The Ethical Standards And Sustainability Accounting Essay

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Times of economic or financial crisis create many financial problems to all types of companies. However, those crisis is also leading to a renewed focus on how those companies handle and minimize the loss of the company, it often create many discussion and argument in all of the companies. After we went through so many obstacles, we learned that not only focus on maximizing the shareholder's wealth or the share price will determine a value of company. But focus on the importance of risk management and internal control is vital for a company's sustainability and also the company's level. So from last few years, the duties, roles and responsibilities of the directors and executives are shifted to focus more on corporate governance instead of maximizing the wealth of shareholders. As a corporate administrator, I have the responsibilities to explain the extent of the shifted roles and duties of top executive management and suggest some action plans to ensure the sound governance of the company.

The changing roles of directors and executives

Started from last few years, the roles and responsibilities of directors are more emphasize on clarifying the roles of the board in providing leadership in order to increase the effectiveness of the board through reinforce their independence and strengthening the composition of the Board [1] . Moreover, risk management is also playing an important role to achieve a sustainable growth of the company.

Ethical standards and sustainability

MCCG 2012 requires the board to formulate a proper internal policy to maintain the sustainability and the interest of their stakeholders [2] . Instead of maximizing the wealth of shareholders, the board need to more focus in the enhancement of relationship between the stakeholders. For example, by the policy regulation and the good relationship between the employees, the company can encourage whistle blowing in the company to ensure the sustainability of the company. In the other hand, the board should formulate ethical standards and system of compliance through the company's code of conduct to ensure the compliance. The code of conduct of the company that available in the company's website should include the appropriate communication channels to facilitate whistle blowing. The board should encourage whistle blowing in the company to ensure the clear, effective communication and transparency of the company. Moreover, whistle blowing can mitigate or minimize the risk of the company.

Composition of the board

In the aspects of strengthen composition of the board, the recommendation 2.1 of MCCG 2012 stated out the board should establish Nominating committee which should comprise of non-executive directors and majority of them must be independent directors and the position of CEO of the company and chairman must be separated [3] . The duties and responsibility of the Nominating Committee is to review the composition of the board and the assessment effectiveness of directors. A transparent policies and effective Nominating Committee will assist in the selection of the directors and ensure the composition of the board meet the needs of the company. The senior independent director identified by the board should lead the Nominating Committee. The board have to ensure the majority of Nominating Committee is independent director for the separation of ownership and control. Besides, the CEO and chairman position must be held by different individual and the chairman must be the non-executive director. This can make sure the transparency of the company and prevent the risk arising from conflict of interest. Moreover, gender diversity should be focus in order to create a boarder talent pool and strengthen the composition of the board. The board are mandated to disclose the gender diversity policies in the annual report.

Independence of independent director

The board should undertake assessment to independent directors annually to ensure the effectiveness of independent directors [4] . The board should assess their independency by focus beyond independent director's background, economic condition and relationship between families and consider whether the independent director still can make objective and fair judgement to board deliberations. The assessments that undertake by the board should disclose in the annual report of the company to ensure the transparency structure. By carry out the effective assessment, the board can reinforce in the independence of the directors in order to mitigate or minimize the risk arising from conflict of interest. For the tenure of the independent directors, long tenure can impair the independence of the directors. So the MCCG 2012 requires the tenure of independent directors capped at nine years to ensure the objective and independent judgement. If the tenure of the independent directors have end, he or she still serving the company, the board have to ensure the director are serving the company as a non-independent director. This is to make sure the separation of ownership and control in order to prevent conflict of interest.

Foster commitment of directors

The board are mandated to set out their expectation on the time commitment for its members and protocol for accepting other new directorships in their board charter, means that all directors should allocate sufficient time to the company to carry out their responsibilities effectively [5] . Before accepting any new directorship, the director has to make sure he notifies the chairman with the notification that includes the indication of the time. Fostering committment of directors is important to create trust and teamwork for the company's long term businesses. Moreover, a committed director will lead the company to create an ethical corporate culture by building trust between the stakeholders.

Risk management

The board have to formalize a sound risk management framework in order to recognize, assess and minimize the potential risk that will happen to the company. The board are expected to oversee potential risk such as risk of legal requirement, tax, or information technology. Moreover, the board have to focus in the internal control of the company and ensure a periodical review and testing is implemented on the internal control system. Disclosure of risk management framework and system of internal control should publish in the annual report of the company.

Timely and quality disclosure

The board are required to direct the company has appropriate corporate disclosure policies to ensure the effective communication channel in or outside the company. This includes the feedback channel in the corporate website and the feedback from management of the company. The board have to ensure the disclosure policies compliance with the requirement as set out in the Bursa Malaysia Listing Requirements. Besides, the board should focus on dissemination of information to public by leverage on information technology. In order to communicate effectively with stakeholders, the board have to ensure there is a section of governance statement on corporate website or annual report. The governance statement should include the information such as board charter, code of conduct and the exclusive right of shareholders. Timely and quality disclosures enable the company to enhance the relationship between stakeholders. Moreover, it can create an ethical corporate culture with full of trust.

