Governance Regulations and Ethics in the UK - Essay Example

 Governance Regulations and Ethics in the UK Task 1: Economic Recession 1.0 Introduction In the book, in chapter one, there is a lot of emphasis on corporate responsibility towards ethical issues in management so as to conform to international set standards where the guidelines and management principles that conform across countries and cultures. In the film, it is clear that most countries especially America, made attempts to set into place control mechanisms through various acts so as to ensure honest and moral conduct in business. The book brings into focus the dishonest by the investment companies when they undertook to promote internet stock companies they were quite aware would fail. This was in an attempt to precipitate the crisis by, in fact, defrauding innocent investors. This resulted into derivatives. This is an outright case of dishonest as business terms require such loyalty and obligation in the management of the corporations by people charged with the responsibility whether CEOs or employees. 2.0 Issues in the Movie Covered in the Existing Corporate Codes 2.1 The UK Corporate Governance Code of the year 2010 The UK Cooperate Governance Code of the year 2010 is mainly include with the aim of establishing a well a created board of governors for accompany or corporation through principles and rules, as opposed to rigid rules. The main Aim of the code is to ensure proper directorship of companies through the underlying principles of accountability, transparency, probity and insight into sustainable success. It is clear that the financial crisis as reported in the movie, “The Inside Job’ was as a result of management of business with the aim of success but without consideration of the eventual effect of such practices, which were fraudulent, in nature. This is in the book which defines better and acceptable ethical practices in the corporate world 2.2 Flaws in the Implementation of the Code Although the code in section 4 about governance sets out the moral practices of an organization through sound and upright board behavior, implementation and adherence are not a guarantee. This is evident in the movie since the CEOs of the investment companies did not actually follow the guidelines, though they existed. The Lehman Brothers for instance ignored the moral and ethical guidelines and continued promoting borrowing to firms without the capability to remain in the market with that clearly in their knowledge. The firm had to crumble and come down in 2008. 2.3 Role of corporate Leadership in Disregarding the Code Leadership of the chairman of a board, the support given to and by the chief executive officer and the openness and frankness to discussions by the directors is the key in this endeavor according to the governance code. The CEOs and head chairmen ignored theses code of practices but instead created a system of management and operation whereby they were in charge and operated in immoral behavior by placing innocent people in debt. The people left in debt were the shareholders who were oblivious of the occurrences in the market where there was more money through approval of investment funds to Companies which were not sufficient enough to warrant that. When they faced collapse, it was the investors who were at a loss. 3.0 Corporate Governance Code and the Greenbury Report There exists a link and correlation between the Cooperate Governance code and the findings and resolutions of the Greenbury Report in relation to the contents and the issues they address. The main content of the two documents is the aspect of ethics and morals in corporate governance. The report provides suggestions on how the unfair influence of corporate managers, chairmen and CEOs can be minimized so as to ensure an ethically balanced business society which is also the requirements contained in the Code of 2010. 3.1 Key Recommendation of the Greenbury Report Key in the report is the suggestion that Board of Directors should take responsibility for how they determine Directors remuneration pay so as to enhance accountability. Further, the directors should report to shareholders in the proper manner, i.e. not leaving out information on the company’s “inside on- goings” which might end up being dangerous for the shareholders equity as such information may lead to unprecedented losses. It is also at this point that we realize a common ground between the code and the report as they emphasize the interest of the investors and the workers. It should be noted from the movie that the activities of the management of most of the large investment companies actually resulted into the financial meltdown which led to most layoffs for most employees. Most company executives especially CEOs tend to argue that the conclusions and the reports of the document inside job is unfair due the fact that they might have been making their decisions in a bid to propel their companies forward. This is not the case as the result of all decisions in a firm will lie squarely on the authority making the decision and since they had a monetary gain in the process, they are responsible for the cumulative effect of their decisions. The Bankers and the CEOs believe they used their position and resource to propel the companies upwards and not to accelerate a crisis. Whichever