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Business ethics is important in nowadays, as the human civilization development. People's life style, public views of event and the new technology of media are not as same as before. All of the changes are raising business ethic onto a high level importance for business. Business in order to achieve long-term profits, customer relationship, it must use the ethics to restrict the obligation'(Ferrell, Fraedrich& Ferrell 2008). For example, the recent events in Corporate America have demonstrated the destructive effects that occurs when the leadership of a company does not behave ethically, and business savvy corporate professionals at Enron, Tyco, WorldCom, and Adelphia got themselves into such a big mess. The problem lies in a profound lack of ethics.
b) 'An ethical issue is a problem, situation, or opportunity that requires an individual, group, or organization to choose among several actions that must be evaluated as right or wrong, ethical or unethical.' (Ferrell, Fraedrich& Ferrell 2008) For example, "Venkat as a database administrator for a company found a memo about a colleague getting sacked due to not working up to standard and having a bad attitude. Venkat is shocked at this because this colleague Tom is an integral member of successful development of an object due to his working relationship with suppliers. And also a best friend of Venkat, amongst general conversation Venkat finds out that Tom is about to propose to his girlfriend and put a deposit on a new residential unit." (Blount 2008) For this case the ethics issue is Venkat's integrity acting honestly and being straightforward towards Tom (loyalty to Tom as a friend) VS loyalty to firm self interest of keeping his job.
Ethical dilemmas 'are a problem, situation, or opportunity that requires an individual, group, or organization to choose among several wrong or unethical actions that have no right or ethical choices, only less unethical or illegal choice as perceived by any and all stakeholders.' (Ferrell, Fraedrich& Ferrell 2008) it exists when two or more values are in conflict, and seek from ethics a resolution to this conflict. For the above case the ethical dilemmas were:
Tell tom that he is about to be sacked, this affects Tom as he loses his job, Venkat as he may lose his job if company funds out he breach confidentiality and the company because Tom may sell confidential info or do malicious damage to their property.
Keep silent, this affects Tom as he will lose job and be under financial pressures, Venkat loses an integral team member. Company works more efficiently and has better customer relations.
c) Ferrell stated the ethics issue or dilemma is obviously, when the problem is about abusive or intimidating behavior, lying, conflicts of interest, bribery, corporate intelligence, discrimination, sexual harassment, environmental issue, fraud, insider trading, intellectual-property rights, and privacy issue. (Ferrell, Fraedrich& Ferrell 2008) The ethic issues always occur with conflicts of interests, evaluated as right or wrong, ethical or unethical. Let the organization to seek from ethics a resolution to this conflict. So in an organization the values of conflicts are more impetuosity the issue and dilemma is more obviously.
d) As the definition of ethics issue is a problem, situation, or opportunity. So it could not be kept static. Since ethics are made up of moral rules and these rules as different common law, and different societies and cultures have different set of moral codes. "Just like children cultures are exposed to different stimulus and that produces different personality aka Morals. Over time a stimulus may affect a segment of the population in such a dramatic way that they change as a society their moral make." (Wikipedia, 2009). Now that concept is considered unethical, moral Ethic issues are change over time.
The four factors of ethical decision-making framework are ethical issue intensity, individual factors, organizational factors and opportunity. (Ferrell, Fraedrich & Ferrell, 2010, p.122). Ethical-issue intensity can be defined as the perceptions about ethical issue for individual or group. It seems like Jim had realize do not report the bad waste goes into the river is unethical behavior, because Jim was thought the mill's waste disposal into the river did not exceeded Environmental Protection Agency (EPA) guideline, but when he knows the truth, he was amazed. As a manager of Cinco, Jim has responsibility to keep the plant running ethically, environment pollution and bribe are always serious ethical issues, not only for Jim also for Cinco Corporation. If mill was shutdown, many people in the town will lose their jobs, even a whole family, because in facts, the plant boasts about employees whose father and grandfathers have also worked there. This ethical issue is very important to both Cinco and Jim. In a word, ethical-issue intensity should be the essential factor in the ethical decision-making process (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010).