Relationship between shareholders

The board have to ensure a proper internal policy is formed to ensure the transparent of the company, the board should formed a good relationship between the shareholders and encourage the participation of shareholders in the general meeting [6] . Furthermore, the board have to ensure that the company disclose all relevant information to shareholders in the general meeting in order to promote the exercise of the shareholder's exclusive right and the transparent of the company. Besides, MCCG 2012 requires the chairman in the general meeting to inform the shareholders of their right to demand a voting of poll. Demand for a poll vote is the exclusive right of every shareholder in the company. The companies are encouraged to employ electronic means for poll voting; this not only can encourage the participation of shareholders but also can maintain a good relationship between shareholders in order to maintain sustainability of the company

Action plans to ensure sound governance

To ensure the internal stakeholders drive and ensure the sound governance in the company, not only need to complied with the principles of code of corporate governance, but the company may take few actions to enhance the internal business policies and communication channels of the organisation in order to maintain sound governance in the company.

Internal management guideline

The company should improve the internal management guideline such as the company management guideline in order to create a value added managers with full motivation and ethics to drive the internal stakeholders such as operation level to ensure the sound governance of the company. The company management guideline should align with the code of conduct of the company and covers the key issues more than the code of corporate governance such as corporate social responsibilities (CSR) and ethical standard. Not only practice the principles of corporate governance, but the company can guide by an appropriate internal policies to contribute more to the community.

Some core principles may add to the company management guideline such as promotes sustainability of internal stakeholders, develop effective communication channel between shareholders and create an ethical and responsible corporate culture. This can lead to a sustainable engagement of employees of the company and lead the company to become a high ethical standard company and become a role model for the internal stakeholders of the company.

Moreover, the company management guideline which is align with the company business principle can ensure the participation of employees drive by the manager and ensure the sound governance, the guideline should be include the CSR, vision, mission, goal, and how to create a sustainable engagement and environmental value. The principles of guideline should be disseminate to every management level when recruitment and expect them to uphold and complied with it. After the manager receive the principle and create the awareness of CSR, the manager will instill the basic value of corporate social responsibility to their lower level in the company. A quality and value added manger will ensure the value and principle of CSR culturally integrated across the company include the operation level. Furthermore, it can establish a strong engagement of internal stakeholders of the company and able to build the employees loyalty, because the employees are feel proud for working with a responsible and ethical company. In the other hand, the guideline will be subject to periodically review and inspection for further improvement. With an appropriate company management guideline, the managers will have a higher level of commitment to the company and able to influence the lower level management with a positive attitude and ethical value. Moreover, the company management guideline can focus on the development of highly value added manager which can inspire and lead the lower level instead of doing the routine tasks.

Enhancement of communication channel

A proper communication and feedback channel between the company and the stakeholders whether it is internal or external can be improved to ensure the internal stakeholders drive to the sound governance of the organization. For enhancing the communication channel, the company should focus in the following three aspects, the shareholders disclosure policies, the aspects of information technology and the aspect of the employees.

For the internal shareholders dissemination, all relevant information such as exclusive right of shareholders, financial report, or the annual report not only can get through the delivery or download from the corporate website, the company can set a group of committee to handle the issues of shareholders and encourage face to face explanation in order to strengthen the communication channel between the company and the shareholders. In the aspects of general meeting, full explanation of the effect of proposed resolution should include in the notice of meeting.

In the aspect of technology, the company can develop an intranet for the internal stakeholders, this will facilitate them in getting the relevant information of company, but the users of intranet require an ID and password to access to it. Some technology can be use to enhance the communication channel like using the social website such as Facebook, the company can create a page or group in Facebook to provide a sound platform for the internal stakeholders such as employees to communicate or provide feedback to the company. Moreover, this will established a strong and effective communication channel between the company and its stakeholders and also can facilitate whistle blowing as well. The company should more frequent testing or maintaining the corporate website such as the company's product, problems of download, bug, and update the frequent asked questions.

Moreover, for strengthening the upward communication, the company can encourage weekly or monthly meeting held according to the department across the organization to provide a sound platform for the employees to provide their feedback and speak out their feeling, this can maintain a good engagement of employees and drive to sound governance of the organization. Moreover, a yearly assessment form for the managers will provide to the operation level to assess the leadership and the performance of the managers in order to let the top level management clearly know about the capacity and the attitude uphold of the middle level management. In the aspect of strengthening the downward communication, a monthly company newspaper can be provides to all employees in the company. The company newspaper should include the recent strategic implemented by the company, news about the business world and also some basic value of company to ensure the instillation of recent progress of the company. Moreover, intranet of the company should also assess by the employees to get the news of recent business of the company. If the downward communication form the top level management to lower management is not effective, the employees will not able to understand what business the company recently engaged in and means the engagement of employees is not active.


In a conclusion, the perspective of directors have shifted to focus more on the aspect of ethical standard, promoting sustainability, strengthening the composition and reinforce independence of the board, fostering commitment of directors, manage the potential risks, ensuring a quality and timely disclosure, and maintaining a good relationship with shareholders in order to ensure the sustainability and transparency of the company. For the action plans, the proper internal management guideline and the enhancement of the communication channel between the internal stakeholders will ensure the participation of the employees and drive to the sound governance of the company.

Thank you.