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Saturday 4 April 2009
Focus on ethics for a more honourable corporate world
The recent spate of corporate and accounting scandals here has thrown up widespread debate over what more can be done to rein in companies and those who run them.
Focus on ethics for a more honourable corporate world
By WONG WEI KONG 3 April 2009
The recent spate of corporate and accounting scandals here has thrown up widespread debate over what more can be done to rein in companies and those who run them.
Indeed, it is a worrying time for corporate governance in Singapore. The cases so far range across the entire spectrum of corporate misdeeds, from the lack of internal controls to balance sheet irregularities to cooking the books - with one management team running away, to boot.
In response, most of the calls made by market players and commentators have been for tougher regulation. There have been suggestions made for regulators to subject listing and listing companies to greater scrutiny, for a higher level of audit checks, and for penalties against directors, auditors and issue managers when things go wrong.
These proposals should be looked into and debated. But what has escaped much of the attention so far is arguably the most important factor: the question of corporate ethics.
It is worthwhile noting that the present corporate scandals here and elsewhere happened after a period of significant enhancements to regulatory regimes and increasing awareness generally of the requirement for good corporate governance.
In the US, the Sarbanes-Oxley Act or SOX came into existence in 2002 after the Enron scandal, and was called ‘the most far-reaching reforms of American business practices since the time of Franklin D Roosevelt’ by then US President George W Bush. It did not prevent the excessiveness behind the sub-prime debacle, nor the Madoff Ponzi and other scandals.
And in Singapore, continuous refinements have been made over the past few years to the Securities and Futures Act, the Companies Act, the Code of Corporate Governance, as well as the listing rules.
The fact is: no amount of rules and regulations in the world would succeed in curbing corporate scandals if there was a lack of corporate integrity - a point made, no less, by Paul Sarbanes, co-author of SOX, himself when he spoke to BT in Singapore last year.
What is corporate ethics? In the broad sense, it encompasses aspects such as corporate leadership and integrity, corporate social responsibility, and the establishment of corporate core values that are enforced uniformly - all the way down from the board of directors to the rank and file. And it’s an area where much more can be done.
At the level of the individual, business schools should, for instance, place even more emphasis on the teaching of corporate ethics. For many, though not all, MBA students, the main motivation has been money. At many MBA forums, as one observer noted, the questions have usually been on how to get into high-paying investment banking jobs.
The drive to make as much money as possible, even by cutting corners or at the expense of others, has been blamed as one of the main factors for the excesses in the financial industry. Now is the time for business schools to instill into their students right from the start the need to uphold integrity and ethical conduct even as they go about making their money.
At the company level, firms here should consider adopting a code of corporate ethics, in addition to a code of corporate governance. A code of ethics sets out the fundamental principles, including prohibitions, that guide how a company and its employees operate.
Typically, a code of ethics would contain a statement of core values and principles, illustrations, a system of reporting and individual responsibilities. Of course, just having a code of ethics is not enough; many US firms, after all, have had for some time a code of ethics and an ethics officer. The leaders of a company must demonstrate their commitment to it and to zero tolerance of any deviation from the code.
There is a well-told story of how former GE CEO Jack Welch publicly praised a manager who failed to reach his sales targets because he refused to pay a bribe to win a contract to build engines for a foreign airline.
And at the industry level, more effort is needed to reinforce the need for integrity among companies and corporate leaders.
Back in 2005, after a string of corporate scandals including China Aviation Oil, the Commercial Affairs Department (CAD), the white-collar crime unit of the police, organised a high-profile corporate governance conference to remind the market of the importance of good corporate governance and ethics - and the consequences facing those who run foul of the law.
Similar initiatives will be welcome now, especially for foreign companies listed here and their management, who may be used to operating in different environments.
To be sure, it is easy to pay lip service to corporate ethics, which is an intangible quality that cannot be quantitatively measured. But the present scandals, and the high toll they are exacting, should galvanise the market, business community and companies to take meaningful action to address the fundamental issue of corporate integrity.
