CHAPTER 2

CONCEPTS ,ETHICS AND ROLES

KEY CONCEPTS IN
CORPORATE GOVERNANCE

Key concepts in corporate

governance
Concept

Explanation
Equitable treatment of all
parties

Results

Openness/transparen
cy

The full, accurate,

and timely disclosure
of information

Financial and
operational
information is
available enabling
outsiders to
understand and
analyse the
organisation

Independence

Being free from bias

Non-executive
directors and external
auditors are required

Fairness

All shareholders a
-3 .treated equally
and nave the
opportunity for
redress for violation
of their rights

Key concepts( cont).

CONCEPT

EXPLANATION

OUTCOME

Responsibility

Being responsible for

action or activities

Directors are
responsible for the
operation, control and
strategic direction of
the organisation

Accountability

Being accountable to
another party for
actions or activities

The board are

accountable to
shareholders who
have the right to
receive information
on the financial
stewardship of their
investment

Reputation

The estimation in
which a company is
held

Where inadequate
corporate governance
practices are
suspected, a

Key concepts (cont).

CONCEPTS
Judgement

Integrity

EXPLANATION

OUTCOME

The ability to judge,

make a decision, or
form an opinion
objectively, a,
authoritatively, and
wisely

Directors must be
considered capable of
sound judgement.

Adherence to moral
and ethical principles

Directors and
executives are
required to
demonstrate integrity
in carrying out their
duties in the best
-interests of the

Concept of ethics

1.Ethics is the study of what is right or wrong, what is

good or bad,. It is the process of making decision or
choices of behaviour based on what is good or bad.
2.In organisations, there are official codes of ethics. In
law and medicine, professional codes of ethics are
well enforced.
3.Business ethics refer to principles and standards that
determine acceptable conduct in business.

Role of ethics in
Business

Curb accounting fraud.

Eliminate deceptive advertising.
Stop unfair competitive practices.
Avoid internet theft.
Build trust.
Promote confidence.
Validate relationships.

Sources of unethical
behaviour
Overly aggressive financial or
business objectives.
Abusive and intimidating behaviour.
Conflict of interest.
Fairness and honesty.
Communication.
Business relationships.

Theories on Ethics

Utilitarian approach
Moral duty theory.
Justice theory.
Cost-benefit approach.
Universalism approach

The moral duty theory

This theory is premised on the fact that there are clear
obligations we have as human beings:
Care for our children.
Not to commit murder
To be kind
To bear children
To look after old people
To respect our parents
To wash our bodies
Not to cut down trees
To work hard
To make others happy

Moral duty theories

These theories are sometimes called
deontological or duty theories. The Greek work
deon means duty.
The theories are non consequential which
means that the duties are enforced by nature
and there is nothing we can do. We cannot
ignore them.
The German philosopher, Samuel Pufendorf put
these duties into groups, according to their
worth;

Moral duty theories

Group A:
To know the existence and nature of God.
To worship God.

Group B
Developing ones skills and talents.
Not harming our bodies through gluttony,
drunkenness and not killing oneself.

Moral duty theories(cont).

Concerning our duties towards others,
Pufendorf divides these between absolute
duties, which are universally binding on
people, and conditional duties, which are
the result of contrasts between people.
Absolute duties are three:
Avoid wronging others,
Treat people as equals, and
Promote the good of others.

Moral duty theories (cont).

British philosopher, W.D.Ross,
W, gave a list of prima facie
duties, which are part of the
fundamental nature of the
universe:
Fidelity; duty to keep
promises,
Reparation: the duty to

Moral duty theories(cont).

Gratitude: the duty to thank those
who help us.
Justice: the duty to recognise merit.
Beneficence: the duty to improve the
conditions of others.
Self: improvement: the duty to
improve our virtue and intelligence.
Nonmaleficene: the duty to not injure
other.

Moral duty theories

Critically evaluate the
argument advanced by the
Duty Theory that
companies exist to serve
the interests of either
shareholders or
stakeholders.

Q,

Industry Wide Ethical

Issues
Bribing powerful officials in order to get bids and
tenders accepted and bribing competitor
employees to get informational leaks is a serious
ethical issue in business. In fact, it is a crime that
is legally punishable in most countries today.
Labor related issues like gender discrimination at
workplace, employee harassment. minority
community participation, working conditions and
child labour are also some general ethical issues.

Industry Wide Ethical

Issues
Business practices like sourcing of materials,
quality of inputs in production, compromising on
certain aspects like product quality, safety, etc
and deception in packaging, quantity or size also
fall in the purview of business ethics.
Some industries consciously omit the details of
the side effects of the usage of their products
from the product packaging while some indulge in
controversial practices like animal testing and
these too are some of the ethical issues in
businesses.

Industry Wide Ethical

Issues
Forcing labour to work at below
minimum wages, sweatshop work
conditions, violation of worker
rights and not complying with
health, safety and environmental
standards are some common
current ethical issues.

