The document discusses several topics related to business ethics and governance: 1. It discusses failures of governance that contributed to the global financial crisis, including a lack of understanding of risk at board levels and remuneration strategies that encouraged inappropriate risk-taking. 2. It outlines some key drivers of ideas about ethical business practices, including OECD governance principles, statutes, governance codes and guidance, developments in practice, and stakeholder pressure. 3. It provides examples of governance codes and recommendations from reports that emphasize the importance of issues like diversity, accountability, transparency, and managing conflicts of interest.

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2. 1. Start with some context.
2. What is considered to be the right way to run a business?
3. Some ethical choices at board level.
CONTEXT
All businesses need to balance risk and reward.
Business risk takes any number of forms – and are different for companies in different stages (start
up).
Other threats and challenges come from the external environment – law and regulations impose a
wide and growing range of compliance obligations.
These often require significant investment.
Businesses also increasingly aware of the interest that a wide group of stakeholders has.
Includes shareholders and regulators, consumers, media and general public.
Companies more conscious of relationship between their image in the market and consequential
consumer behavior, and of the implications of this relationship for their business prospects.
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3. Let’s start with the global financial crisis that started in 2007.
The crisis amply demonstrated the effects of failing to reconcile the management of operational and
reputational risk with the pursuit of commercial profit.
Countless words have been written about what caused the crisis, and there are many different views
on this.
But one cause that few people do not agree with is that it was caused by a failure of governance in
banks.
Which is particularly concerning because many of those banks were institutions who were held us as
being models of governance in the years before the crash.
Expanding on “failure of governance” there is common agreement about what some of these failures
were.
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4. One undeniable fact is that risk had not been addressed with sufficient respect or understanding by
the boards of financial institutions.
Governance processes and practices have also been criticized.
Remuneration strategies encouraging inappropriate risk taking.
Board appointment processes (“pale, male, stale”: susceptible to lack of challenge and “group think”).
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5. What about business ethics?
Focus has been on governance processes and procedures and less about the “right way to do
business”, in terms of ethics and integrity.
All sorts of things have happened in response to the crisis – including new or increased taxes, various
regulations, banks being less willing to lend, economies contracting meaning there are fewer
contracts for companies to compete for.
In an attempt to reach their goals, keep up with their competitors or simply survive, companies face
various moral issues and may be tempted to “cut corners”.
For these reasons business ethics is becoming more and more important.
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9. Survey of more than 1,200 senior executives and board members.
RML UNDERSTAND HOW RISKS INTERCONNECT & IMPACT BUSINESS
They are more likely to compile an aggregated view of risks when making decisions.
This gives them a clear and realistic understanding of operational issues and market opportunities.
RML HAVE A STRATEGIC UNDERSTANDING OF THEIR RISK APPETITE & ARE WILLING TO TAKE RISKS
Because they have a detailed understanding of risk, risk leaders are increasingly taking higher and
higher risks.
RML ARE MORE ALIGNED ACROSS BUSINESS UNITS
90% of RML say their risk management program is fully aligned or very aligned with their company’s
strategic planning process.
For non RML the figure is 36%.
This lends them great speed and agility in neutralizing threats and seizing opportunities.
RML APPLY MORE SOPHISTICATED TECHNIQUES
46% of RML spend more time calculating and preparing for risk than reacting to it, as compared with
21 percent of non-leaders.
RML also use a variety of tools, including identification and forecasting of emerging risks, horizon
scanning and early-warning indicators and building organizational resilience to risk.
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11. There has been little discussion on what is ethically right in business.
However these discussions are increasing all the time.
So what is influencing ideas about what is ethically right to run a business?
Principles and practices of governance vary between countries and organisations but it is possible to
identify some key themes which are widely considered as being the “right way” to run a company.
I’d like to discuss a few of the drivers and sources for these ideas.
Namely:
1. OECD Principles of Corporate Governance
2. Statutes
3. Governance Codes & Guidance
4. Developments in Corporate Governance Practice
5. Stakeholder Pressure
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12. Seen by many as international benchmark of governance.
First released in 1999.
Reviewed in 2004.
Currently being reviewed again.
Consultation period closed in January.
Include number of references to ethical elements core to corporate governance.
Six broad principles are supported by a number of explanatory points concerning:
• Ensuring the basis for an effective corporate governance framework
• The rights, equal treatment of and role of shareholders
• Disclosure and transparency
• The responsibilities of the board (see over)
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13. “The interests of stakeholders” directly connects the board’s actions to their effect on employees,
shareholders, customers and other stakeholders.
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14. Does not apply to:
1. Companies and institutions that are wholly owned by the Federal Government or a local government
2. Banks, finance companies, financial investment companies, money exchange companies, monetary
brokerage companies that are under the supervision of the Central Bank
3. Foreign companies that are listed in any of financial markets.
A Company shall approve the code of conduct along with other internal policies and principles in conformity with
the objectives and purposes of the Company and it shall adhere to applicable laws and regulations. These
rules shall apply to board members, directors, employees and the internal auditor in the course of
fulfillment of their duties. Companies shall apply an environmental and social policy towards the local
society.
