Afin 427: corporate governance and business ethics author



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AFIN 427: CORPORATE GOVERNANCE AND BUSINESS ETHICS

AUTHOR:

Dr. Chilufya Bwalya Lewis (BA, STL, MA, Ph.D.)

LUSAKA, 2012



TABLE OF CONTENTS



General Introduction 6

UNIT 1 7


Nature of Corporate Governance 7

If you were asked to explain corporate governance, what would you say? 7

1.1.History of Corporate Governance 7

1.2 Contemporary Nature of Governance 8

1.3 The Cultural Dependence of Corporate Governance 10

1.3.1 Forces for convergence 11

1.31. Forces for differentiation 13

UNIT 2 16

Theories of Corporate Governance 16

2.2 Theories Associated with the development of corporate governance 16

2.2.1 Agency theory 18

2.2.2 Transaction Cost Economics 19

2.2.3 Stakeholder Theory 20

2.2.4 Stewardship Theories 20

2.2.5 Class hegemony Theories 20

20


2.2.6 Managerial hegemony 20

20


UNIT 3 21

The Corporate Governance Structure 21

3.1 Directors and Board Structure 21

3.1.1 Unitary board versus dual board 21

3.1.2 Combined Code 23

3.1.3 UK Stewardship Code 25

3.2 Roles in Corporate Governance Structure 28

A.The board of directors 28

B.Chief executive officer 32

C.Chairman 32

D.Senior independent director 33

E.Company secretary 33

F.Board sub- committees 34

G.Types of Directors 39

H.Director Evaluation 43

I.Diversity in the Boardroom 45

UNIT 4 47

RISK MANAGEMENT 47

Increasingly, risk assessment and management has become a common feature among codes of corporate world-wide. This is not a surprise especially in the wake corporate collapses and failure that have happened recently due inappropriate risk-taking in terms of investments. This unit will deal with the mechanism and importance of risk management. 47

The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance. Inadequate risk management can result in severe consequences for companies as well as individuals. For example, the recession that began in 2008 was largely caused by the loose credit risk management of financial firms. 48

4.1 Method 48

4.2 Principles of Risk Management 49

4.2.1Establishing the context 50

4.2.2Identification 50

4.2.3Assessment 52

4.3 Risk Options 53

4.3.1 Potential risk treatments 53

4.3.2Risk avoidance 54

4.3.3Hazard prevention 54

4.3.4Risk reduction 54

4.3.5Risk sharing 55

4.3.6Risk retention 56

4.4 Areas of risk management 56

4.5 Positive Risk Management 56

4.6 Risk Management and Business Continuity 59

4.7 Risk communication 59

UNIT 5 61

Corporate Governance and Compliance Requirements 61

5.1 Importance of Legal and Regulatory Requirements 61

61


5.2 Quality and Composition of the Board 62

62


5.3 Board Governance and Practices 62

5.4 Evolving Code of Corporate Governance Practices 63

5.5 Corporate Governance Through Listing Agreements 64

5.6 Compliance Certificate 66

STUDY QUESTIONS 67

UNIT 6 68

Codes of Corporate Governance – Checks and Balances 68

6.1The growth in corporate governance codes 68

6.2Corporate governance in the UK 70

6.2.1Cadbury Report (1992) 71

6.2.2Greenbury Report (1995) 74

6.2.3Hampel Report (1998) 75

6.2.4Combined Code (1998) 75

6.2.5Turnbull (1999) 76

6.2.6Miners (2001) 76

6.2.7Higgs (2003) 77

6.2.8Smith (2003) 77

6.2.9Combined Code (2003) 78

78

6.2.10Revised Turnbull Guidance (2005) 78



6.2.11Combined Code (2006) 78

UNIT 7 79

GLOBAL INFUENCES AFFECTING CORPORATE GOVERNANCE 79

7.1 OECD Principles of Corporate Governance (1999) as revised (2004) 80

7.2 World Bank 82

7.3 Global Corporate Governance Forum 82

7.4 International Corporate Governance Network 83

7.5 Commonwealth Association for Corporate Governance 84

7.6 EU COMPANY LAW 84

7.8 US CORPORATE GOVERNANCE 86

7.8.1 Delaware Corporate Law 87

7.8.2 Employee Retirement Income Security Act 1974 87

7.8.3 Sarbanes-Oxley Act 2002 88

7.8.4 Commission of Public Trust and Private Enterprise 2003 90

UNIT 8 98

Corporate Governance and Public Enterprises 98

8.1 Public Sector Reforms 99

8.2 Public Sector Reforms in India 100

8.3 Sound Corporate Governance 100

8.4 Policy Review 101

STUDY QUESTIONS 102

FURTHER READING REFRENCES 103

UNIT 8 104

BUSINESS ETHICS 104

8.1 Ethical Behaviour 106

8.2 Is the corporation a moral agent? 107

8.3 Four Different Views of Business Ethics 108

8.3.1 Utilitarian View of Ethics 109

8.3.2. Rights View of Ethics 109

8.3.3 Theory of Justice View of Ethics 110

8.4 APPROACHES TO BUSINESS ETHICS 111

8.4.1Deriving Business Ethics from the Profit Motive 112

8.4.2Business Ethics Restricted to Following the Law 113

8.4.3Deriving Business Ethics from General Moral Obligations 116

8.5 Factors affecting Managerial Ethics 118

8.6 Business Ethics Programme 119

8.7 CLUSTERS OF VARIABLES FOUND IN 83 CORPORATE CODES OF BUSINESS ETHICS 121

8.8 Effects of Business Ethics Programmes 124

8.9 Stage of Moral Development 126

8.10 Ethics in an International Context 129

Study Questions 134

UNIT 9 135

Social Responsibility 135

9.1 Two Opposing Views of Social Responsibility 136

9.2 Arguments For and Against Social Responsibility 139

9.2 CASES OF CORPORATE GOVERNANCE 141

High Corporate Governance Standards: Low Ethical Performance (the NewsCorp Case) 141

Executive Pay – the Days of the Golden Packages Are Numbered? 145

Tokyo Electric Power and the Disaster at Fukushima Daiichi 148

Diversity – Rejection of Quotas 152






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