Download as PDF, PPTX
![ Section 99 1(b) of the TT Companies Act states:
1) Every director and officer of a company shall in exercising his powers
and discharging his duties—
(b) exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
o In Re: City Equitable Fire Insurance Co [1925] Ch 407, Lord Justice
Romer stated that the duty of care and skill involved three basic
elements: competence and skill in conducting the company’s affairs,
diligence and devotion to those affairs and the proper delegation of
their duties.
o John Stuart Mill, posited under the Utilitarian Theory that an act or
action is proper if it produces more positive consequences for the
majority.
o Section 99(1)(b) which states that Directors must take into account
the interest of Shareholders and Employees therefore impliedly
encompasses an ethical duty as stipulated by Mill to ensure that
Directors’ actions are beneficial to the majority of the stakeholders.
01/07/2014
14
VindelKerrPaper,CAACM8th
Conference,2014](https://image.slidesharecdn.com/caacm8thannualmtgconfncepresentationvindelkerrfinal-161126050511/85/Improving-Organisational-Governance-and-Ethics-14-320.jpg)
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Improving Organisational Governance and Ethics
- 1. REVITALISING THE AUDITCOMMITTEE – A STRATEGIC PRIORITY IN AN UNCERTAIN ECONOMIC ENVIRONMENT Title of Paper: Improving Organisational Governance and Ethics Caribbean Association of Audit Committee Members Inc. CAACM’s 8th Annual General Meeting & Conference, 10th-11th July, 2014 Hilton Hotel, Port-of-Spain, Trinidad and Tobago By Vindel L. Kerr, DBA
- 2. OUTLINE 1. Why Governanceand Ethics now more than ever? 2. The Inextricable link between the Audit Committee and Organisational Governance and Ethics 3. Legal vs Ethical Duties of the Board of Directors. Can they be reconciled? 4. Board’ Role in Developing and Preserving the Governance and Ethical Frameworks of an Organisation: The Corporate Governance Code The Code of Ethics and Business Conduct 5. Conclusions/Suggestions 01/07/2014 2 VindelKerrPaper,CAACM8th Conference,2014
- 3. WHY ORGANIZATIONAL GOVERNANCE ANDETHICS NOW MORE THAN EVER? The proliferation of financial crises has been a particularly severe wake-up call, because it has adversely affected employment, consumer spending, pensions, the finances of national and local governments and the global economy. These crises are manifestations of several structural reasons why corporate governance has become more important for economic development and a more significant policy issue in many countries. 01/07/2014 3 VindelKerrPaper,CAACM8th Conference,2014
- 4. WHY….IN THE CONTEXTOF THE CARIBBEAN PUBLIC SECTOR Corporate Governance and Ethics are more important now than ever for the following reasons: There is a dearth of empirical literature in Corporate Governance Inadequate Corporate Governance Structures and Practices Weak and Underdeveloped Regulatory Frameworks Systemic Weaknesses in the in the Financial Sector The prevalence of Corporate and Political Corruption Source: Vindel Kerr Thesis (2010), Manchester Business School, England 01/07/2014 4 VindelKerrPaper,CAACM8th Conference,2014
- 5. Among these arethe following additional compelling realities: The globalization of financial markets and the commodification of capital Trade liberalization Complexity in the allocation and monitoring of capital by International Financial Institutions Increase in international financial integration 01/07/2014 5 VindelKerrPaper,CAACM8th Conference,2014
- 6. Therefore, insum it can be argued that the introduction of corporate governance and ethics has been generally motivated by a desire for greater transparency, accountability, probity, elimination of public sector corruption, adjustment of regulatory systemic weaknesses and increase investor confidence in the stock market as a whole. 01/07/2014 6 VindelKerrPaper,CAACM8th Conference,2014
- 7. THE INEXTRICABLE LINKBETWEEN THE AUDIT COMMITTEE AND ORGANISATIONAL GOVERNANCE AND ETHICS The Audit Committee This committee was invented with the purpose of monitoring the integrity of financial statements and the internal financial control systems. Its scope has long been extended to that of providing an enterprise-wide approach to the review of not just financial statements and internal control systems (policies, procedures, processes, fit-and-properness of persons, risk management, inter alia), but assesses independence, objectivity and fairness in organisational decision making. In essence, the modern role of the Audit Committee is to ensure transparency, accountability, probity, equity and ultimately, value-for-money. 01/07/2014 7 VindelKerrPaper,CAACM8th Conference,2014
- 8. AUDIT COMMITTEE (CONTD.) It is the structure of the Board that assesses the performance of the organisation and presents regular and period updates to the Board of Directors It presides over the recruitment of the external auditors and makes recommendations to the Board for removal To perform its duties effectively, international audit conventions have specified minimum standards for its membership, skill, experience and qualifications (training) of members, its relationship with the BOD, whistle-blowing, and role in external shareholder relations See Sir Robert Smith Report (2003), Financial Reporting Council, UK 01/07/2014 8 VindelKerrPaper,CAACM8th Conference,2014
- 9. WHAT IS CORPORATEGOVERNANCE? Corporate governance refers to the set of laws, regulations and voluntary principles, practices and processes (a mixed of the ‘hard’ and ‘soft’ laws) by which a company is governed. They provide the basis as to how the company is directed and controlled such that it can fulfill its goals and objectives in a manner that adds value to shareholders and stakeholders over the long-term. The Board of Directors have ultimate and overarching responsibilities for an organisation’s corporate governance system, and is the sole body and authority to whom the Chief Executive Officer reports and is accountable. 01/07/2014 9 VindelKerrPaper,CAACM8th Conference,2014
- 10.