Individual factors include education, nationality, age and locus of control (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). Individual factors have more effect on individual's behavior, making the difference among different individuals. For Jim, he just completing the training program, there is a lactiferous career for him in the future. What's more, all of his predecessor pay for Ralph, and nothing happened. Jim face both fire, but he have to choose one.
Ethical culture displays whether the organisation has an ethical conscience (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010 p127). Organizational factors conclude corporate culture, obedience to authority and ethical culture (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). The organization's policy gives managers too much space and chance to things unethically, in another words-lack of control.
As a result, it creates a hole in the company's system so that Jim's predecessor can use it to achieve extra benefits, many other employees in the company also have got benefit by doing unethical behavior, it reflects the corporate culture.
The last one is opportunity. It means the situation in organisations that limit or permit ethical or unethical behaviour (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010, p127). Cinco Corporation just focuses on performance and lack of monitoring on process control. These characteristics are in which create opportunity for managers to take unethical behaviour. As a consequence, Jim can do this without fear due to any rules or punishments.
a) The organizations like PETCO faced with several ethical issues, such as 1) PETA think they sell or use animals for commercial purpose, 2) mistreatment of animals, 3) customers found sick finches, a moldy dead turtle, dead birds, and a toad "cooked to death" and overcharging customers on sale items, 4) sexual and other types of harassment, drug abuse, asset protection and violence, 5) conflict of interest, 6) the acceptance of gifts and entertainment
b) The definition of primary stakeholder could be who has direct influence with firm's survival, which can be employees, customers, investors, and shareholders, also include governments and communities that provide necessary infrastructure (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). For secondary stakeholder, it has not direct relationship with the firm and has not vital effects on the firm that include media, trade associations and special-interest groups (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). PETA, as a special-interest group, it was focused on large animals, however, animal sales just got 5% of PETCO' s revenue, so PETA' s criticism had not essential for its survival, what's more, PETA also didn't involve in PETCO' s transaction. All of above shows PETA is a secondary stakeholder of PETCO.
c) 'Shareholder model of corporate governance is founded in classic economic precepts, including the goal of maximizing wealth for investors and owners.' (Ferrell, Fraedrich& Ferrell 2008) For maintaining purpose of performance accountability between top management and the firm's shareholders, publicly traded firms, corporate governance focuses on developing and improving the formal.
Stakeholder model of corporate governance 'adopts a broader view of the purpose of business, although a company has a responsibility for economic success and viability to satisfy its stockholders, it also must answer to other stakeholder, including employees, suppliers, government regulators, communities and special interest groups with which it interacts' (Ferrell, Fraedrich& Ferrell 2008).
Comparer the two models, the truth is that the shareholder model is a more restrictive precursor to the stakeholder orientation. In this case, PETOC is more focus on stakeholder relationship developing, so stakeholder model is better represented.
d) Social responsibility means organization ought to maximize its positive effect on shareholders and get the negative impact in minimum, which also includes four steps, namely, economic, legal, ethical and philanthropic (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). The first step is economic; it is common sense that almost organizations have a target in the economic, making the maximized profit. They have obligation for their stakeholders who invest money on the organization. Only if the organization makes great return for the stakeholders, they would like to invest more money. On other hand, economic also includes support jobs in society and contribute goods and service to the economy (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). PETCO chose 12,000- to 15,000-square-foot store that near local neighborhood shopping destination as the main format; as a result, well locations will create large number of profit. Also, PETCO has 16,900 employees, 9,000 of which are full time, helping many people to solve their working problem. What's more, PETCO build up PETCO Foundation and other programs, like "Round up", "Think Adoption First". They donate in-kind goods and service to enhance the relationship between people and pets for valuable organizations. The second step is legal which means organization should obey all laws and government regulation (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). PETCO also fulfill this step, for example, it encourage all associates should follow the accounting laws include the Sarbanes-Oxley Act and the generally accepted accounting principles. The third step is ethical, which support principles and standards to guide behavior in the organization (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). In the PETCO, it has several ethical programs to standard employees and stakeholders' behaviors. For example, it avoids conflicts of interest among associates and has the code of ethical to address the acceptance of gifts and entertainment. The highest step is philanthropic. In this step, organization is encouraged to make contribution to the society by their own decision (Ferrell, OC, Fraedrich, J& Ferrell, L, 2010). PETCO does well in this aspect through establishing foundations and programs. PETCO Foundation is one of the foundations to advance charitable, educational, and other philanthropic activities for the improvement of animals everywhere. The "Round Up" Program already raised $817,000 for local animal-welfare organizations in 2004. Beside them, PETCO also has other program contribute to philanthropic, such as, "Think Adoption First", "Spring a Pet", "Tree of Hope", "National Pet Adoption Days" and "Kind News". Above all, PETCO already met the four level of social responsibility.
