Corporate Ethics in the Post Enron Era from the Role of a Policy Analyst - Coursework Example

? Corporate Ethics in the Post-Enron Era from the Role of a Policy Analyst Introduction In the past ten year the issue on corporate governance has featured in the press over the world most importantly because of the effect it poses on public interest, the economy and the society in general. The issue of ethics in governance and business dealings has affected huge corporations like Enron, Global Crossing, WorldCom, Tyco International, Anderson, Adelphia Communications, Merrill Lynch, Parmalat etc. Such organizations have been involved in unethical practices which have resulted in collapse of stock markets, corporate failures, abuse of power, abuse of public goodwill, accounting malpractices, criminal activities leading in low investor confidence. It evident that for those companies that collapsed, most of them exhibited symptoms like conflict of interest in dealings, exaggerated compensation packages, manipulation of voting rights etc. All these issues have renewed the need to strengthen corporate governance by inculcating business ethics in corporate dealings. Accordingly for us to tackle the issue of corporate governance, the basic principles and concepts in corporate governance need to be discussed (McDonald, 2007). Ethics as a concept refers to concepts or maxims of right or wrong behavior in the society. Ethics can be equated to morality. The critical question to be asked on ethics with regard to corporate governance is whether ethics has a place in this profit centered capitalist economy. The answer lies in the experiences highlighted above on business malpractices whose consequences have not only affected the shareholders only but also the general public at large. Corporate governance involves the assignment of duties and rights amongst all the participants in a corporation from the board of governors all the way to the stakeholders. It also provides for structures for achieving set objectives and decision making. At the same time the corporation exists within a society, thus societal ideals such as fair dealing, transparency, accountability and responsible citizenship must be upheld by the corporate entity. All these societal values have to be incorporated into the concept of corporate governance. This is to say that the corporation has to consider both the legal and social values in its pursuit of better corporate governance. Encompassing the aspect of societal values and norms dictates that the participants in the running of modern day corporations ascribe to the principle of corporate citizenship. The principle of corporate citizenship entails the commitment of individuals to unquestionable ethical behavior in corporate affairs (Cross & Miller, 2012). This principle sits well from the strategic and the operational levels of an organization as it is usually tied up with board leadership and corporate image. It is therefore imperative that for any business to be sustainable in these globalized and interconnected world all the corporate players have to recognize that the operating environmental, social obligations, and governance responsibilities are integral to corporate performance and sustenance (Cross & Miller, 2012). All these factors will determine company profits. The case of companies like Enron reflects a new dimension of corporate governance. This dimension entails strategic thinking by the board of directors in providing leadership beyond short term financial performance. The corporate leadership, boards of directors, shareholders, and the modern role of the CEO, must be prepared to provide strategic leadership and oversight on issues to do with the environment as this presents substantial reputation risk. They must also commit to creating shareholder value through engaging in activities which will increase access to markets while at the same time mitigating against immediate tangible and anticipated future risk (Bernstein, 2004). General Policy recommendations Several policies and strategic thinking have been suggested to mitigate against the corporate governance malaise of the Enron era. Such include the reexamination of the ethical climate and the reinforcement of safeguards; assuming of an active role in the enforcement of ethical conduct in the organization; Building a self-sustaining and robust ethics infrastructure; committing publicly to be an ethical organization; the separation of auditing from consulting functions; engaging of employees at all levels; develop and incorporate ethical conduct in the organizations systems and structures; establishing ethics steering committees to be in charge of ethical matters; adopting an open line of communication to both employees and the general public. In the reexamination of the organizations climate, culture becomes a very important target for corporate governance. Every organization in the world has its own culture that is passed from one regime to the other. The modern day organization must critically assess those values and norms that are harmful to the present business environment (Cross & Miller, 2012). These organizations must adjust their values to reflect the modern day dynamics of today’s corporate world. Do they value profits at the expense of employees and the environment? Are they champions of the environment or they are committed to irresponsible exploitation of 3rd world resources not considering the global consequences of their actions? What systems exists to encourage good behavior and to punish irresponsible behavior? Addressing these questions will require formal assessment of the values, attitudes, standards, risks etc. But the most important of all is corporate values. Corporate values shape the organization, defines decision making, determines good leadership etc. Therefore the leadership of the modern-day corporation must inculcate values that resonate well with the environment in which they are operating from (Bernstein, 2004). The traditional organizations have been accused of having passive Code of Conduct or Ethics Code. Having such documents is not enough if they are not enforced and updated form time to time to reflect the changing business environment within which the organization operates. Code of conduct guides behavior around the organization vision, mission, objectives, values and strategies. If those codes are not enforced as required, then there is a danger that the strategic direction is likely to be blurred by externalities brought about by ethical maleficence. These codes usually guide behavior and decision making process and guard against conflict of interest. The breach of these codes by senior management usually endorses has a cascading effect to the lower levels of management. Thus as a maxim, the leadership of the corporations must not only preach but also live the code of conduct they ascribe to. This should also be communicated to the outside world to show that you are an ethical organization (Amersham, 2002). A living code of conduct is not enough. The successful implementation of an ethical policy will require a robust structure to push the ethical agenda. These organizations must create committees or departments whose function is to deal solely with ethical issues. These structures must be independent and composed of non-executive staff whose responsibility will be to enforce the code of conduct from within and communicate to the leadership and the stakeholders. The committee must be given powers to act independently and free from interference. The terms of reference for such a committee might include, developing and updating code of conduct, implementing and monitoring the organization’s performance on ethical conduct. Compliance from the top to bottom level of staff should be ensured to ensure corporate performance. The corporate ethics structures