the case, Business Law, ethics and moral demand the structures and controls should be exercised in a way as to realize a sustainable system but this was a case where the system collapsed and thus leaving room for more questionable ethically incorrect decisions. People lost jobs while most investors lost a huge proportion of their investment. The UK Corporate Governance code of 2010 monitored the practice in Good corporate Governance through well set and defined principles to ensure ethical conduct in management and administration of businesses. By watching the documentary on “The Inside Job”, there are a lot of flaws and disregard to this law which if the corporate world took their responsible and adhered to the principles of the code, then crisis could actually have avoided. The disregard to the high standards of corporate governance set in the code is the cause of the crisis which makes it actually difficult to determine accurately how much of standard regulations which would ensure uniformity and ethical responsibility in corporate governance. 3.2 Key Principles of the Corporate Governance Code The key principles in ethical, corporate governance include the principles on the governance of directors, the remuneration of directors to avoid excessively high remuneration which lead to the witnessed business malpractices through poor governance, the principle of accountability in management and audit to reduce or eliminate flaws, ethical relationship regarding the shareholders interest and principles of effectiveness through sustainable systems. The principles of good and ethical governance in accordance to the UK Corporate Governance Code are witnessed to have been ignored where agencies were corruptly rated as AA or AAA when they did not actually meet the capacity to be rated as so. The investments to which such ratings were handed were actually faulty and, therefore, such moves as to rate thus were considered as immoral, illegal and due to greed. Ben Bernake and the US regulators failed in their ethical responsibility when they failed to warn French and British Governments of the impending crisis which would result from the massive payouts in remuneration to executives and false auditing of financial accounts (Nelson 2008). 3.3 Focus of the UK Governance Corporate Code and the Cause of Failure in the Film The UK governance corporate code 2010 focuses on different factors such as Leadership, Effectiveness, Accountability, Remuneration and Relations with shareholders. The code just like the Greenbury report were tailored in the interest of the shareholders to actually solve problems and issues raised by the shareholders due to the greater influence that directors of any firm have on the output of the firm and its eventual consequences on the shareholders. It is clear that the investment banks through the directors allowed individuals with no income, job or assets to borrow money to near maximum value of their high price homes, which leads to an indication of lack of concern to the code of ethics. From the movie, we realize that the directors remuneration has become difficult to regulate since the recommendations of the Greenbury report is not law but a proposal which could be implemented by an organization or not. The code is also bases on principles for organizations to subscribe and whose failure is not actually an offence. As pointed out in the movie “The Inside Job”, the issue with director’s remuneration has become unclear due to the fact that the principles and code is not used to determine them. This leaves room for fraudulent paying of the directors at the expense of the shareholders interest. Methods such as determining the director’s salary based on the company’s performance, which is considered, to be the director’s performance is not an ethical means of determining the remuneration. It is the main reason why directors can go out of their means to engage in ethical malpractices only to ensure that the company is performing or seems to perform without considering the simple aspects of eventuality of such an action. The danger that arises due to regulation of director’s remuneration is that of more people seeking directorship jobs in other countries like the US with the belief they will attract better pay based on their performance (Nelson 2008). Therefore, it is necessary that each adopts the international business governance standards to avoid the movement such greedy professional and solve the problem of brain drain that could come with such. Conclusion Therefore, if the corporate world could implement effectively the existing guidelines in the Governance and Code 2010, the economic crisis could be prevented. However, more rules and regulations need to be developed which can be enforced and not mere recommendations so that people will have a legal consequence if they do not comply with the guidelines and principles in Ethical Governance Code. References Ferguson, C. 2010. Inside Job (n.d.). The Internet Movie Database (IMDb). Retrieved December 1, 2011, from http://www.imdb.com/title/tt1645089/ Nelson, BL 2008, Law and ethics in global business: how to integrate law and ethics into corporate governance around the world. London: Routledge. Contents Page 1.0 Introduction……………………………………………………………………………...........3 2.0 Class Action versus the Chapter Relationship with Consumers……………………………....3 2.1 Features in the chapter “Relationship with Consumers” presented in the film……….3 2.2 US legislations similar to the Consumer Protection Act 1987…………………….