In this question, I would choose ANZ bank from the Connect 4 Database to be analyzed as follows. It is stress on business integrity and professionalism, in order to meet the highest levels of disclosure and compliance. Through analyzing of the annual report, it is could give a better of understanding how this company to obey the principles with ASX Governance. What will be concentrated on are Principle 2 and 4.
The 2 principle is structure the board to add a value. Companies should have a board of an effective composition, size and commitment to adequately discharge its responsibilities and duties. (JIM PSAROS, 2009,p9). This principle is aimed to establish a board in reasonable structure so that the board is able to conduct their duties effectively. ANZ used to complete the principle with
Recommendation 2.1 A majority of the board should be independent directors (ASX Corporate Governance Council 2007, p10). During the annual report we can found there are ten directors in the board. Nine of them are independent directors, it also stated that under appropriate situations the directors, the board and the board committee are allowed to find outside professional advice. It access in appropriate circumstances to independent professional advice (ANZ annual report, 2009)
Recommendation2.2. The chair should be an independent director (ASX Corporate Governance Council 2007, p17 the chairman of ANZ is a independent director. He is also a no-executive director as well. He is responsible for leadership of the board and for the efficient organisation and conduct of the board's functioning. As the role in chair should facilitate the effective contribution of all directors and promote constructive and respectful relations between directors and between board and management. In the directors report of annual report in ANZ it also motioned they strict followed the role. (ANZ annual report, 2009)
Recommendation 2.3 The role of chair and chief executive officer should not be exercised by the same individual (ASX Corporate Governance Council 2007, p17). During the annual report, it state that the company separate the role of the chairman and the executive, The division of responsibilities between the chair and the chief executive officer should be agreed by the board and set out in a statement of position or authority. They have different responsibility. (ANZ annual report, 2009)
Recommendation 2.4 The board should establish a nomination committee (ASX Corporate Governance Council 2007, p18) The board of ANZ also delegate several committee such as governance committee, Human resources committee, risk committee, audit committee and technology committee. The board committee will have a self-assessment to check the completion of the duties, goals and objectives. They also need to set the future target. (ANZ annual report, 2009, pp62-63).
Recommendation 2.5 Companies should disclose the process for evaluating the performance of the board, its committees and individual directors (ASX Corporate Governance Council 2007, p19). ANZ have performance evaluations to check the operation of the board, committees and directors. This helps to ensure the shareholders are able to keep their value stable. ANZ present the ways that they evaluate various parties. In terms the evaluation of the non-executive directors. ANZ bank has an annual review base to check the completion of the duties of directors. The chairman would hold a meeting with every individual director to check the compliance of code of conduct /ethics. The chairman will report the detail of the evaluation to the board or Governance committee. When the non- executive director confront the re-selection. They will be given a chance to provide oral or written statement to indicate the reason of re -selection. Without the non-executive director, the boars then will evaluation the statement according to the requirement of performance to decide whether to have the re-selection.
In regard of the evaluation of the chairman of the board, the chairman of governance committee will consult the directors to check the performance of the chairman of the board according to the roles of the chairman of the board. Then, the chairman of governance committee will prepare an overview report to the governance committee and the board. The chairman of board will receive a report as a feedback.