January 2011
Chief Executive of the SCA noted that “occasional irregularities” are to be expected in local markets as
companies become accustomed to tighter ethical standards.
Common weaknesses include: conflicts of interest among executives; breaches of minority shareholder rights;
and insider dealing.
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15. EU Directive requiring all listed companies to publish a corporate governance statement on a “comply
or explain” basis.
Some states went further and issued extra guidance or introduced provisions into law.
Number of countries introduced corporate governance codes for the first time.
Take different formats but contain many common themes and principles.
UAE Listed Companies: The corporate governance report is a report signed by the chairman of the
board of directors of a Company and is forwarded to the Authority on an annual basis or at request
during the accounting period covered in the report or for a subsequent period up to the publication
date of the annual report, which shall cover all information and details in the form issued by the
Authority, in particular: 1. requirements and principles of completion of corporate governance system
and approach of their application; 2. violations committed during the financial year, reflecting their
causes as well as the method of remedy and avoidance of future occurrence; and 3. method of
formation of the board of directors in terms of member classes, term of membership, means of
remuneration fixation as well as the remuneration of the general manager, executive director or chief
executive officer of the Company as appointed by the board of directors. The board of directors shall
make this report available to all the Company's shareholders a sufficient time prior to the general
assembly meeting.
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16. Heidrick & Struggles study of European Corporate Governance: “A possible reason why many boards
are still found wanting is the fact that despite rigorous efforts to raise governance standards,
insufficient attention has been paid to the behavioral standards as opposed to the technical
challenges of the boardrooms”.
Allen & Overy study noted that a board evaluation may be an occasion to monitor behavioral rules.
EY survey in 2012 highlighted a number of good practices that have been copied between countries,
including: creation of a “lead director” where the roles of chairman and CEO are combined; increased
transparency in governance reporting; and a greater focus on compliance systems such as fraud
prevention and anti money laundering.
GT study found that one in twenty of the UK’s largest 350 companies chairmen now emphasise the
importance of company culture to effective governance. “Too early to call this a trend, but the role of
culture and ethical principles in cementing effective governance is gaining credence”.
Director’s Toolkit includes what may be the most detailed guide on what it might mean to behave
with integrity when carrying out the role of a director.
“Guidance on Board Effectiveness” is designed to be read alongside the UK Corporate Governance
Code. This was produced following the Walker Review, see quote on following page.
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19. These five areas are:
- Core to the way that a business is overseen and directed.
- Have an ethical imperative
- Involve the discretion of the board
There are many other ethical issues faced by boards.
Drivers for boards’ attention to these practices may on the one hand be a desire to “do the right
thing” (to behave ethically for its own sake) and/or on the other hand be a conviction about their role
in improving business performance.
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20. Some EU governance codes encourage gender diversity (UK, Austria, Belgium are just a few).
Empowering women for leadership positions is important for economic growth. There are studies
that support this.
Discussions in this area tend to focus more on the economic business case than the ethical issues
concerning equal treatment and equality.
Hawkamah Report (2013)
FOR GOVERNMENT TO CONSIDER
Introduce a quota for gender diversity; start with public sector boards, influence the private sector of
need to change. Of the 13 women who discussed this, four supported a quota, six would possibly
support some intervention, but three women were against it.
Limit the number of board directorships that one person can hold, and time-limit seats.
Allow foreigners to be NEDs of Emirati businesses to take advantage of diversity.
Require all new directors to take a corporate governance programme.
Mandate transparency of board membership.
Set up mechanisms to build and develop a pipeline of potential women directors.
Promote a list of qualified candidates to those appointing directors.
Privatise more public sector organisations to improve governance, which would thereby create more
director seats.
Continue to improve UAE education to best international standards.
Encourage more Emiratis to go into private sector careers.
Improve official maternity leave, give women a right to return to their posts within 12 months, and
rights to flexible working for mothers of young children.
RECOMMENDATIONS FOR EMPLOYERS
Set up talent management structures for women and men.
Increase training opportunities for women; set up formal mentoring schemes.
Train middle managers to stop stereotyping roles and genders, to remove blockage. Provide
confidential career counselling.
RECOMMENDATIONS FOR MEN
At work, stop stereotyping women and job roles, understand the lack of fairness in current systems,
and stop excluding women in the workgroup.
As fathers, bring up daughters and sons equally, sendboth overseas for postgraduateeducation. 20

21. Rewards for failure – high payments to departing CEOs.
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22. Accountability encompasses a two pay process and there are many organisations that exert pressure
and influence and demand greater accountability. Also includes investment industry and relationship
with shareholders.
Poor shareholder engagement continues to be a concern in some countries. They should be
encouraged to engage more in corporate governance.