….5 2.3 Impact to the company and its directors if the law is applied to the case…….………6 2.4 The Relevant Ethical Theory in the Case……………………………………………..7 3.0 Conclusion………………………………………………………………………………….…7 4.0 References…………………………………………………………………………….……….8 Task 2: Consumer protection 1.0 Introduction Most issues in chapter eight of the reference book emerges in the legal suit. Arguments and counter arguments develop basing on previous rulings and past instances in relation to the existing case. The most evident one is on the case of injury caused by Ford Automobile (Nelson 2008). Tucker Ward and Maggie on either side bring out the various arguments to validate their cases while defending their clients. 2.0 Class Action versus the Chapter Relationship with Consumers 2.1 Features in the chapter “Relationship with Consumers” present in the film Markets base on individual choices among consumers as well as suppliers in equal rights. Maggie brings this up in defense to the Automobile firm, arguing that the plaintiff had a choice to buy or not buy the automobile and so he made his choice. Further, she argues that the right of choice exercised by the plaintiff in buying the car is not exclusionary but also available to the automobile firm in choosing not to provide the information he did not deem necessary. The issue of the circumstances under which the manufacturer knowingly concealed information that was potentially lethal from the consumer, Maggie argues that it is not mandatory that a manufacturer undisclose a potentially lethal defect in a product for example automobile just in the interest of protecting the consumer. This is because the weight or the idea of such knowledge could potential put the consumer at more risk. Tucker Ward contradicts this by arguing that, with the availability of such information, the consumer, who in this case is the plaintiff, could be able to, make an informed choice and avoid it all the same. This is a situation where the manufacturer seems to be laying a trap with the hope that it may trap nothing. The knowledge that the cars are defective while still being sold with the hope no one will incur accidents and deaths related to such defects is ethically unacceptable. The firm should be able to take responsibility and avoid manufacturing such defective cars even if it was for the sake of profits. The issue of full information concurrent with the reasoning according to Kant in Chapter 8 where people, especially consumers should not only be considered as means but also as ends and therefore, all information pertaining to the decisions they intend to make should be provided. No secrets should be kept away from the persons involved (Nelson 2008). This is regards ethical responsibility of the manufacturers or suppliers of the products. The automobile company however chose not to provide such information as it could lead them in losing the sales revenues and so opted to risk the lives of the consumers and users just to protect their businesses and profits. This is unethical and an immorality in the corporate world where success is rate on the volume of sales and profit returns without being ethically responsible. The other point of argument which emerges especially from Maggie is that the consumer could well have made the decision while knowing that some information was lacking. In this case it was a choice and therefore not a responsibility of the manufacturer since the consumer should have sought for that information (Nelson 2008). Making a decision on a product knowing quite well that some information regarding the product is withheld is wrong since this might end up exonerating people on the wrong either partially or wholly from the fault. This argument is not very satisfactory since it should be the manufacturer who actually knows the details of the product and should therefore disclose them if only the safety of the user depends on such information. Economically, this could be impractical but ethically it is necessary. The defense lawyer argues that, other than price and other negotiable factors in the cause of effecting a transaction, a seller is under no obligation to disclose further details to the consumer, if the details do not come up or affect the process of the transaction (Nelson 2008). But this is a case where the information being withheld is from the manufacturer’s intention through manufacturing defective cars and which will actually put the life of the consumer at risk. The consumer cannot have prior knowledge that the car is defective unless informed so that he may make the necessary decision of taking the risk or not. 2.2 US legislations similar to the Consumer Protection Act 1987 Since in most cases consumers operate as individual and independent entities, their plight have become a concern as manufacturers, producers and even distributors come together in the hope of safeguarding their interests normally directed towards maximizing profits. In this case the consumer finds himself on the loose end as the recipient of all the unfair practices aimed at maximizing profits with disregard to any other moral, social or legal issues. As a result of