Read the extract below and answer ALL the questions that follow [100 MARKS]

Ethics, Values and Corporate Governance

Since the origin of commerce, the ethical basis of business has been in question. In the ancient Greek civilisation Aristotle could readily distinguish between the basic trade required for an economy to function, and trade for profit which could descend into unproductive usury (Solomon 1992, 321). Most major world religions cast a sceptical eye on business, including Christianity, Islam and Confucianism. Shakespeare immortalised the potential venality of business in The Merchant of Venice, All that glisters is not gold. Frentrop (2003) graphically records how greed, speculation, deceit and frequent bankruptcy punctuated the fortunes of the earliest of the great trading companies, beginning with the Dutch East India Company. Adam Smith in 1776 in The Wealth of Nations made a withering comment on company management that would echo through the ages: Being managers of other peoples money than their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partner frequently watch over their own. Negligence and profusion, therefore, must always prevail more or less in the management of the affairs of a joint-stock company (Smith 1976, 264265).As technological change advanced with the industrial revolution, there occurred a wider diffusion of ownership of many large companies as no individual, family or group of managers could provide sufficient capital to sustain growth. Berle and Means chronicled the profound implications of this separation of ownership and control: the dissolution of the old atom of ownership into its component parts, control and beneficial ownership (1933, 8). Berle and Means expressed hope that with this different concept of a corporation there might develop a much wider accountability to the community, recognising the significance of the diffusion of ownership and the concentration of control in the modern corporation: The economic power in the hands of the few persons who control a giant corporation is a tremendous force which can harm or benefit a multitude of individuals, affect whole districts, shift the currents of trade, bring ruin to one community and prosperity to another (Berle and Means 1933, 46).However, any hope of a wider sense of fiduciary duty in corporations was eroded away in the later decades of the twentieth century in the Anglo- American world, as capital markets became more aggressive and unstable, and executive compensation was propelled upwards by stock options. A succession of cycles of booming economies, followed by market collapse and recession, culminated in 20072008 in the first global financial crisis, which was also a crisis in governance and regulation. The most severe financial disaster since the Great Depression of the 1930s exposed the dangers of unregulated markets, nominal corporate governance, and neglected risk management. What also appeared in stark relief were an economic system and corporations and managers singularly lacking in any moral compass. It has been argued that the dominant logic in this era, in both finance and law of agency theory, had reduced managers to mere agents of shareholder principles. Agency theory asserts that shareholder value is the ultimate corporate objective which managers are incentivised and impelled to pursue: The crisis has shown that managers are often incapable of resisting pressure from shareholders. In their management decisions, the short-term market value counts more than the long-term health of the firm (Segrestin and Hatchel 2011, 484; Jordi 2010). Agency theory has become a cornerstone of corporate governance (Lan and Heracleous 2010, 294). As governments, regulators, and financial institutions examined what had gone wrong during the crisis, a new sense of the importance of robust regulation, alert corporate governance, and stronger ethical guidelines became widespread. In effect what is now emerging is an integration of corporate governance, corporate social responsibility and corporate sustainability which potentially offers a new framework for ethical business.

This newly-emerging ethical framework for business provides a stronger base for the exercise of moral values and ethical reasoning. People in business are ultimately responsible as individuals, but they are responsible as individuals in a corporate setting where their responsibilities are at least in part defined by their roles and duties in the company businesses in turn are defined by their role(s) and responsibilities in the larger community (Solomon 1992, 320). This suggests an ethical alignment of individuals, corporations, and the economic system, which is captured in the vmc

definition of corporate governance offered by Cadbury, and adopted by the World Bank: Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. Business ethics is too often conceived as a set of impositions and constraints, obstacles to business behaviour rather than the motivating force of that behaviour properly understood, ethics does not and should not consist of a set of prohibitive principles or rules, and it is the virtue of an ethics of virtue to be rather an intrinsic part and the driving force of a successful life well lived. Its motivation need not depend on elaborate soul-searching and deliberation but in the best companies moves along with the easy flow of interpersonal relations and a mutual sense of mission and accomplishment.

(Source:https://www.bbvaopenmind.com/en/articles/ethics-values-and-corporate-governance/ Date accessed 17th June 2020)

QUESTION 1 (20 Marks)

Discuss the role of Corporate Governance in modern day corporations in the context of the Governance framework as stated in the extract.

QUESTION 2 (20 Marks)

2.1 Examine the role of Corporate Charter in defining the scope of Corporate Governance. (5 marks)

2.2 In the context of the above extract discuss the role of Sarbanes Oxley Act in preventing fraud. (15 marks)

QUESTION 3 (20 Marks)

Discuss the practice Corporate Social Responsibility as a new integrating factor in modern day business as discussed in the extract above.

QUESTION 4 (20 Marks)

In the context of the above extract, examine the practical suggestions for making ethical decisions and discuss situations when ethical decision making can be difficult.

QUESTION 5 (20 Marks)

Discuss the major sources of Ethical values for businesses within and how it shapes the modern day businesses as discussed in the above extract.

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