corporate governnance

corporate governnance - Corporate Governance and Culture...

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Unformatted text preview: Corporate Governance and Culture Culture CHARACTERISTICS OF INDIVIDUALS Individual Differences Cognitive Biases Process of Individual Ethical Decision-Making Behavior MORAL ETHICAL ETHICAL AWARENESS JUDGMENT BEHAVIOR CHARACTERISTICS OF ORGANIZATIONS Group and Organizational Pressures Organizational Culture Corporate Governance Corporate The formal system of accountability and The control for organizational decisions and resources resources Managers Board of Directors Shareholders Boards of Directors Boards Assume legal responsibility for firm’s Assume resources and decisions resources Appoint top executive officers Compensation and succession Financial objectives and overall strategy Advise and counsel top management Changing Role of the Board of Directors Board Size Outside representation Separation of CEO and Chairman of the Separation Board Board Diversity Compensation Major Rights of Shareholders Major Receive dividends, if declared Vote Receive annual financial reports Shareholder suits Sell their own shares of stock Stock Ownership 1965-2002 Stock Percent of all stocks owned Households Institutions 100 80 60 40 20 0 1965 1975 1985 1995 2000 2002 Year Source: Securities Industry Factbook (New York: Securities Industry Association, 2003). Issues with Shareholders and Investors Shareholders Investor confidence Activism Social investing Investor Confidence Investor Investor Confidence Investor Are you willing to pay a premium for a well-governed company? Percentage of investors 90 80 70 60 50 Yes No 40 30 20 10 0 Western Europe Asia North Latin Eastern America America Europe Africa Source: McKinsey & Company, McKinsey Global Investor Opinion Survey on Corporate Governance, 2002. Activism Activism “Activism reflects the simple and accepted concept Activism that people behave and perform better if they are watched and if there are good consequences for good behavior and bad ones for bad behavior. Activism also reflects the fact that large investors can do better than to plunk money down and hope for the best—they can take steps to increase the chance that the best will actually occur.” ( occur.” Social Investing Social Environmental Workplace equity and safety Product safety and testing Global operations Human rights CEO Pay: Comparison with CEO an Average Worker an Source: Executive Compensation Executive In 2002, the chief executives of the largest In corporations in the United States earned, on average, $7.4 million, including salaries, bonuses, and stock options. bonuses, International standards: United Kingdom - $645,540 Japan - $420,855 Germany - $398,430 Legal Issues Legal U.S. Securities & Exchange U.S. Commission (SEC) Commission Sarbanes-Oxley Act Sarbanes-Oxley Act of 2002 Sarbanes-Oxley Some provisions: Disclose code of ethics for financial officers (or justify Disclose its absence); report amendments or waivers its Required 5-person auditing committee on Board (all Required members independent) members Must rotate audit firm every five years Ban on personal loans to executives, directors Fines/prison for retaliating against whistle-blowers Criminal liability for document destruction (20 yrs) Section 404: CEO certification of financial reports Section Up to 20 years, $5M for intentionally certifying false earnings Up to 10 years, $1M for mistakenly certifying false earnings Up certifying Benefits of Sarbanes-Oxley Benefits Greater accountability Greater Increased investor confidence Requires justification of executive Requires compensation packages compensation Greater protection of employee retirement Greater plans plans Increased penalties for wrongdoing The Need for Ethics Programs The Organizations are held accountable for Organizations the conduct of their employees. the Organizations create ethical or unethical Organizations corporate cultures. corporate Stakeholders demand greater ethical and Stakeholders social responsibility. social Effective Ethics Programs Effective Unethical and illegal behavior is reduced Increased awareness of legal and ethical Increased issues issues Employees are comfortable looking for Employees ethics advice ethics Bad news is delivered to management Violations are reported Ethics considered in decision making High employee commitment Keys to Successful Ethics Training Training Helps employees identify ethical issues and Helps understand the ambiguity Gives employees a means to address ethical Gives issues. issues. Makes employees aware that their action Makes defines the company’s ethical posture. defines Eliminate the belief that Eliminate unethical behavior is sometimes justifiable. sometimes Ethics Program Approaches Ethics Compliance-based ethics programs Integrity-based ethics programs Ethical Culture Ethical WELCOME TO NORDSTROM We’re glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. We have great confidence in your ability to achieve them. Nordstrom Rules Rule #1: Use your good judgment in all situations. There will be no additional rules. Please feel free to ask your department manager, store manager, or divisional general manager any questions at any time. Culture Culture A body of learned beliefs, traditions, body and guides for behavior shared among members of a society or a group members The Basic Functions of Organizational Culture Organizational Organizational Culture Provides a sense of identity for members Enhances commitment to the organization’s mission Clarifies and reinforces standards of behavior Benefits of Strong Ethical Culture Culture 94% say it’s important to them that the 94% company they work for is ethical company 82% would prefer an ethical organization 82% rather than more pay rather 36% have quit because they disagreed 36% with the company’s ethical standards with 50% state that unethical behavior is a 50% distraction on the job distraction Building an Ethical Culture Building 1. Strong ethical executive leadership 2. Fair treatment of employees 3. Ethics included in discussions and Ethics decisions decisions 4. Reward systems support ethical conduct ...
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This note was uploaded on 11/22/2011 for the course ETHICS BUS M 390 taught by Professor Loriwardsworth during the Fall '11 term at BYU.

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