MAN 20005LECTURE 3

Professional Ethics & Developing Codes of

Practice in Ethics

Updated 3.10

Professional Ethics

• Concern with what a professional should or should not do in the work place.

• A professional needs to adopt ethical conduct in all of his dealings when providing a service to the public - additional moral responsibilities

• moral issues that arise because of his specialist knowledge

Example of Code of Ethics, Code of Conducthttp://www.td.com/governance/code_ethics.pdf

Code of Conduct and Code of Ethics

• provide guidelines for integrity - detailed do’s and don’ts

• have a positive tone

• use vague words

• often have no disciplinary teeth

• short statement of general principles

• provide rules to be loyally followed - statements of mission and value

• have a negative tone

• are specific and explicit

• detail mechanisms for corrective action

• Long provision

Code of EthicsCode of Ethics Code of ConductCode of Conduct

Purpose of codes of conduct & ethics

Damage limitation• To reduce damages awarded by courts in the event of the company

being sued for negligence by one of its employee

Guidance• A reminding role for employees when faced with ethically complex

situation

Regulation• Prescribe qualities expected (ie : truthfulness, compliance)• Proscribe qualities prohibited (ie : bribery)

Discipline and appeal• A benchmark for an organization to decide whether an employee has

contravening conduct and punishment that ensues• A basis for the accused to appeal

Information• Information for external audiences of standard of behaviour that can

be expected of employees

Proclamation (for professional bodies)• To assure the public that monopoly rights granted to them will not

be abused.

Negotiation• Tool to negotiate disputes

Arguments against Codes

Justification• Lack of universally accepted set of common principles

The inability of rules to shape behaviour• A signal of lack of trust on the employee Support structures• Availability of a support structure within the organization to

facilitate employees to act in accordance to the code

The marginality of codes• Codes being treated as garnishing corporate activities

The loss of individual responsibility• “I was only following orders”

Best Practices Standards

Best practices standards

• Different from code of conducts and ethics – meant to cover a wider scope of application

• Not written for a particular organization

• Set the minimum benchmark of behavior

• Often give accreditation to organizations that meet the minimum standard

Accountability 1000 (AA 1000)• A standard for ethical performance

• Produced by the Institute for Social and Ethical Accountability

• to encourage ethical behavior in any profit and non-profit organizations and of any size

• set standard for measuring and reporting ethical behavior in business

• a means for others to judge the validity of claims

The Ethics Compliance Management System Standard• guideline for organization which aim to establish, apply,

maintain and consistently improve an ethical-legal compliance management system.

Social Accountability 8000

• a voluntary, universal standard for companies interested in auditing and certifying labour practices, for the business itself and their suppliers and vendors.

• It is designed for independent third party certification.

• measures company’s performance in 8 key areas : child labour, forced labour, health and safety, free association and collective bargaining, discrimination, disciplinary practices, working hours and compensation.

Global Reporting Initiative

• Develop standardized sustainability reporting framework - through consensus-seeking process with participants drawn globally from business, civil society, labor, and professional institutions.

• GRI sustainability reports framework can be used to benchmark organizational performance with respect to laws, norms, codes, performance standards and voluntary initiatives; demonstrate organizational commitment to sustainable development; and compare organizational performance over time.

Code of Corporate Governance

1992

CadburyReport

1995

GreenburyReport

1998

Hampel Report &

Combined Code

2003

Smith & Higgs

Combined Code

1999

TurnbullReport

2001

Myners

OECD principles

2002

Sarbanes-Oxley

2004

Reports and Governance Codes

Significant recent reports and developments in corporate governance

CADBURY REPORT

• The notion of Corporate Governance was initially brought from America to Britain during the early 90s

• Cadbury Committee was set up in May 1991– by Sir Adrian Cadbury

• Cadbury Report and the Code of Best Practice were issued in December 1992

The Cadbury Code emphasized on :

a) content of annual report

b) accuracy of financial information disclosed

c) board responsibility to assert that the annual account of the company show the company to be or not to be a going concern

d) steps which the board has taken to put in place internal controls

• The Code of Best Practice was voluntary in nature.

GREENBURY REPORT

• Established 3 years after the publication of the Cadbury Report

• Purpose : to consider questions relating to Directors’ remuneration and emoluments.

• require PLCs to establish a Remuneration Committee• consist exclusively of Non-Executive Directors.• determines company’s policy on ED’s remuneration packages• Chairman of the RC is required to attend AGM to answer

questions about Director’s remuneration.• Every PLC must state in its annual report whether it has

complied with this code and if it has not, to explain and justify its non-compliance.

• established in November 1995

• Main purpose :-

a) to review the Cadbury and Greenbury Report

b) to review the role of directors, executive and

non-executive

c) to review the role of shareholders and auditors

• Recognized the need for company to take into account interest of stakeholders.

HAMPEL REPORT

SARBANES OXLEY

• United States federal law passed in response to the increasing number of corporate failure

• contains 11 sections ranging from Board responsibilities, criminal penalties, auditor independence, financial disclosure ETC

• created a new quasi-public agency called the Public Company Accounting Oversight Board - to oversee, regulate, inspect and discipline accounting firms.

Major Provisions :a) PLCs to disclose effectiveness of the internal controls of their

financial reporting – report must be attested by independent auditors

b) Certification of financial reports by Chief Executive Officers (CEO) and Chief Financial Officers (CFO)

c) Require PLCs to have a fully independent audit committeesd) Ban on personal loans to any Director e) Increase requirement for reporting of insider tradingf) Enhanced criminal and civil penalties for violations of

securities law g) Significantly longer maximum jail sentences and larger fines

for corporate executives who knowingly and willfully misstate financial statements.

h) Protections for whistleblowers – reinstatement, back pay, benefits, compensatory damages, abatement orders, attorney fees and costs.

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