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Corporate governance refers to the system of practices, rules, and procedures that shape the way in which a company is managed and controlled. Understanding ethical issues and points pertinent to corporate governance is essential for determining how a company can improve. This paper will focus on the exploration of important corporate governance issues and the provision of a real-life example concerning a notable company.
Corporate Governance Issues
The first point regarding corporate governance ethics refers to the conflict of interest. Such occurrences take place when an executive member of a company has other interests that are in direct conflict with a company’s objectives. For instance, a member of the board that produces solar energy and holds stocks in an oil company exhibits a conflict of interest. While the board on which an executive serves is interested in the development of sustainable energy, the personal financial interest depends on the success of the oil industry. When such conflicts occur, they negatively impact the trust of both shareholders and potential customers.
In addition, conflicts of interest cause board members or other employees to experience a struggle between opposing points of view or allegiances. Because of this, in all corporate ethics codes, they are forbidden as seen as reasons for workers being fired.
Transparency is the second point that relates to corporate governance ethics. It implies the reporting of losses and profits and making the financial information available to a company’s investors. The over-inflation of profits or the minimization of losses can severely damage the relationships with stockholders since they are forced to invest on the basis of false information. The ethical issue of transparency is serious because of the potential exposure of a company to fines from regulatory bodies.
Accountability issues represent the third ethics point and are imperative for ensuring effective corporate governance. From the highest to the lowest-tiers of an organization, each division should be accountable to the respective systems of checks and balances. In addition, the actions of each tier of a company represent certain degrees of accountability to the public and shareholders. Without having the required level of accountability, different divisions of a company might subject other divisions to lose the support of some shareholders. Transparency in corporate governance matters because of the following reasons:
- When a company has a policy of transparency, it can foster an environment of trust, which creates a foundation for teamwork;
- Transparency can help foster innovation within the context of business growth;
- It is possible to eliminate inequality and unfairness when being transparent;
- Increased feedback can become the result of transparency policies due to the opportunity of listening to workers’ feedback.
The fourth ethical aspect relates to oversight issues, which represent a broad term that ranges from staff reporting to the board to the board’s awareness of everyday operations. The board is responsible for protecting the interests of shareholders and providing checks and balances of the executive workers. Without the provision of oversight, corporate staff can go as far as violating existing laws and facing significant fines from numerous regulatory agencies. Overall, the ethics of corporate governances imply a range of issues that play a significant role in the appropriate managing of companies. The mentioned principles: conflict of interest, transparency, accountability, and oversight, represent a framework that guides the governance of a corporation.
Unethical Incident: Samsung and Bribery
Exploring real-life examples of unethical corporate governance scandals is important for developing an understanding of how executives of large companies can use their positions to pursue personal gains. An example of an unethical incident that took place fairly recently involves the Samsung bribery scandal of 2017. The company has often found itself at the center of controversy; for instance, in 2016, it dealt with exploding batteries in Samsung Note & while in 2017, the company was imploding corporate ranks, as mentioned by Shen for Fortune (2017).
Originally, Samsung planned to put Lee Jae-Yong as the head of the company; however, it was soon faced with the question of proper succession after Lee was involved in a political scandal associated with the former President of South Korea, Park Guen-Hye. Lee was faced with five to twelve years in jail for allegedly bribing Park, participating in embezzlement, and hiding his assets through offshore companies. Not only did the scandal undermine the reputation of Samsung and its corporate governance, but it also shed some light on the problem of bribery in South Korea.
The problem of bribery is fundamental to consider in the context of corporate governance. The example of Lee Jae-Yong, who was accused of donating $36 million to the foundations operated by the fried of South Korea’s former president, showed that the largest violations of corporate governance occur at the top of companies’ management. Most importantly, the implications of the violation had an impact on numerous other parties.
The case of bribery played a defining role in the impeachment of President Park and her facing charges for corruption, which she had denied (BBC News, 2017). Her friend, Choi, whose charity organizations received donations from Lee, was “jailed for three years after being found guilty of using her position of influence to solicit favors for her daughter” (BBC News, 2017). In addition to this, Choi Gee-sung and Chang Choong-ki, who also were Samsung executives, were convicted and sentenced to four years in prison (BBC News, 2017). Suspended sentences were handed to other former Samsung officials: Park Sang-jin, a Samsung Electronics president, and Hwang Sung-soo, a former executive vice-president (BBC News, 2017).
The bribery scandal was detrimental to the reputation of Samsung. The conviction of numerous former executives, as well as South Korea’s president, represents a large blow to the largest business empire of the country. Since the convictions, the shares of the company fell by a percent. In addition to this, the scandal raised some questions regarding the efficacy of Samsung as being a family-run business. The fact that the company has numerous executives-relatives in different ranks of the organization, the chances of the family helping each other increase. This represents challenges to corporate governance in terms of transparency, conflict of interest, accountability, and oversight.
Overall, what happened to Samsung can happen in any large organization in which head executives put their own interests ahead of the interests of their companies. The examination of corporate governance issues allowed for the understanding of the importance of ethics in business affairs and following the standards enforced by relevant authorities. While Samsung did not suffer financially as a technology manufacturer due to the increased profits associated with the production of Samsung Galaxy S8, the same may not occur in regards to other companies.
BBC News. (2017). Samsung heir Lee Jae-yong jailed for corruption. BBC News. Web.
Shen, L. (2017). The 10 biggest business scandals of 2017. Fortune. Web.