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This chapter consists of background of the organization, research objectives, research questions, limitation of the study.
BACKGROUND OF THE ORGANIZATION
Rio Tinto is a world leader in finding, mining and processing the Earth's mineral resources and was found in 1873 and its a global company which operates in Europe, South America, Asia and Africa, sharing best practices across the Group and based on the core Values such as accountability, respect, teamwork and integrity are expressed through their business principles, policies and standards which it sets these out in a worldwide code business conduct - "the way we work".
In 1995, the company becomes Rio Tinto Group after joined in dual list company structures as a single entity which combined the Rio tinto plc listed in London headquarter and also Rio tinto limited listed in Australia stock exchange. The company interests a diverse both in geography and product as well and Most of their assets are in Australia and North America, Its businesses include open pit and underground mines, mills, refineries and smelters as well as a number of research and service facilities. their main competitors are BHP Billiton, Vale S.A, and Anglo America and the company comprises of five different product include Aluminum, Copper, Diamonds & Minerals, Energy and Iron Ore, plus two support groups Technology & Innovation and Exploration. (Www. Rio tinto.com)
1.2 Relating Rio Tinto's competences to the environment.
Core competences provide competitive advantages to the company, which help creating and delivering value to its customers, also guide a company respond to demand from the environment.
Company focus on sustainable development which provide the framework in which its operates, its involve commitment to engage in healthy, safety and prosperity of the people a s the key point of the company operations. Company determines to maintain the environment integrity of what they do and also it works closely with host countries which its business operates and different communities in which they respect their laws, customs and ensure that fair share of benefits and opportunities to both parties. In order to achieve this competence which help the company to deliver its strategy and vision, Rio tinto driven by five strategic drivers which are financial and operational excellence, license to operates, growth, globalizing the business, technology and innovation.
1.3 CORE OBJECTIVES, MISSION AND STRATEGY.
Company aim to maximize the long term return to shareholders by finding, mining and processing metal and minerals resources across the globe. (www.riot into.com)
The company mission to be premier mineral resource. Strategic build on economic, social and environmental success by utilizing good governance system and balance the needs of the company present and future generations, also its concern the healthy and safety of employees as well as local communities.
1.4 OBJECTIVES OF THE STUDY.
To find out how does Rio Tinto deal with corporate governance and ethical challenges facing the company to ensure success towards reaching the goals of organization in order to remain competitive in mining industry.
1.4.1 Specific objectives.
Appraise the ethical and corporate governance factors which are currently affecting the organization.
How effectively the organization is managing these factors to achieve its corporate goals.
1.5 RESEARCH QUESTIONS.
The research study will aim answering the following research question as far as mentioned topic is concerned.
Are there any ethical and corporate governance issues which affect the company and measures used to solve those problems?
How does the company manage the tension between its shareholders and engaged itself in corporate social responsibility?
How does the company apply corporate governance codes?
Reliability of information in various website and insufficient materials from books and other sources.
Also the use of company website, discussion with colleague, friends, and lectures in order to confirm help me reduce the limitation.
2.0 LITERATURE REVIEW
This chapter introduction, the conceptual definitions, purpose, objective, important, Sarbanes- Oxley (SOX), combined code, empirical literature review.
2.1. CORPORATE GOVERNANCE
Corporate governance nowadays has become an important issue in many organizations this is due to the fact that it helps the company to monitor, control the resources availability which will contribute to the improved performance of an organization. Managers need to ensure proper use of resource, monitor and control in order to avoid legal implication and scandals that might involve and also protect the interest of the shareholders as well.
It shows how resources can be deployed aimed to improve performance and avoid conflict among the top level and the society and how managers interact and influence with each other aim to increase accountability and performance of an organization, also encourage good decision making by managers to avoid scandals and protect the interest of shareholders.
According to Johnson et al (2008), corporate governance has become an increasingly important issue for organization because of the separation of ownership and management control of organization, number of corporate scandals has increased the public debate or tension about how different parties in the governance chain should interact and influence with each other and Increased accountability to wider stakeholder interests.
2.1.2 PURPOSE and objective of corporate governance
Corporate governance has both purpose and objectives
The basic purpose of corporate governance is to monitor those parties within a company which control the resources owned by investors.
The primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long-term shareholder value. (Professional Accountant- P1 , 2010 )
2.2 BUSINESS ETHICS
Business ethics comprises moral principle which guides the way a business behaves. Involving in ethical way help the company distinguishing between right and wrong and it help making the right choice because managers guided by principle, values and standards in doing business.
2.3 IMPORTANCE of Corporate governance and Business ethics
Good governance help balance the power among managers, shareholders and the boards, whereby it ensure the transparency between them in line with the international requirements and how shareholders are treated. Governance is essential for business because it protect the rights of shareholders and the company objectives, encouraging good decision making by managers,
Also help managers monitor, control the availability of resources aimed to improve performance and protect the interest of shareholders as well.
Due to the increasing numbers of ethical and governance scandals nowadays, managers needs ensure good governance is essential to organization business aim to avoid scandals and poor performance which will result cost to company. Also it s help the company avoid loss and save money because its guide managers to follow roles and duties also help people avoid legal implication which will cause problems to the company and society as well.
Ethical and governance issues its very important for managers because its guide them with role and duties to be followed within the company and help monitor and control resources available which contribute to improved performance of an organization at large and protect the interest of shareholders. So due to that, managers must be aware of the ethical issues and governance when they make decision in order to avoid risk which will serve the company interest and shareholders as well.
