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Governance, Ethics and Law Report

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Updated: Jul 16th, 2021

Executive Summary

The company that ordered this report is planning to list it on the London Stock Exchange. The Board has questions about Corporate Governance, good practice and ethical behaviour, the uses and benefits of Corporate Codes of Conduct. This report answers the concerns of the Board and describes appropriate methods and strategies.

Introduction

The purpose of this report is to provide explanations for concerns displayed by the company’s Board. These are Corporate Governance, good practice, ethical behaviour, decision process and the Corporate Code of Ethics. The details, advantages and disadvantages of each are described below.

Corporate Governance

Corporate Governance is the framework within which the company conducts all of its operations. It includes the rules for decision making and the measures permitted during the pursuit of the company’s objectives, as well as the distribution of duties and permissions among employees. A robust and transparent governance structure allows the company to be more open and maintain relationships of trust with its stakeholders, partners and customers.

Corporate Governance policies directly affect the performance of the company, as they define the methods that the company uses. If the processes are inefficient or have weaknesses, the organisation’s performance declines (Azeez 2015). Factors that affect the results include the Board size and the separation of the CEO and the chairperson. Therefore, internal examinations and improvements to the governance structure are vital to the optimal functioning of the company.

Corporate Governance practices are also relevant in the relationship between the company and its stakeholders and customers. Outsiders are more inclined to trust companies that behave in a trustworthy manner and can support the claim by making their inner workings transparent. Here, transparency means not only that the company is prepared to reveal any non-confidential information if asked but also that the information is presented in a fashion that is easy to understand.

Good Practice Mechanisms

Although companies should be prepared to provide relevant information, the approach is not sufficient to maintain a positive public image. The Board should consider the circumstances in the market and design promotion campaigns that improve the public perception of the company. The promotion should include traditional advertising and may incorporate social media campaigns, which are currently becoming more relevant. The benefits of a format that allows quick, direct interaction between the company and its potential customers can be significant. However, the dangers of the new type of information spreading technology, such as the significantly higher price of failures, warrant caution and a detailed investigation into the matter.

Most modern companies improve their image and demonstrate good governance by implementing so-called good practice. The definition includes a variety of policies perceived as moral and positive, such as improving the quality and pricing of the product or participating in charities. Good practice policies are highly effective at raising the public’s estimation of a company because they tend to directly benefit some part of the population, such as the customers or the employees. In addition, the positive influences of the implementation create good publicity for the organisation. Improving the organisation is the best way to demonstrate effective governance.

Currently, the good practice has evolved in the concept known as corporate social responsibility (CSR). CSR incorporates good practice guidelines, but it also promotes the integration of companies into society and with each other, which results in shared value creation (Nelson 2014). Companies that follow CSR guidelines tend to devote significantly more attention to the environmental consequences of their activities. In addition, as members of the same communities as their employees, they attempt to improve the conditions for the staff and avoid exploitative practices. The resulting ethical and practical improvement has an immediate impact on the community in question, enhancing the image of the company.

Ethical Behaviour

Ethical behaviour is vital to the maintenance of an organisation’s image with the public and its partners. People tend to remember negative experiences more strongly than positive ones, and their continued negative experiences with a company are likely to accumulate until they choose to stop working with it. On the other hand, the perception of the interactions as straightforward and pleasant may make a person more likely to continue their partnership and recommend the company to others.

Ethical behaviour is different from legal behaviour, as the latter is a subset of the former. Legislation is usually designed to prevent large-scale violations of ethics, and it is possible to find loopholes in laws that allow one to conduct activities of questionable legality. Furthermore, some practices that can ruin a company’s image, such as promising delivery times that are impossible to meet, happen on a scale too small to be legally punishable but occur numerous times, having a significant impact on customers as a result.

Ethical behaviour should be promoted from the highest level of management down to all employees of the company. People who work for companies that actively support ethical behaviour and create an appropriate work climate are significantly less likely to commit unethical decisions, even when they are not under direct supervision (DeConinck, DeConinck & Moss 2016). These people interact with customers more than the management does, and as such, they are responsible for the company’s ethical image. Therefore, the company should pay attention to their moral values and conduct appropriate education and training.

Ethical Decision Steps

Ethical decision making is similar to other kinds, but it deals with human behaviour, which may make it more complicated for a Board to discuss. Nevertheless, the approach suggested by Beshears and Gino (2015) that consists of problem definition, cause diagnosis, solution design and testing should be appropriate for the process. When discussing ethics, the Board should give special attention to the goals and consequences of the decision and evaluate the credibility of the information at its disposal, as it is prone to bias. This approach should ensure proper consideration for all aspects of the decision and the best choice of method.

Corporate Codes of Ethics

A Corporate Code of Ethics is a statement of a company’s ethical beliefs that all employees should follow in internal and external interactions. Codes of Ethics are more commonly used in large enterprises, where managers have fewer opportunities to interact with the staff directly and have to rely on official documents (Withers & Ebrahimpour 2013). In such cases, the codes often have significant positive influences on the organisation’s ethical standards if the upper management commits to them (Withers & Ebrahimpour 2013). However, they are less effective in smaller enterprises, where the management’s direct influence is more relevant.

However, Corporates Codes of Ethics may have significant disadvantages if the upper management does not adhere to them. The necessity for a part of the staff to adhere to policies other parts do not follow creates inequality, and maliciously designed codes may limit the ability of employees to speak out against unethical corporate practices. Lastly, the codes are unenforceable and may often be ignored in small situations or changed to suit the management’s needs, promoting a poor ethical climate.

Reference List

Azeez, AA 2015, ‘Corporate governance and firm performance: evidence from Sri Lanka’, Journal of Finance, vol. 3, no. 1, pp. 180-189.

Beshears, J & Gino, F 2015, . Web.

DeConinck, JB, DeConinck, MB & Moss, HK 2016, ‘The relationship among ethical leadership, ethical climate, supervisory trust, and moral judgment’, Academy of Marketing Studies Journal, vol. 20, no. 3, pp. 89-99.

Nelson, J 2014, ‘Corporate Social Responsibility: emerging good practice for a new era’, OECD Observer, no. 299, pp. 9-10.

Withers, B & Ebrahimpour, M 2013, ‘The effects of codes of ethics on the supply chain: a comparison of LEs and SMEs’, Journal of Business & Economic Studies, vol. 19, no. 1, pp. 24-40.

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