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23. Recognise executive directors have an inherent conflict but matters which might benefit them in their
executive role must be subordinated to the interests of the company as a whole.
Directors also have a conflict if they have a personal connection with any part of the business or
proposed transaction, or because of a role they hold outside the business. These interests must be
subordinated to the business.
When selecting directors should assess ethical acumen, by seeking responses to hypothetical conflicts
of interest.
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24. Transparent disclosure enables stakeholder to gain an informed and accurate view of the business
and the way it is doing business, negative points as well as positive. Reduces scope for unwelcome
facts to be hidden.
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29. • In practice ethical considerations involve legal requirements (criminal, contractual and civil
provisions); indisputable obligations such as the observance of various accepted, non-legal,
human and anti-discrimination rights; formal protocols (which may put indisputable obligations
within a company framework); and the behavior that might be expected by society (which may or
may not be covered in company CSR policies).
• Outside this we have nebulous area summed up as “doing the right thing”. Easy in personal life
but the dynamics of the business environment, including duty of loyalty owed by directors and
employees to company, onus to achieve our targets, competitive environment in which we
operate make it more difficult.
• Codes of ethics mostly describe behaviors required in certain circumstances, the better ones are
rooted in a set of values.
• But organisations do not have values, only the individuals within them do.
• So codes tend to reflect a consensus of values that certain people think they should have.
• And codes will be interpreted in different ways.
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30. 1. Board must understand the business case for high ethical standards and attention to integrity
risk, and recognise its oversight role in assuring that the organisation lives up to its values.
2. Find a champion to set up a board level ethics or corporate responsibility committee, or to assign
responsibility to an existing committee.
3. The oversight committee must clarify the objectives and scope of the ethics program and ensure
this aligns with the corporate purpose and strategy.
4. Don’t just endorse an external standard or copy another organisation. Find out what topics
employees require guidance on, be clear what issues are of concern to stakeholders and what
issues are material to the business activities.
5. Find out what others do.
6. Pilot a draft code.
7. How will the code be monitored? What are the key indicators / measures of an ethical culture for
your organisation?
8. Review on a periodic basis to take account of changes in the environment.
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31. 1. A bigger-than-life CEO/Chair can spell problems for a company. Hubris often clouds the rock-star CEO's judgment, exemplified by this
comment from a Silicon Valley CEO: "It is only illegal if you get caught." There's an old adage in business: " The seeds of destruction are
sown in the best of times." Bravado and machismo reign when all is going well, and can be taken to the extreme by an out-of-control,
rock-star CEO. As a corollary, much of the reputational damage to a company is done by the attempted cover-up of inappropriate
behavior by dysfunctional executives.
2. Conflicts of interest either undermine integrity or the perception of integrity. Directors should never waive company policy on conflicts,
which should all be managed by either eliminating or fully disclosing them as soon as they arise. Transparency is a strong defense against
problems such as excessive perks for senior executives and/or Board members, family members profiting from company relationships,
and loans to the management team.
3. Board members can become so highly specialized in their skills and experiences that they create silos and become unable to see the big
picture. This leaves analysis and proposed actions to special committees with little overall oversight—creating bureaucracy that leads to
trouble—e.g. we thought that the "special-committee-for special problems" was handling that, not our committee!
4. Excessive pressure/extremely leveraged compensation can encourage rule bending and rule breaking. Such pressures can't be modified by
simply saying "…and we want you to abide by our Code of Conduct as well!"
5. Intense loyalty—institutional or to a leader(s) — distorts transparency and integrity. In these circumstances, employees will defer to the
leader even when they know it's wrong or he/she is misguided. Such deference may also lead to the rationalization that effectiveness in
some areas atones for wrongdoing in others.
6. Board members should not ignore or excuse the CEO's conduct in his or her personal life. While unrelated to the operations of the
company, a CEO's personal misconduct does affect the corporation's reputation. One of the panelists described it this way: "An
extramarital affair involves lying to a spouse, one of the most important people in your life. What does that say about the character and
truthfulness of the person involved, and their willingness to lie to constituents?"
7. Speaking truth-to-power is never easy, but creating an environment that encourages everyone to be candid is the key to early discovery of
problems in an organization. Senior management's or the board's failure to speak or hear the hard truth creates an atmosphere of fear
and silence that can mask trouble until it's too late to take corrective action. Overcoming the social stigma of appearing stupid to question
the appropriateness of a complex proposal takes a degree of courage and/or an environment where questions and learning are valued.
8. Board members should act like owners, not caretakers. Many board members have no "skin in the game" and lack passion for and
commitment to the company. Corporate directors need to be leaders not shepherds. Board members' first responsibility is to protect the
interest of the shareholders of the organization. The most efficient way to align this responsibility is to have all board members hold stock
in the company and experience increases and decreases in its value attributed to the decisions they make directly, or those of
management that they oversee.
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