this, most governments have tried to come up with legislations to help protect the consumers against the malpractices. Some of these legislations are implemented by the governments through measures and controls in relation to consumer products such as weight and measures as well as poison related acts. Most of the consumer protection legislations are contained or defined in the Consumer Protection Act of 1987 although other institutions have been set up to look into specific aspects of consumer exploitation. In America, there exist various bodies, committees and legislations which are concerned with consumer protection. The ABA Committee is charged with the responsibility of monitoring the developments as well as enactment of laws on deceptive and false advertisement as well as illegal marketing and unfair marketing practices. It is through false advertisement that consumers are defrauded of their money by not getting the value for their money. As a result, there are always law suits presented by different people when such activities as false advertisement actually results into loss of income or simply economic loss to the consumer. This committee reviews such cases and their outcomes and advises the government agencies on the state and effectiveness of the law. Consumer Safety Commission plays the key roles as stipulated in the Consumer Protection Act of 1987. Its main objective is to protect the public from various unreasonable risks they might incur due to the use of the products they require and acquire from the manufacturers, suppliers and distributors. The commission therefore endeavors to protect the consumers against death and injuries that could be caused as a result of the uses of the products. The products considered by this commission include those which pose injury through fire, electrical and mechanical damages and may include toys and electrical appliances as well as cigarette lighters. Through ensuring that manufacturers adhere to some set standards to eliminate the potentiality of the danger their products might cause, has reduced more deaths and injuries to consumers that could have otherwise occurred. There also exist in America, the consumer protection definition which is a law that ensures free flow of truthful information for consumers as well as manufacturers and suppliers in the market. The law mainly safeguards the interests of the consumer who is considered as weak and vulnerable to exploitation by the manufacturers 2.3 Impact to the company and its directors if the law is applied to the case Therefore, the law on consumer protection safety can be used in the case in the movie to establish that the car manufacturing company has failed to protect the consumers against death and injuries caused by their products. Further failing to give truthful information as regards their products to consumer is a weak link that can be used to justify the claim that they deliberately kept the information away from the consumer which led to the injuries sustained by the plaintiff. In this case the company and its directors will be convicted of the charges due to their role in failure to disclose information while being in the glare knowledge that there was a lethal defect with the car they were producing. The company would therefore have to pay compensation to the plaintiff while government reviews the possibility of withdrawing the license since the company in its attempts to continue with the production of such defective cars was putting the lives of most citizens in danger. 2.4 The Relevant Ethical Theory in the Case In trying to be ethically responsible and with respect to this case, the ethical theory on General Moral Obligations for Businesses is more relevant in determining cases. Other than as legal compliance, the law requires that business derive their ethics from the general societal moral obligations expected of individuals and organizations. This holds that morality should held as external factor not within the confines of profit and law. Organizations should not be guided by profits and use loopholes in the law to escape or avoid their moral duty. According to Laczniak, proper ethical behavior will always exist above the law with the law providing only a basic reference point from where ethical behavior and reasoning should be advanced. The principles under this theory hold that a business should not cause unwarranted harm, should be fair and should respect the rights of the people. If these principles are applied here then the company should have been fair not to make defective cars and respect the rights of the consumers by divulging necessary information. 3.0 Conclusion In the case that players in the corporate world exercised their ethical and moral obligations then business operations would be fair and more losses will be reduced. The extreme cases of loss of life would be reduced as every player; especially manufacturers would take the necessary precautions of avoiding risky products which are only directed towards profits. References Nelson, BL 2008, Law and ethics in global business: how to integrate law and ethics into corporate governance around the world. London: Routledge. Way, t., & won&, t. (n.d.), 1991. Class Action - IMDb. The Internet Movie Database (IMDb). Retrieved December 1, 2011, from http://www.imdb.com/title/tt0101590/ Read More