3.0 SARBANES - Oxley (SOX)
On 30 July 2002 the Sarbanes-Oxley Act (Public Company Accounting Reform
And Investor Protection Act of 2002 abbreviated as SOX) was approved by the US Congress by a vote and signed it into law with former President George W. Bush stated that it included "the most far-reaching reforms of American Business practices since the time of Franklin D. Roosevelt" (Bumiller 2002). The act contains different sections such as Disclosure of mandatory "control of controls systems" related to financial Reporting, which must be attested by independent auditors, also Financial reports to be signed by chief executive officers and chief financial Officers (section 302) and Protection of whistleblowers who leak information to the public. (Alexander Brink, 2011)
Due to the increased numbers of corporate scandals such as Enron, WorldCom in 2002, there are numbers of rules and tough regulation were introduced in U.S based on approach to governance in order to prevent companies from making mistakes and cause damaged to the society and community due to their operation. Recent corporate scandals involve BP in 2010, whereby oil spill in Gulf of Mexico and the company were plead guilty and fined by U.S government billions of dollars and lead to the resignation of former CEO Tony Hayward.
4.0 COMBINED code
The combined code for corporate governance adopted by financial services Authority (FSA) and the development of codes is closely associated with the United Kingdom. This report concluded that the board requires constant monitoring and Assessment and Recommendation made include a need to split the chairman/ CEO role and also necessary to ensure the chairman is an independent person at the time of appointment.
Aim of these code is to separate the role of chairman and CEO which will help monitor, control and improved performance within the company and also it's creates accountability with investors, shareholders which aims to protect their interest.
Reason for splitting the role include representation chairman which aim to avoid conflict with shareholders, provides accountability for the chairman and management and reduce the temptation.(professional Accountant - P1, 2010)
5.0 EMPIRICAL LITERATURE REVIEW.
In this section, the researcher tried to relate the study with the same or similar studies done by other researchers.
Aloy Soppe elaborates on corporate governance as a key element in corporate democracy, stakeholder politics, and sustainable development in governance aims to redress the balance in the relationship between individual interests and collective or community interests through leadership. (Alexander Brink, 2011)
Business ethics helps to identify benefits and problems associated with
Ethical issues within the firm and business ethics is important as it gives a new light into present and traditional view of ethics. In understanding the 'right and wrongs' in business ethics, Crane & Matten, (2007) injected morality that is concerned with the norms, values and beliefs fixed in the social process which helps right and wrong for an individual or social community.
According to James Kamwachale Khomba and Frans N. S. Vermaak, African Journal of Business Management volume 6(9), march 2012, argued that Apart from the requirement that organisations should run their operations in the most economical, efficient and effective manner possible to increase performance, today, there is an increasing insistence on the need for organisations to be ethical as well. Within the business framework, there is a clear relationship between corporate activities and other stakeholders within and outside the organization.
Following such experiences, many parties interested in business activities have begun looking more closely at how morally corporations are supposed to behave in their operations. This has led to a renewed emphasis on business ethics considerations. Ethical issues are usually debated in terms of corporate governance, environmental degradation and global warming, corporate social responsibility, and corporate conscience (Kleine and Von Hauff, 2009; Nakano, 2007).
Due to the increasing debate and tension regarding on how ethical issues and governance operates within the company in modern business, managers must avoid legal implications and scandals within the firm such as Enron, WorldCom and recently scandal involved BP after oil leak from Gulf of Mexico and cause environmental damage, managers need to ensure value, roles that guide the business are monitored, controlled and followed in order to avoid risk and legal implications which will create bad image to the society and community because of ethical behavior of the company operation which cause harmful to the society.
Managers must ensure specific action in its decision making whether it ethical or unethical before making their operation which aim to improve performance of the company and avoid problems of ethical and governance issues by monitoring and control all of the resource available which will contribute to the improved performance, ethical and governance helps guide managers on how they perform and achieve.
6.0 RESEARCH METHODOLOGY
This chapter describes the methods and approaches that the study is going to apply in conducting the research. It will involve research methodology, objective of research, data collection, method of collecting data, case study methods.
6.1 RESEARCH METHODOLOGY
Research in common parlance refers to a search for knowledge. The Advanced Learner's Dictionary of Current English Oxford, p. 1069, lays down the meaning of research as "a careful investigation or inquiry especially through search for new facts in any branch of knowledge." Redman and Mory, 1923 p. 10 define research as a "systematized effort to gain new knowledge." (C. R Kothari, 2004: p1)
6.2 Data COLLECTION METHODS and technique
Different methods of data collection will be employed depending on the data sources. The relevant data will be collected effectively using the different main techniques such as interview, questionnaire, documentation review and observation.
The methods of collecting primary and secondary data differ since primary data are to be originally collected, while in case of secondary data the nature of data collection work is merely that of compilation. (C.R Kothari, 2004: p95)
6.2.1 Primary Data
These are the original observations collected by the researcher or his agents for the first time for any investigation and used by them in statistical analysis. Once the primary data has been used it loses its original character and becomes secondary data (Singh 2003). It is a method of data collection in which the researcher will be involved physically in the exercise of data collection. Primary data will be collected through interview, observation and questionnaire.
Secondary data means data that are already available i.e., they refer to the data which have already been collected and analysed by someone else. When the researcher utilises secondary data, then he has to look into various sources from where he can obtain them. Secondary data may either be published data or unpublished data. Usually published data are available in: (a) various publications of the central, state are local governments; (b) various publications of foreign governments or of international bodies and their subsidiary organisations; (c) technical and trade journals; (d) books, magazines and newspapers; (e) reports and publications of various associations connected with business and industry, banks, stock exchanges, etc.; (f) reports prepared by research scholars, universities, economists, (g) public records and statistics, historical documents, and other sources of published information. (C.R. KOTHARI, 2004: p 111)
6.3 METHOD of collecting Data
Due to the limited and short time I decided to use secondary data because it's easy to access information of the company in various source such as magazines, Reports prepared by research scholars, universities, speech, company website.