Corporate Governance. the decision makers dilemma. Presented by Raj Mahabeer

Transcription

1 Corporate Governance the decision makers dilemma Presented by Raj Mahabeer

2 INTRODUCTION In business, decision makers are faced with moral and ethical decisions daily. Not only are they faced with questions between deciding what is right or wrong, but there is an increasing challenge where they have to choose between what is - right, fair and ethical This challenge creates dilemmas for decision makers

3 BASIS OF CORPORATE GOVERNANCE Apply or explain basis The King III Report is based on an apply or explain basis. It gives an opportunity for companies to apply the recommendations and also to explain themselves should they not apply. South Africa : Apply or Explain basis USA : Comply or Else basis Comply or else basis In the USA, the Sarbanes-Oxley Act was on a comply or else principle. This forced all companies to comply and made no provision for extraordinary circumstances.

4 PRINCIPLES OF CORPORATE GOVERNANCE Impact on Stakeholders Sustainability Ensure that leadership is based on ethical foundation Ensure that the company is and is seen to be a responsible corporate citizen Ensure that the company s ethics are managed effectively Act as the focal point for and custodian of corporate governance Ensure that the company complies with applicable laws and consider adherence to non-binding rules, codes and standards Ensure the integrity of the company s integrated report Act in the best interest of the company Impact on Economy, Society and Environment Cognisance of the Natural Environment e.g. global warming Doing Business Ethically

5 ETHICAL VALUES Responsibility Decision makers should take responsibility for their actions and be willing to take corrective actions where required Accountability Be able to justify their decisions and actions to shareholders and other stakeholders Ethical values Transparency Being transparent in the decisions being made including full disclosure of information and ensuring acceptable performance, and sustainability Fairness Ensure fair consideration to the legitimate interests and expectations of all stakeholders of the company

6 DECISION MAKERS Companies Act: Section 66(1) : the business and affairs of a company must be managed by or under its board, which has the authority to exercise all of the powers and perform any functions of the company. Company directors are responsible and accountable for their actions and decisions and for the successful performance of their company Directors are entrusted by shareholders to ensure that companies are successful, therefore directors have a fiduciary duty to run the company Director would assumes the following two roles: An agent Directors have the powers to act on behalf of the company A trustee Directors have been given powers to control company assets and manage the company as shareholders investment.

7 THE ROLE OF THE DECISION MAKER Act in the best interest of the company Exercise independent judgment without undue influence Best interest avoid conflicts between personal and company interests should not prefer their own interests over that of the company Companies Act Independent judgment Avoid Financial and self interest Ensure fairness and transparency Act in good faith towards the company and its stakeholders They should not use information acquired in their capacity for personal gain

8 THE ROLE OF DECISION MAKERS - KING III AND COMPANIES ACT KING III King III provides guidance for decision makers which includes the following; Act in the best interest of the company That minority shareholders are protected Should do business ethically rather than being satisfied with legal or regulatory compliance Act with intellectual honesty and independence of mind Provide effective leadership based on ethical foundation COMPANIES ACT Companies Act provides principles and rules when decisions are taken Most of the decisions are taken based on resolutions Decision makers should Act in good faith and for a proper purpose Act in the best interest of the company Act with a degree of care, skill and diligence Directors may be liable should they fail to comply with the provisions of the Act (sec.77) Broad focus on interest of stakeholders as opposed to shareholders Oversight role of institutional investors

9 CHALLENGES FACING THE DECISION MAKER Shareholders Challenges Profits Fronting Price fixing Incentives SARS & Auditors

10 CHALLENGES FACING THE DECISION MAKER FINANCIAL PERFORMANCE Share price Profits Revenue Stock markets Earnings SHAREHOLDERS Growth Asset value Mergers and acquisitions Investments AUDITORS Clean audit reports SARS Pay less VAT, Normal tax and other taxes BANKS Bank overdrafts Loans COMPETITION Industry competition Price fixing Industrial espionage Acquisition of small business Challenges TENDERS BBBEEE scores Fronting Bribery government departments INCENTIVES Bonuses Salaries Share Based Payments Promotions

