code of ethics for its Senior Financial Officers & the Chief Executive Officer (CEO) Ferrell, Fraedrich & Ferrell (2005). The code must be reasonably designed to deter wrong-doing & to promote honest & ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal & profesional relationships; full, fair, accurate, timely & understandle SEC fillings & submissions & other public communications by the company; compliance with applicable government laws, rules & regulations; prompt internal reporting of violations of the code; and the accountability for adherence to the code.
The accounting scandles of the early twenty first century sent many clients into bankruptcy court & subjected even more to grater scrutiny. In response, Sarbanes-Oxley act was passed of 2002, which estlabished new guidelines & direction for corporate & accounting responsibilty. The act was enacted to combat securities & accounting fraud & includes, provision for a new accounting oversight board, stiffer penalties for violaters & higher standard of corporate governance. Sarbanes-Oxley emphasizes audit independence & quality, restricts accounting firms ability to provide both audit & nonauditservices for the same clients, and require periodic reviews of audit firms. The section 104 of Sarbanes-Oxley act which is inspecting the registered public accounting firms allows to verify the financial statements are accurate & it prevents the use of questionable /illiegal accounting practises & the Section 302 which is made for the corporate responsibilty for financial reports allows making executive personally liable for ensuring that the statements are reported accurately & it prevents companies from publishing misleading statements (Mandy Storeim, Anderson LLP, Nov13,2002).
Several years after the passage of Sarbanes-Oxley act, there was evidence of a favorable impact on corporate governance practices & on financial accountabilty for corporations, many corporations had to file financial statements but no cases equivalent to Enron & Worldcom had emerged (Armour & McCahery; Labaton,2006; Nocera 2005). Some commentators suggested that the haste with which Act wasa adopted led to the inclusion of defiecient corporate governance provisions( Romano 2005). Representatives of business covered by Sarbanes-Oxley claimed that its provisons are complex & difficult to understand (Lerner & yahya ,2007) making it difficult for CEOs to know when they are misrepresentating financial statements & any complience can cost millions of dollars for larger organizations.
Every organization has a corporate internal decision structure which directs corporate decisions in line with predetermined goals (French 1979). Such an internal decisions structure gets visible in various elements which result in a situation whereby the majority of corporate action cannot be assigned to any individual's decisions & therefore responsibility alone. So organization makes corporate governance who can take decision on company's behalf. Corporate Governance refers to the influence and power of stakeholders to control the strategic direction of the organization in general, especially the authority of the chief executive & other senior officers of the organization Lynch R (2009). It means the system by which companies are managed & controlled. Its main focus is on the responsibilities & obligations placed on executive directors & the non executive directors, and on the relationship between the firm's owners, the board of directors & the top tier of managers (Arnold 2008). The interaction between these groups leads to the defining of the corporate objective, the placing of constraints on managerial behavior & the setting of targets & incentive payments based on the achievement. The power of corporate governance lies in the power that is given to the senior officers to run the affairs of the organization. In recent times, this power has not always been used in the best interests of the shareholders, employees or society. Examples of the abuse of this power are Enron, WorldCom where the owners have misused their power to show more wealth of the company which eventually resulted in the loss of shareholders as well as the society.
As a result of these matters, professional bodies have set up standards to govern the ethical & professional conduct of the senior officers of the organizations. Several commissions on such standards have also produced reports like the Cadbury report, titled Financial Aspects of Corporate Governance, is a report of a committee chaired by Adrian Cadbury that sets out recommendations on the arrangement of company boards and accounting systems to mitigate corporate governance risks and failures. The report was published in 1992. The report's recommendations have been adopted in varying degree by the European Union, the United States, the World Bank, and others. The Greenbury Report released in 1995 was the product of a committee established by the United Kingdom Confederation of Business and Industry on corporate governance. It followed in the tradition of the Cadbury Report and addressed a growing concern about the level of director remuneration. In UK the Hampel Report was designed in 1998 to be a revision of the corporate governance system in the UK. The remit of the committee was to review the Code laid down by the Cadbury Report. It asked whether the code's original purpose was being achieved. Hampel found that there was no need for a revolution in the UK corporate governance system. The Report aimed to combine, harmonise and clarify the Cadbury and Greenbury recommendations. And in reply to whose interests companies should run, it says
'The single overriding objective shared by all listed companies, whatever their size or type of business is the preservation and the greatest practical enhancement over time of their shareholders' investment'.
In USA, the corrupt behavior of some companies led to the passing in 2002 of the Sarbanes-Oxley act. This act made it essential for all companies in the USA (including foreign companies) to keep an audit an audit trail of all decisions taken by the company. For many companies, this has involved totally new procedures that have been lengthy, costly & time-consuming.
Decisions on Ethics & corporate social responsibility influence the purpose of the organisation. By ethics & corporate social responsibility is meant the standards & conduct that an organization sets itself in its dealing within the organization & outside with its environment Lynch R (2009). It is a process by which managers within an organization think about & discuss their relationship with stakeholders as well as their roles in relation to the common good, along with the behavioral disposition with respect to the fulfillment & achievement of these roles & relationship Basu, K & Palazzo, G(2008). The most established model of CSR which addresses Common good as said above would be 'Four part model of CSR' as initially proposed by Archie Carroll (1979). Carroll regards CSR as a multi layered concept, which can be differentiated into four interrelated aspects- economic, legal ethical & philanthropic responsibilities (Figure 1). It's presented as consecutive layers within a pyramid such that true social responsibility requires the meeting of all four levels consecutively.