- 11. The Board asthe Fulcrum of Organisational Ethics and Governance: 01/07/2014 11 The Board of Directors Vision, Mission & Strategy Performance & Reward Systems Balancing Stakeholders’ Interests Governance and Ethics VindelKerrPaper,CAACM8th Conference,2014
- 12. WHAT IS ETHICS? Ethics is the branch of philosophy that is concerned with the rules, guidelines and principles that underpin the decisions that people make in any given aspect of their lives. Ethics therefore embodies concerns with the determination of what is right or what is wrong. Noel Cowell, Archibald Campbell, Gavin Chen and Stanford Moore (eds), Ethical Perspectives for Caribbean Business (Arawak 2007) 01/07/2014 12 VindelKerrPaper,CAACM8th Conference,2014
- 13. LEGAL VS. ETHICALDUTIES OF DIRECTORS. CAN THEY BE RECONCILED? Section 99 (1) (a) of the TT Companies Act states that directors and officers have a duty to act “honestly and in good faith with a view to the best interest of the company.” Section 99 imposes legal duties on the directors, but from these duties, one can clearly see ethical duties breaking the surface such as care, honesty and loyalty, which are two key ethical duties which would ultimately lead to the success of any company. 01/07/2014 13 VindelKerrPaper,CAACM8th Conference,2014
- 14. Section 991(b) of the TT Companies Act states: 1) Every director and officer of a company shall in exercising his powers and discharging his duties— (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. o In Re: City Equitable Fire Insurance Co [1925] Ch 407, Lord Justice Romer stated that the duty of care and skill involved three basic elements: competence and skill in conducting the company’s affairs, diligence and devotion to those affairs and the proper delegation of their duties. o John Stuart Mill, posited under the Utilitarian Theory that an act or action is proper if it produces more positive consequences for the majority. o Section 99(1)(b) which states that Directors must take into account the interest of Shareholders and Employees therefore impliedly encompasses an ethical duty as stipulated by Mill to ensure that Directors’ actions are beneficial to the majority of the stakeholders. 01/07/2014 14 VindelKerrPaper,CAACM8th Conference,2014
- 15. Some Considerations forBoards in shaping an The Ethical Framework of An Organisation: Firstly, an ethical framework is built by people interacting within an organization but most see leadership (The Board) as a crucial factor. Some institutionalized procedures, events or practices can also contribute to shaping organizational cultures. 1. Leaders’ moral behaviour- Leaders communicate beliefs and values but above all they are role models. Thus, ‘leading by example’ is perhaps the most important factor reinforcing the merits of an organization ethical framework. 01/07/2014 15 VindelKerrPaper,CAACM8th Conference,2014
- 16. SOME CONSIDERATIONS…(CONTD.) 2. Corporatemission, vision and values- Well- defined Mission, Vision and Value Statements can convey clear messages to organization actors when accompanied by a serious commitment to implement such statements 3. Ethical criteria for recruiting, selection and promotion- if culture depends on people, it is relevant to consider ethical criteria and virtues in recruiting, selecting and promoting people in the organisation 01/07/2014 16 VindelKerrPaper,CAACM8th Conference,2014
- 17. 4. Applying ethicalvalues to decision-making- An ethical framework is shaped by consistent incorporation of corporate ethical values into strategic decision-making, and into the corresponding goals, policies and programmes 5. Ethics in both the formal and the informal organization- Integrating ethical criteria into intra- organization procedures and structures- and particularly personnel policies and practices- is another way to bring ethical values into everyday routine 6. Ethical criteria in customer relations- If customer relations are permeated with ethical values this can promote trust amongst customers which would in turn strengthens the company’s reputation. 01/07/2014 17 VindelKerrPaper,CAACM8th Conference,2014
- 18. 18 DIMENSIONS OF EXECUTIVEETHICAL LEADERSHIP Moral Person: Moral Manager: (leader’s behavior) (directs followers’ behavior) - Traits - Role Modeling honesty, integrity, trust visible ethical action - Behaviors - Rewards/Discipline openness, concern for people, holds people accountable personal morality for ethical conduct - Decision-making - Communicating values-based, fair conveys an “ethics/values” message
- 19. 19 EXECUTIVE ETHICAL LEADERSHIP REPUTATIONMATRIX Weak Strong Strong Weak Moral Person Moral Manager Hypocritical Leader Ethical Leader Unethical Leader Ethically neutral (silent) leader ?
