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This management report is to report the transparency, corporate code of ethics, moral development and the importance of internal control in corporate governance which shall apply to EF Gas (EFG).
2.0 Definition of Transparency
Transparency currently define telling the fact to public. This implies a passive position on the part of the corporation under consideration. Nowadays, public information transparency is using a new meaning: active disclosure which is more active in calling attention to deeds, included intentional and unintentional. The new theory of transparency have new responsibility on the organisation, action and motion (Fiammetta Borgia, 2005).
2.1 Importance of Transparency
A Company publish the real report in real time and reflect transparent to stakeholders will confidence with the Company. Hence, they will definitely invest to the Company. Transparency helps to avoid fraud and resolve in place against it. All factor combine together will let the in firm’s improve the productive capacity and productivity. (Economy Building, 2011)
Since EFG is listed and subjected to the relevant rules and regulation, the company practices shall be accountable to the stakeholders. The issue whether disclose by EFG on overestimation of the mineral source is definitely an issue that related to public interest. Transparency would enhance the accountability of company to the public. Being transparency by EFG would also secure invertors’ confidence to the company in long run. Therefore, it would proper that transparency as the base for EGF’s decision for any aspect concerning stakeholders.
3.0 General Purpose of Corporate Codes of Ethics
Corporate codes of ethics was published by private sector organisations to communicate their beliefs and value to stakeholders. (ACCA, 2014):
- First, customers who have made the buying decision may affect by ethical considerations
- Second, is the shareholder who have made investment decisions may affect by ethical factors
- Third, is employees should understand expected standards for them
- Fourth, suppliers have to understand the customers’ expectations and during the commercial relationship should treated them ethically
- The fifth was lobby groups who have may have fixed practices and specific interests in the organisation
- Lastly, the community of the organisation is located will act as a good employer ‘corporate citizen’ to give assurance to the organisation. (ACCA, 2014).
Acode of conductis a set of organizational rules or standards regarding organizational values, beliefs, ethics as well as matters of legal compliance that govern the conduct of the organization and its members. Organizational members are responsible for adhering to the code of conduct and will be held accountable for failure to do so. Most large businesses will have a code of conduct, which are often developed in response to legislation regulating business activities and behaviour or some sort of ethical scandal (Education portal, 2015).
4.0 Kohlberg define human moral development in of three levels with 6 stages:
At the pre-conventional level, moral code is define by the adults’ standards and the consequences of breaking or obey their rules. Rewards, punishments, penalised will based on the physical consequences of action. (Saul McLeod, 2011).
•Stage 1. Obedience and Punishment Orientation (Saul McLeod, 2011).
•Stage 2. Individualism and Exchange. At this step, children have their different opinion which they not recognize by authorities. (Saul McLeod, 2011).
Level 2 - Conventional morality
In conventional level, start to development the adult role models with the value of moral standards. When decision is made, morality to comply regulatory frameworks and the legal authority (Saul McLeod, 2011).
•Stage 3. Good Interpersonal Relationships. The people is good and look like a good person in public. (Saul McLeod, 2011),
•Stage 4. Maintaining the Social Order (Saul McLeod, 2011).
Level 3 - Post-conventional morality
Individual judgment is according by own moral ethics, principles on individual rights and justice (Saul McLeod, 2011).
•Stage 5. Social Contract and Individual Rights. The individual understand that the exist of the rules/laws is great.
•Stage 6. Universal Principles. They have developed their own set of moral approach which is prohibited by the law. E.g. human rights, justice and equality (Saul McLeod, 2011).
In the case, the three persons have demonstrated 3 different human moral developments.
For Keith Stone, he cared the damaging effect of the disclosure and he would like to avoid
the destructive impact from the stakeholders and the breaching the trust from the shareholders
by concealing the truth. This reflected the Pre-conventional morality.
On the other hand, Connie Lim reflected attitude of disclosing the truth by adhering to the relevant rules such as listing rules, corporate codes of ethics as the best way to solve the issues. She upheld being transparent and EFG is inappropriate to conceal the truth as it is incompliance to rules. She demonstrated Conventional morality.
Marty Wind Demonstrated Post-conventional morality. He has placed the ethics prior to anyrules as he thought that deceiving the investors are inappropriate and immoral at first before referring to rules. He argued that EFG should disclosure and bear the consequences irregardless the financial impact.
5.0 The Key Elements of the Role of Non-Executive Director (Bupa, 2014):
- Strategy role of Non-Executive Directors must assist to proposal new strategy to develop the organisations to overcome the challenge. (Bupa, 2014).
- Performance role of Non-Executive Directors must monitor the reporting of performance, help to meet the target goals and the objectives (Bupa, 2014).
- Risk role of Non-Executive Directors must defensible and fulfil themselves on the moral ethics of financial information, financial controls and to improve the systems of risk management (Bupa, 2014).
- People role of Non-Executive Directors duty is decide the reasonable levels of remuneration of executive directors, and have to manage or decide in appointed, removing, executive directors and in succession planning (Bupa, 2014).
Responsibility of Non-executive directors is help the company’s preparing the Compliance Statement when the amending legislative provisions come into force (Ronan Murphy. (2006) In addition, it also need to ensure the Company have compliance the relevant legal obligations and advise on public statements of the company, to produce an important contribution to the correct format of public documents, content, style and statements publish by companies (Ronan Murphy. (2006).
In this case, despite of the fiduciaries duties owns by non-executive directors, what point the board need to take into accounts is that the total transparency of the overestimation might bring the huge adverse impact on company’s financial ground. The tension arose when the non-executive directors in the position to taking a determined stand on giving advice for disclosure issues.
Nonetheless, as non-executive directors are not involve the Company daily operation, they provide more reasonable opinion to resolve on matters before the board non-executive directors can provide independent viewpoint on conflicts of interest to ensure that the various benefit and stakeholders of a company will manage in the correct balance. (Ronan Murphy. (2006).
Therefore, non-executive director shall highlight in the board meeting as that at current situation the concealment might save company from the damaging in short term. However the shorter might cost company severely in future in terms of reputation, trust and credibility in public. Decision should be made to ensure the correct balance is struck between the various interests and stakeholders of a company.
6.0 The Importance of Internal Control
In order to achieve the organisations objective, internal control is a challenge of an organization’s governance system. In addition, risk management and the fundamental to supporting the creating, development also one of the important factor to protecting stakeholder value. Internal control is also to manage quality of operational and management of the organisation. However, proper internal control systems will made the investors with confidents to invest the Company according by the essential information provided which can be internal and external reporting. A systematic Governance Risk Management Internal ControlEvaluating and Improving Internal Control in Organizations will help the organisation establish well and which will reduce the cost, finding the new source more efficiency by sustainable the value. An organization with proper controls can take on additional risk and creates a competitive dominance. Internal control and risk management play an important role to the operational and management of an organization.(International Federation of Accountants (IFAC), 2012).
7.0 Proposal of Improve EFG’s Internal Control
In the case of overestimation of gasrite at EFG, proper procedure of internal control should be apply. When find the new gasrite mine, require to investigate the reliable information through collect data, evidence, and analysis to support the claim from the seller.
In addition, geological report will require to a system audit by the expert of geologist. This will minimize the error, obtain more reliable source not just base on the verbal information to perform business activities.
Since EFG is listed and subjected to the relevant rules and regulation will suggest Simon Chong made a public announcement to disclose the error to investor. This apply to theUK Corporate Governance Code(formerly the Combined Code on Corporate Governance). The Code have built up a good practice of standards in relation to issues such as leadership, effectiveness, accountability, remuneration, and relations with shareholders. (Deloitte Global Services Limited, 2015)