Despite the popularity of Carroll model, it has some limitations. Firstly, the boundaries between the categories are not always clear. For example, it is difficult to use the model the analyze a company that carries out philanthropic activities with the expectation of improving its reputation & thereby economic performance. Secondly model does not indicate what to do when different types of expectations conflict. For example what should a company do when one set of stakeholders is asking it to allow its workers to organize in a country where unions are banned & therefore illegal? Also the model does not provide ethical principles against which social expectations can be assessed & can therefore be criticized for allowing behavior that is generally seen as unethical. Finally, the model does not seem to separate out corporate social responsibility from other types of corporate behavior Griseri P, Seppala N (2010). For example, the model could be interpreted as allowing us to refer to profit seeking as social responsible activity. This however goes against what is generally meant by the term corporate social responsibility.
It is important to bear in mind that developing & sustaining an ethical code is not easy. It takes time, resource & vigilance. In reality sustaining an ethical code depends on various situations, some basic examples of CSR issues that might impact on purpose are
Treatment of suppliers: Some global clothing companies like Levi's have been criticized for allowing the workers o employ very young workers & also pay them very low wages in relation to the price paid by the final customer.
Green Issues: Some companies have been criticised for failing to stop the destruction of the world forests in order to feed customer demand for quality wood like mahogany.
Education: Some companies judge that they have a role to help educate & inform the community in which they live thereby, contributing to the social responsibility of society.
Above issues raise three basic areas that need to be explored in the context of purpose & strategy development which are-
1.Extent & scope of ethical & social responsibility considerations- Beyond the legal minimum, to what extent does the organisation wish to consider the ethical & social responsibility issues that could arise in its conduct of its business?
2. Cost- Some actions will have a cost to the organization. Many of the real conflicts arise here because if the actions were without cost then they would be easily undertaken.
3.Reciptient- It is considered that the organization has a responsibility to the state, community & individuals which need careful consideration in the light of the particular circumstances of the organization.
Managerial fraud, misconduct or incompetency can have a devastating effect on the shareholder wealth. As an example, WorldCom executives in the late 1990's & early 2000s attempted to hide the company's poor performance by fraudulently manipulating accounting statements. If the shareholders had known about these fraudulent activities, they could have intervened to protect the interest & possibly prevented the complete collapse of the company & the destruction of so much wealth. Many analysts argue that the Worldcom's governance systems abysmally failed in controlling the action of Bernie Ebbers, WorldCom CEO and other top executives. In my opinion the acts Like Sarbanes -Oxley protects the wealth of shareholders & forced the company to show the true picture of their company, if government in US would had implemented these laws well before 2002 then some of the biggest frauds like Enron & WorldCom could have been avoided.
One of the most pressing problems in corporate governance seems to be the lack of individual accountability for mismanagement and fraud. Another problem is the persistence of powerful incentives for managers to manipulate financial reports. Finally, despite recent legal reforms, directors appear to lack sufficient authority & expertise to effectively oversee financial reporting. In the light of these problems, reform options include revising incentive compensation scheme, increasing SEC enforcement efforts, and the adoption of the new laws reduce barriers to shareholders litigation at both the state & federal level. Such steps inspire greater vigilance for officers, directors and the auditors by reducing incentives for fraud while heightening consequences to individuals for engaging in or acquiescing to misconduct.
The most important problem with corporate governance rules & regulations is that they are incompatible worldwide. Although some countries have made a move toward a convergence but most remain secluded so the convergence process may take longer than advocates predict. Various factors influence corporate governance including corporate laws, federal laws, listing standards. Every state has their own corporate laws as there are no universal laws. These problems shows that firms are not necessarily run for the best interests of shareholders but there are several ways to solve these problems which have been mentioned in Sarbanes-Oxley act of 2002 like board structures can aim at greater director monitoring. Companies can design compensation packages that link pay to performance. Better corporate governance standards and more stringent regulation should prevent expropriation & fraud & ensure better allocation of resources& firm performance.
From the secondary research that has been conducted into the evaluation of the OECD principles together with the Sarbanes-Oxley (US) legislation for corporate governance, certain conclusions have been made concerning specific areas that have been discussed. Firstly, the corrupt behavior of some companies led to the passing in 2002 of the Sarbanes-Oxley act. This act made it essential for all companies in the USA (including foreign companies) to keep an audit an audit trail of all decisions taken by the company and for many company's, this has involved totally new procedures that have been lengthy, costly & time-consuming. These act were designed to protect the wealth of shareholder's & to prevent any Managerial fraud, misconduct or incompetency in the company's but at the same time many representatives of business covered by Sarbanes-Oxley claimed that its provisons are complex & difficult to understand (Lerner & yahya ,2007) making it difficult for CEOs to know when they are misrepresentating financial statements & any complience can cost millions of dollars for larger organizations. The Sarbanes-Oxley Act significantly expanded the responsibilities of auditors, management, and corporate governance actors such as the audit committee and the board.