- 20. The Roadmap toImproving Organisational Governance and Ethics Two Critical Approaches: 1. Developing and Operationalising a Corporate Governance Code 2. Developing and Operationalising a Code of Ethics and Business Conduct 01/07/2014 20 VindelKerrPaper,CAACM8th Conference,2014
- 21. THE CORPORATE GOVERNANCECODE Delineates Best Practices (principles, practices and process) in effectively carrying out its wider mandate of legal duties and responsibilities and managerial leadership oversight. 01/07/2014 21 VindelKerrPaper,CAACM8th Conference,2014
- 22. KEY ELEMENTS OFA CORPORATE GOVERNANCE CODE (Put Model Here: Vindel ) 01/07/2014 22 •Policy •Stakeholders •AGM •Annual Calendar •Business Continuity •Succession Planning •ERM •Strategic Planning •Chairmanship •Membership •Quorum •Preparation, •Attendance, •Participation •Minutes • •TOR Governing Laws •Selection & Appointment •Structure & Composition •Training •Accountabi- lity •Compliance •Ethics Code Board Opera- tional Manual Meeting Manage- ment & Dynamics Stake- holder Relations Govern- ance and Ethical Frame- works VindelKerrPaper,CAACM8th Conference,2014
- 23. TOWARDS A CODEOF ETHICS AND BUSINESS CONDUCT What is it? Its Purpose Case Illustrations The Code of Ethics 01/07/2014 23 VindelKerrPaper,CAACM8th Conference,2014
- 24. WHAT IS ACODE OF ETHICS? A code of ethics is a corporate document that develops the core values and the guiding principles of a firm. It specifies criteria and rules for the correct handling of business dilemmas, issues or situations in which it is considered particularly important that managers and staff follow certain procedures approved by the firm’s management. Domènec Melè, Business Ethics In Action: Seeking Human Excellence in Organizations (Palgrave Macmillan 2009) 01/07/2014 24 VindelKerrPaper,CAACM8th Conference,2014
- 25. WHAT IS THEPURPOSE AND IMPORTANCE OF A CODE OF ETHICS? A Code of Ethics is important on many levels. It sets the "tone from the top" of the company's culture. An effective Code of Ethics establishes the ethical expectations for employees and management alike, and sets forth the mechanisms for enforcement and consequences of noncompliance. When the Code is perceived as an integral component of the organization's culture, is understood, followed and enforced, it can enhance the efficiency of the organization. 01/07/2014 25 VindelKerrPaper,CAACM8th Conference,2014
- 26. THE JOHNSON ANDJOHNSON CREDO “ We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. We are responsible to our employees, the men and women who work with us throughout the world. We are responsible to the communities in which we live and work and to the world community as well. Our final responsibility is to our stockholder.” 01/07/2014 26 VindelKerrPaper,CAACM8th Conference,2014
- 27. THE JOHNSON ANDJOHNSON CREDO (CONTD.) J&J’s credo defines a hierarchy of people to whom J&J have a responsibility, rather than a specific set of values. People working in J&J are encouraged to make decisions inspired by the philosophy embodied in the Credo, which challenges them to put first the needs and well-being of the people J&J serve. 01/07/2014 27 VindelKerrPaper,CAACM8th Conference,2014
- 28. 1982 TYLENOL CRISIS The ‘Tylenol Case’ was a paradigmatic example of how the J&J Credo works. When the connection between the Tylenol capsules and deaths were made, the company’s reaction was determined and quick. Within a few days of the incident, the recall of the product was made. Moreover, the company itself prevented consumers from using any Tylenol product until the cause of the tampering has been established. J&J received recognition from the media for having acted quickly, openly and honestly. Consequently, the company was able to preserve its good name and reputation. 01/07/2014 28 VindelKerrPaper,CAACM8th Conference,2014
- 29. COCOCOLA CODE OFCONDUCT In the multibillion brand of the Coca Cola Company, the code of conduct is summarized in five small lines: Act with integrity Be honest Follow the law Comply with the Code Be accountable See http://assets.coca- colacompany.com/45/59/f85d53a84ec597f74c754003 450c/COBC_English.pdf An excellent read for those of you would be interested. 01/07/2014 29 VindelKerrPaper,CAACM8th Conference,2014
- 30. WHAT SHOULD ACODE OF ETHICS CONTAIN? First of all, your institution's Code of Ethics must reflect your organization's policies, controls and processes. While it may be tempting to short-cut the process by "borrowing" policies from other institutions under the guise of following "best practices", unless those policies, controls, and processes adequately reflect your institution's unique organization and business practices, the Code will not be effective in providing guidance or offering protection. 01/07/2014 30 VindelKerrPaper,CAACM8th Conference,2014
- 31.