1 comment:
Focus on ethics for a more honourable corporate world
By WONG WEI KONG
3 April 2009
The recent spate of corporate and accounting scandals here has thrown up widespread debate over what more can be done to rein in companies and those who run them.
Indeed, it is a worrying time for corporate governance in Singapore. The cases so far range across the entire spectrum of corporate misdeeds, from the lack of internal controls to balance sheet irregularities to cooking the books - with one management team running away, to boot.
In response, most of the calls made by market players and commentators have been for tougher regulation. There have been suggestions made for regulators to subject listing and listing companies to greater scrutiny, for a higher level of audit checks, and for penalties against directors, auditors and issue managers when things go wrong.
These proposals should be looked into and debated. But what has escaped much of the attention so far is arguably the most important factor: the question of corporate ethics.
It is worthwhile noting that the present corporate scandals here and elsewhere happened after a period of significant enhancements to regulatory regimes and increasing awareness generally of the requirement for good corporate governance.
In the US, the Sarbanes-Oxley Act or SOX came into existence in 2002 after the Enron scandal, and was called ‘the most far-reaching reforms of American business practices since the time of Franklin D Roosevelt’ by then US President George W Bush. It did not prevent the excessiveness behind the sub-prime debacle, nor the Madoff Ponzi and other scandals.
And in Singapore, continuous refinements have been made over the past few years to the Securities and Futures Act, the Companies Act, the Code of Corporate Governance, as well as the listing rules.
The fact is: no amount of rules and regulations in the world would succeed in curbing corporate scandals if there was a lack of corporate integrity - a point made, no less, by Paul Sarbanes, co-author of SOX, himself when he spoke to BT in Singapore last year.
What is corporate ethics? In the broad sense, it encompasses aspects such as corporate leadership and integrity, corporate social responsibility, and the establishment of corporate core values that are enforced uniformly - all the way down from the board of directors to the rank and file. And it’s an area where much more can be done.
At the level of the individual, business schools should, for instance, place even more emphasis on the teaching of corporate ethics. For many, though not all, MBA students, the main motivation has been money. At many MBA forums, as one observer noted, the questions have usually been on how to get into high-paying investment banking jobs.
The drive to make as much money as possible, even by cutting corners or at the expense of others, has been blamed as one of the main factors for the excesses in the financial industry. Now is the time for business schools to instill into their students right from the start the need to uphold integrity and ethical conduct even as they go about making their money.
At the company level, firms here should consider adopting a code of corporate ethics, in addition to a code of corporate governance. A code of ethics sets out the fundamental principles, including prohibitions, that guide how a company and its employees operate.
Typically, a code of ethics would contain a statement of core values and principles, illustrations, a system of reporting and individual responsibilities. Of course, just having a code of ethics is not enough; many US firms, after all, have had for some time a code of ethics and an ethics officer. The leaders of a company must demonstrate their commitment to it and to zero tolerance of any deviation from the code.
There is a well-told story of how former GE CEO Jack Welch publicly praised a manager who failed to reach his sales targets because he refused to pay a bribe to win a contract to build engines for a foreign airline.
And at the industry level, more effort is needed to reinforce the need for integrity among companies and corporate leaders.
Back in 2005, after a string of corporate scandals including China Aviation Oil, the Commercial Affairs Department (CAD), the white-collar crime unit of the police, organised a high-profile corporate governance conference to remind the market of the importance of good corporate governance and ethics - and the consequences facing those who run foul of the law.
Similar initiatives will be welcome now, especially for foreign companies listed here and their management, who may be used to operating in different environments.
To be sure, it is easy to pay lip service to corporate ethics, which is an intangible quality that cannot be quantitatively measured. But the present scandals, and the high toll they are exacting, should galvanise the market, business community and companies to take meaningful action to address the fundamental issue of corporate integrity.
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