Chapter three corporate governance and ethical management
Download
1 / 16

Chapter Three Corporate Governance and Ethical Management - PowerPoint PPT Presentation


  • 66 Views
  • Uploaded on
  • Presentation posted in: General

Chapter Three Corporate Governance and Ethical Management. What is Business Ethics. Core values and standards adopted to guide decision making Consider the interests of stakeholders OwnersShareholders CreditorsEmployees SuppliersCustomers

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha

Download Presentation

Chapter Three Corporate Governance and Ethical Management

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Chapter ThreeCorporate Governance and Ethical Management


What is Business Ethics

  • Core values and standards adopted to guide decision making

  • Consider the interests of stakeholders

    OwnersShareholders

    CreditorsEmployees

    SuppliersCustomers

    Government Agencies Society at large


Ethical Issues in Business

  • Honesty and fairness

    • Obligation to be honest and trustworthy

    • Treating others equally

  • Conflicts of interest

    • Situation in which private interests or personal considerations may affect or be perceived to affect an employee’s judgment

  • Fraud

    • Deliberate misrepresentation to gain an advantage

  • Discrimination

  • Information technology


Aids in Increasing Fraud Detection

  • Sarbanes-Oxley Act (SOX)

    • Hot Lines

    • Implementation of control procedures

    • Corporate Governance

  • SAS No. 99

  • Ethics officers, training, code of ethics


SOX Internal Controls over Financial Reporting

  • Reasonable assurance

  • Reliability of reporting and preparation

  • Required policies and procedures

    • Maintenance of records

    • Recording of transactions

    • Prevention or detection of fraud

  • SOX controls reduced fraud losses by 70 to 96%


Definition of Corporate Governance

  • Set of rules that define the relationships between

    • Stakeholders

    • Management

    • Board of Directors

  • Influence how the company is operating

  • Issues of separation of ownership and control

  • Pillars of Corporate Governance

    • Responsibility

    • Accountability

    • Fairness

    • Transparency


Importance of Good Governance

  • Better access to capital

  • Aids economic growth

  • Positive impact on stock prices

  • Ensures that business is fair and transparent

  • Ensures that companies can be held accountable

  • Leads to sustainability


Agency Theory

  • Corporate managers and directors are agents

  • Shareholders are the principal

  • Construct rules and incentives to align the behavior of agents with the desires of the principals

  • Agency Problem

    • Desires and goals of agents and principals may not be in accord

    • Difficult to verify the activities of the agents


Agency Costs

  • Agents likely to place personal goals ahead of corporate goals

  • Results in conflict of interests between agents and principals

  • Consistent with egoism

  • Information asymmetry

  • Occurs if BOD fails to exercise due care in oversight


Stakeholder Theory

  • Stakeholders other than shareholders

  • Employee governance

    • Employee share ownership

    • Employee representation on Board of Directors

    • Employee involvement in governing committees


Governance Mechanisms

  • Internal:

    • Independent directors

    • Audit committee

    • Management

    • Internal controls

    • Internal audit

  • External:

    • Financial markets

    • State and federal laws and regulations

    • Court decisions

    • Shareholder proposals


Internal Controls

  • Prevent and detect errors and fraud

    • Asset misappropriations

    • Materially false and misleading financial reports

    • Inadequate disclosures

  • Ensure management policies are followed

  • Can be overridden by top management

    • Do what CEO says, not what he does

    • Creates cynical attitude

  • Objectives:

    • Effectiveness and efficiency of operations

    • Reliability of financial reporting

    • Compliance with applicable laws and regulations


Audited Financial Statements

  • Prepared by management

  • Report financial results in accordance with GAAP

  • External auditors render an independent opinion

  • Used to mitigate conflict between owners and managers


Corporate Values

  • Ethical behavior/integrity

  • Commitment to customers

  • Commitment to employees

  • Teamwork and trust

  • Honesty/openness

  • Accountability

  • Corporate citizenship


Codes of Business Ethics

SOX requirements

  • Whether companies have codes of ethics

    • General

    • Separate code for senior management

  • Waivers on the code of ethics for senior management

  • Any changes to the code of ethics

  • If no code, must explain why


Whistle blowing

  • Employees who report suspected violations

  • Protection provision (SOX)

    • Prohibits discharge, demotion, discrimination, threatens or other harmful action to employee

    • Employee can file a compliant with Secretary of Labor (delegated to OSHA)

    • Remedies for employee include reinstatement, back pay, litigation costs and attorney fees


ad
  • Login