- 32. SUGGESTED KEY ELEMENTSOF A CODE OF ETHICS AND BUSINESS CONDUCT A basic code should include policies on: 01/07/2014 32 VindelKerrPaper,CAACM8th Conference,2014 CODE OF ETHICS Conflicts of interest Gifts and hospitality Recordkeeping Information security Co-operation with investigations and audits Information privacy Whistleblowing Insider trading
- 33. CRITICAL CONSIDERATIONS IN OPERATIONALIZATION/IMPLEMENTATION (ASTEP-BY-STEP APPROACH) 01/07/2014 33 VindelKerrPaper,CAACM8th Conference,2014 What’s the point in having a code of ethics if no one abides by it???
- 34. In practice, thereare several factors that can contribute to the effectiveness of a code of conduct or, on the contrary, can make it completely ineffective. Among these factors are the following: The purpose of a code should be clear, achievable and realistic A strong senior management should exist The code should arise from a real need and strong motivation The code should form part of a broader ethical outlook The code should be well written and well implemented 01/07/2014 34 VindelKerrPaper,CAACM8th Conference,2014
- 35. For an appropriateimplementation of such a code, several practices are usually applied: Making explicit a top management’s expression of commitment Implementing a broad and effective process of communication and dissemination Creating the position of ethical affairs or ‘head of compliance’ Providing a direct line Training Monitoring and auditing 01/07/2014 35 VindelKerrPaper,CAACM8th Conference,2014
- 36. BENEFITS OF ACODE OF ETHICS Having and implementing a code of ethics correctly can bring about several benefits, among them, the following: Helping to express and articulate corporate values Providing guidelines for decision-making and dilemmas Preventing abuses within the firm Sending an ethical message to to stakeholders Fostering corporate identity and building reputation Helping to avoid or minimize litigation against the firm against the firm 01/07/2014 36 VindelKerrPaper,CAACM8th Conference,2014
- 37. Beneficiaries of Codeof Ethics Internal Stakeholders: Employees Management Board of Directors External Stakeholders: Shareholders Clients, Customers, Members, Creditors Media The International Community 01/07/2014 37 VindelKerrPaper,CAACM8th Conference,2014
- 38. CONCLUSIONS AND SUGGESTIONS To improve organisational governance and ethics require more than fanciful ideas and expert opinions as espoused in the preceding. What is needed are ethical leaders with the will to agree on and implement what is right-action ethical principles and practices - Chairmen, Directors and those leading Auditing, Accounting, Banking and Governance firms and institutions such as yours and mine. 01/07/2014 38 VindelKerrPaper,CAACM8th Conference,2014
- 39. CONCLUSIONS AND SUGGESTIONS (CONTD.)-2 Citizens and residents of Trinidad and Tobago, and indeed all other Caribbean territories expect our politicians to meet equal if not higher ethical standards. Not just to do ‘the right thing’ but what is right for the majority of the people. I want to use this forum to call for a Code of Conduct for Auditors to be established in each of CAB’s member countries. Too many of our professionals are operating as Auditors in the front offices by day, and as consultants out of the back officers by night. 01/07/2014 39 VindelKerrPaper,CAACM8th Conference,2014
- 40. CONCLUSION AND RECOMMENDATIONS (CONTD.)- 3 Too many of our governance professionals are establishing non-profit firms which serve as fronts to mask their incestuous and corrupt activities here in Trinidad and Tobago In the areas of public procurement, too many of our professionals are bribing procurement officers to get excessively high technical scores while very low scores are assigned to competing bidders Finally, I am calling for the immediate separation of the Audit and Risk Management functions in organisations where the duality exists, to ensure and preserve the integrity of the Audit Committee, consistent with international Best Practices. 01/07/2014 40 VindelKerrPaper,CAACM8th Conference,2014
- 41. Questions, please! Thanks forlistening. 01/07/2014 41 VindelKerrPaper,CAACM8th Conference,2014
- 42. Very special thanksto my Research Assistant, Ms. Ashely Roopchansingh for her invaluable contribution to this presentation. Contact: Dr. Vindel L. Kerr (868) 740-0168 vindelkerr@cwjamaica.com www.vindelkerr.com www.govstratltd.com 01/07/2014 42 VindelKerrPaper,CAACM8th Conference,2014