11 THE IMPACT OF ORGANISATIONAL CULTULRE ON ETHICAL CONDUCT Benefits Enables decision makers to make the right decisions Enables decision makers to resist pressure in behaving unethically Creates a decision making environment that has strong moral values Definition Drennan (1992:3) way things are done around here Robbins (1997) common understanding Schein (2004) to deal with change requires a change in culture Organisational Culture Positively influence organisational culture to promote ethical conduct In organizations ethical decisions are influenced by organizational culture Organisational culture influence decision-making processes Impact on ethical conduct Creates moral awareness on companies Ensures fairness and transparency Results in balanced decisions being taken

12 ATTRIBUTES OF AN ETHICAL LEADER They build relationships that are characterized by trust, respect and support They tie ethics to the longterm success of the business by providing examples from their own experiences They are taught to be honest and trustworthy Ethical leader Responsible for transmitting ethical culture in their organizations, and ethical dimensions of organizational culture They take into account the ethical impact of their decisions They make decisions based on ethical values

13 CONVERGING GLOBALISATION AND ETHICS Globalization has transformed the way we do business The internalization of ethical values within the consciousness of the individual and the community could be the only hope for humanity GLOBALISATON Markets should function based on ethical principles The challenge is to devise ethical and economically sound policies that will guide companies doing business in the global village Culture should be guided by morally universal values

14 ETHICAL QUESTIONS How are moral judgments even possible? Why be moral at all? Do moral values exist objectively or only subjectively? Are moral values relative to something, like culture or individuals? Can morality exist independently of culture? Do people have a free will which would make moral judgments possible?

15 Some case studies Ford Pinto s Exploding Gas Tanks unethical conduct the court suggested that Ford s top decision makers were aware that the Pinto was unsafe and concluded it would be cheaper to incur the loses from lawsuits than to recall and fix all the affected cars.. BeechNut and Its Bogus Apple Juice - unethical conduct.beechnut executives tried to suppress conflict. When this failed they eliminated the most apparent source of conflict: LiCari. This sent a message : Do not speak out or raise ethical questions. They ignored the risks of hiding the tainted concentrate from the Food and Drug Administration(FDA) and of selling a tainted product to developing countries in violation of federal law. The 2006 bread collusion unethical conduct Tiger Brands was fined approximately R100 million for colluding with certain other major bread producers. In addition, Tiger Brands and Premier Foods agreed to assist and provide information to the Competition Commission of other players in the industry who were involved in collusive activities, particularly price fixing

16 Some case studies ( continued ) On the duty to investigate tender fronting and fraud unethical conduct..in Viking Pony Pumps (Pty) Ltd t/a Tricom Africa v Hidro-Tech Systems (Pty) Ltd and Another in a unanimous Constitutional Court ruling- in a judgment written by Justice Mogoeng Mogoeng made it clear that there was a heavy onus on organs of state (municipalities, parastatals, provincial and national departments) to investigate allegations of tender fraud when they are made aware of it Record price-fixing penalty for Pioneer unethical conduct..south Africa's Pioneer Foods had to reduce the sale price of bread and flour products by a total R160-million, as part of a R1.05-billion settlement reached in its price-fixing cases SA investigates World Cup airline price-fixing unethical conduct In 2006, SAA was fined 55m rand ($7m; 4.5m at current prices) after being found guilty of price-fixing with German carrier Lufthansa. The airline was also fined on two-charges of anti-competitive behaviour

17 Recommendations Decision makers should ensure ; fairness and transparency in decisions Compliance with code of ethics, laws and statutory duties Comply with organizations policies and procedures especially on ethics Conflict of interest is properly addressed Decisions taken are for the benefit of the company rather than self benefit Decision makers should have the right composition, skills and reliable information Consider the moral and economic imperatives of corporate citizenship Determine the nature and dimensions of the dilemmas

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