Company specific Ethical

Issues
Showing honesty, integrity and openness in
consumer relationships, addressing warranty and
guarantee claims in an open and transparent
manner and involving the company in some kind
of social welfare causes is an ethical business
practice that many are yet to follow.
Whether to accept moral responsibility of on-site
mishaps, spills, leaks and disasters and whether
to make product recalls if certain harmful
information about diem comes to light. are ethical
issues that all businesses must be prepared for.

Company specific Ethical

Issues
Whether to accept moral
responsibility of on-site mishaps,
spills, leaks and disasters and
whether to make product recalls if
certain harmful information about
diem comes to light. are ethical
issues that all businesses must be
prepared for.

Company specific Ethical

Issues
Unethical business practices like dumping good at loss
making prices just to earn market shares or to oust a
new competitor from business, colluding wit h
competitors to fix higher prices, using high pressure
selling tactics, using deceptive advertising, etc are
also some things that need to be looked at.
Some stronger ethical issues are related to practices
that are not easily detected, like releasing products
that have built-in obsolescence (to generate further
demand for future products) and indulging in
accounting manipulations to generate secret reserves
or to show higher or lower profits as per convenience.

Code of ethics of business

conduct
A code of ethics is a strong set of
rules or guidelines which spell out
the way a company should operate
and employees should behave
towards their work. Ethical conduct is
crucial. People in positions of power
can easily ignore the rules and break
company laws. Issues that should be
dealt with in a code of ethics include
the following:

Code of ethics of
business conduct
Issues that should be dealt with in a code of ethics include
the following:

Avoiding conflicts of interests.

Employees getting opportunities
for personal gain by using
company resources or their
positions in the company.
Confidentiality.

Code of ethics of
business conduct
Fair dealing with customers,
suppliers, employees and
competitors.
Protection and proper use of
company resources.
Compliance with laws and
regulations.
Encouraging the reporting of illegal
and unethical behavior.

DUTIES OF COMPANY SECRETARY

IN CORPORATE GOVERNANCE

Board Meetings
Facilitate the smooth operation of the
companys formal decision making
and reporting machinery; organizing
board and board committee
meetings (e.g. audit, remuneration,
nomination committee etc);

DUTIES OF COMPANY
SECRETARY
General Meetings
Ensuring that an annual general meeting
is held in accordance with the
requirements of the Companies Act and
the companies Articles of Association;
obtaining internal and external agreement
to all documentation for circulation to
shareholders; preparing and issuing
notices of meetings, and distributing
proxy forms;

DUTIES OF COMPANY
SECRETARY
Memorandum and Articles of
Association
Ensuring that the company complies
with its Memorandum and Articles of
Association and, drafting and
incorporating amendments in
accordance with correct procedures.

DUTIES OF COMPANY
SECRETARY
Stock Exchange Requirements
supervising the implementation of
the model code and/or the company
code for dealing in the companys
securities, as appropriate, managing
relations with the Stock Exchange
through the companys brokers;
releasing information to the market;

DUTIES OF COMPANY
SECRETARY

Statutory Registers
Maintaining the following statutory registers:
Members
Company charges
Directors and secretary
Directors interests in shares and debentures
Interests in voting shares (substantial holdings
and those notified in pursuance of a s.212
notice)
Debentures holders (if applicable).

DUTIES OF COMPANY
SECRETARY
Statutory Returns
Filling information with the Registrar of Companies to report certain
changes regarding the company or to comply with requirements for
periodic filing. Of particular importance in this regard are:
Annual returns
Report and accounts
Amended memorandum and Articles of Association
Returns of allotments
Notice of appointment, removal and resignation of directors and the
secretary
Notices of removal or registration of the auditors
Change of registered office
Resolutions in accordance with The Companies Act.

DUTIES OF COMPANY
SECRETARY
Returns of allotments
Notice of appointment, removal and
resignation of directors and the secretary
Notices of removal or registration of the
auditors
Change of registered office
Resolutions in accordance with The
Companies Act.

DUTIES OF COMPANY
SECRETARY
Report and Accounts
Co-ordinating the publication and
distribution of the companys annual
report and accounts and interim
statements, in consultation with the
companys internal and external
advisers, in particular, when
preparing the directors report.

DUTIES OF COMPANY
SECRETARY

Share Registration
Maintaining the companys register of
members; dealing with transfers and
other matters affecting share-holdings;
dealing with queries and requests from
shareholders.

DUTIES OF COMPANY
SECRETARY
Shareholder communications
Communicating with the shareholders (e.g
through circulars); arranging payment of
dividends and interest; issuing
documentation regarding rights issues and
capitalization issues; maintaining good
general shareholder relations; maintaining
good relations with institutional shareholders
and their investment committees.

DUTIES OF COMPANY
SECRETARY
Shareholder Monitoring
Monitoring movements on the
register of members to identify any
apparent stakebuilding in the
companys shares by potential takeover bidders; making appropriate
inquiries of members as to beneficial
ownership of holdings

DUTIES OF COMPANY
SECRETARY
Share and Capital Issues and
Restructuring
Implementing properly authorized
changes in the structure of the
companys share and loan capital;
devising implementing and
administering directors and
employees share participation
schemes.