must also be funded to ensure they deliver their responsibilities adequately. The management should adopt strategies like staff training, establishing hotlines and helplines, a performance review system etc. (Amersham, 2002). There is a notion that states that justice must also be seen to have been served. This notion stresses the importance of outreach activities for the corporation on ethical issues. It is important for the organization to inform the public of the strides they are making in enhancing ethical conduct in the organization. Such outreach services might include holding public seminars, release notices, community activities etc. When corporations are open about their ethical conduct, the public, shareholder and more so investor confidence is enhanced. It is imperative that for the public listed companies, the recruitment of the board of directors should be public and their names listed in the public domain. This will enable the public to scrutinize them and raise any queries about them. They should be made to sign the code of conduct and show unconditional support for it by words and actions (Gilman, et al., 2009). As was with the case of Enron, the auditing organizations should be independent, of high integrity and guard against conflict of interest with the client. This was completely the opposite as the financial auditor was at the same time the consultant on financial matters of Enron. At the same time the auditor’s institution was infiltrated with former employees of the company. From the onset there was conflict of interest and lack of segregation of duties from functions likely to have conflict of interest (McDonald, 2007). To guard against unethical conduct, the organization needs to implement a robust internal communication strategy. Poor communication is fatal to organizations. There is need for the organization, more so the management, to adopt both informal and formal modes of communication with the employees of the organization. Employees need to know what is expected of them and how they are faring in their tasks. There also must be a feedback mechanism to complete the communication channel. Failure to communicate effectively will inhibit the organization’s endeavors to attain its goals and specifically expectations surrounding ethical issues. The organization should also strive to keep the communication open. Open communication allows room for improvement. Ethical conduct must not only be incorporated in the organizations structures but also in its systems. The systems should pledge the organizations commitment to ethical conduct to the (i) shareholders, (ii) employees, and (iii) the general public. The system must define the expectations of the players and act towards attaining them. Employees must be taught how to translate the various codes of conduct, the shareholders must be provided with a reporting system to know how the organization is fairing it terms of corporate governance, and the general public must be provided with systems of accessing the organization to promote transparency and accountability. Lastly the customers must be assured that the organization is committed to responsible customer satisfaction. In this case there must be guidelines that demand responsibility and accountabilities amongst the organization, its staff, shareholders, customers and the general public (Gilman, et al., 2009). Recommendations and conclusion Having reviewed the policies set out by other writers on policies of remedying corporate maleficence, the author is of the opinion that a combination of policies is appropriate. Since the issue is multifaceted as it involves the individual, the corporation and the society at large it will be difficult to prescribe a single policy that can apply across the board. The adoption of a target set of policies seems appropriate in tackling corporate maleficence. A combination of the following policy themes are recommended: (i) adopting and publicizing Code of Conduct/Ethics; (ii) publication of a conflict of interest guidelines publicly accessible to investors; (iii) designate an Ethics/Compliance Officer; (iv) adopting whistle blowing programs; (v) incorporating CSR as a core corporate principle; and (vii) implementing CSR programs (Gilman, et al., 2009). The essence of a code of conduct is to determine the minimum standard of ethical behavior expecting from an organizations employees. The codes of conduct will communicate the expectations required from employees when going about the normal operations of the organization. Most importantly is its ability to guide the decision making process. These codes of conducts communicate expectations with regard to conflict of interest, bribery, completion and fair dealing, corrupt practices etc. Most of the time, the code of conduct will guide behavior of individuals in the organization. Having a publicized code of conduct creates an environment of accountability to the shareholders and the public at large. The Code of Conduct must be enforced at the top as this will set the tone for the organizations business culture. A publicized code of conduct is a cornerstone to corporate governance and ethics. It is evident that most of the organizations which have failed over ethical issues have issues to do with conflict of interest. Like in the Enron case, the whole saga had to do with conflict of interest. From the onset there was conflict of interest and lack of segregation of duties of functions likely to have conflict of interest. Any organization that is serious in fighting corporate maleficence must publish and publicize guidelines on conflict of interest from employees, board of directors and investors. Lack of clear guidelines on conflict of interest allows room for interference from both within and outside and is most likely to erode shareholders and public interest. This is evident from the companies that collapsed due to the financial malpractices (McDonald, 2007). It is imperative to have an ethics steering structure with a designated Ethics and Compliance Officer. Just as the Audit department is important in the organization, so is the ethics and compliance department. It is evident that these organizations which had ethical issues, they had not designated anyone to be in charge of ethical matters. Issues of ethics can make or break a company, thus the organization must provide structures, processes and systems to monitor ethical behavior within and without the organization. The ethical and compliance function must also be resourced with modern tools to implement and monitor the ethics system in the organization. In addition to the above recommendations it is important for the organization to incorporate and implement measures of responsibility to the outer operating environment. Such include CSR and whistle blowing initiatives. The organization must be seen to be ethical in the way they interact with the outside environment. References Amersham. (2002). A Responsible Vision – Environment and Social Report 2002. Bucks, UK Bernstein, J. (2004). Amid Scandal, Adecco Execs Leave Posts. Newsday (New York). Retrieved on 22nd February 2012, from: http://web.lexis-nexis.com/universe Cross, F.B., & Miller, R.L. (2012). The legal environment of business: Text and cases - ethical, regulatory, global, and e-commerce issues (8th Ed.) Mason, OH : South-Western Cengage Learning. ISBN-13: 978-0324590005 Gilman S., Harned P., Navran F. & Brown J. (2009). Ten things your company can do to avoid being the next Enron, Retrieved on 22nd February 2012, from: http://www.ethics.org/resource/ten-things-you-can-do-avoid-being-next-enron McDonald, Michael (2007). Ethics and Conflict of Interest." W. Maurice Young Centre for Applied Ethics. Retrieved on 22nd February 2012, from: http://web.archive.org/web/20071103060225/http://www.ethics.ubc.ca/people/mcdonald/conflict.htm. Read More