Recommendation 2.6 Companies should provide the information indicated in the Guide to reporting on Principle 2 (ASX Corporate Governance Council 2007, p20).The board will be evaluate around 3 years. ANZ will invite external facilitator to check the performance of them so that the issues of the operation will be found. As an indication of the principle, the ANZ-09-annual report reveals the experience, headings, former directorships, and the related detail of the directors. The report also indicates the approaches of the assessment of the directors, committees, board and chairmen. The roles of chairmen and the directors are also explained in the report. Moreover, the duties and the policy of various committees are shown in the report. (ANZ annual report, 2009)
The principle 4 is to establish a structure to safeguard and audit the integrity of the financial reporting independently(ASX Corporate Governance Council,2 e d n. ) The tasks related to this principle are
Recommendation 4.1: The board should establish an audit committee (ASX Corporate Governance Council 2007, p25) The ANZ bank establishes an audit committee. The major duty of the committee is to audit the financial reporting and auditing evaluation. The committee makes appointment for the external audit party as well. The chairman of the committee is an expert in the financial area. He leads the operation of the committee, however, he does not have any other addition responsibility comparing to other members. (ANZ annual report, 2009)
Recommendation 4.2: The audit committee should be structured so that it: consists only of non-executive directors, consists of a majority of independent directors, is chaired by an independent chair, who is not chair of the board 4) has at least three members (ASX Corporate Governance Council 2007, p25) The structure of the audit committee have several key characteristic. It consists of four members. All of them are independent, non-executive directors. Chairman, Mr. I J Macfarlane, is not the chairman of the board. (ANZ annual report, 2009)
Recommendation 4.3: The audit committee should have a formal charter (ASX Corporate Governance Council 2007, p26). The ANZ bank has a formal charter for the audit committee. For instance, this charter requires that the member of the company must be financially liberated. They must not have the nature to gain benefit from manipulating the financial report. The chairman of the company is an expert in financial. But he does not have the power beyond other members of the committee.
Recommendation 4.4: Companies should provide the information indicated in the Guide to reporting on Principle 4 (ASX Corporate Governance Council 2007, p27). The responsibility and the way of conduction of audit committee are well reported in the annual report. The members of the committee and their experience, including the restriction of the committee and chairman are well indicated in the report. However, the report only mentioned that ANZ bank had a charter of the audit committee and several examples of it. There is no full table of charter for the readers. (ANZ annual report, 2009)
b) Transparency means openness, communication and accountability in general explanation. However, in business, transparency could be described as disclosures of related reports or executive processes so that the management of a company could be oversighted and governed by internal and external users or stakeholders in the business group (Hermalin & Weisbach 2007). As we know that a company dedicates to enhance its corporate governance, increasing transparency could be adopted, such as increasing disclosing requirements especially the financial disclosure statements. Because corporate governance of a company is the system and processes exercised and controlled by the corporation, like directors and management, and also deals with the relationship among stakeholders of the company, making executive processes or decision-making procedures for the company transparent could enhance the governance of the corporation (Hermalin & Weisbach 2007). There is real example to show that in order to handle the corporate scandals occurred in famous and big companies increasing disclosing requirements has been one of the changes to enhance the corporate governance advocated by government. For example, in US, the famous Enron scandals, Sarbanes-Oxley (sox) was adopted in response to the scandal and other governance failures and requires disclosing, "detailed off-balance sheet financing and special purpose entities". So there exists positive relationship between transparency and corporate governance and transparency is increased for the object to enhancing corporate governance.
In the statements of ASX CGPR, most principles would address transparency. For example, in principle1, disclosure of process for evaluating performance of senior executives has been required and this would increase the transparency of the assessing processes to the public. In priciple2, ASX addresses the transparency through disclosing the processes for evaluating the performance of the board, committees and individual directors, and detailed information would be presented in the corporate governance section of an annual report, such as in the corporate governance statements part of annual report for Blackmores Ltd. And in principle 3 of ASX CGPR, the transparency is addressed during the procedure of demonstrating the promotion of ethical and responsible decision-making. In other principles of ASX statements, transparency is also presented by the requirement for disclosing related exercising or execution processes. For instance in principle 5, 7 and 8, in order to make assurance for the compliance to related requirements or regulations, the correspondent company polices should be published and transparent to internal and external users. According to the previous analysis, transparency is addressed throughout the compliance to the principles of ASX CGPR.