Evolutions in Corporate Governance

Towards an Ethical Framework for Business Conduct

Alison L. Dempsey

• Editorial: Routledge
• Año: 2017
• ISBN:
  9781351277389
• Edición: 1
• Categoría: Betriebswirtschaft
• Categoría: Business allgemein

In a world where the implications and consequences of corporate actions and decisions are potentially far-reaching and lasting, ethical standards ? their observance and their breach ? must be part of the language of business conduct, whether in the context of corporate transgressions, regulatory effectiveness, terms of engagement between business and their stakeholders, or the metrics used by investors in assessing performance and risk and understanding long-term value.

This critically important book proposes a new paradigm for understanding, developing and maintaining standards of corporate governance. Its point of departure is not a position along the diverse paths of traditional corporate governance and regulatory theory, law and practice, nor specific questions of how to institute, implement and observe policies and practices that function as proxies for good governance. Instead, it starts with the idea of framing governance generally, and corporate governance specifically, as a matter of conduct that is guided by a set of fundamental ideals and principles.

Evolutions in Corporate Governance attempts to answer the wider question of how to re-imagine a framework within which 'good' corporate governance ? that takes account of and is responsible for the social, environmental, ethical as well as legal and economic dimensions of business conduct ? is addressed alongside issues of profitability and competition, in the face of forces of globalization and business influence that are testing the limits of what can be accomplished by traditional law and regulation. Dempsey contends that meaningful change in behaviour will only come when there is a corporate governance framework that explicitly encompasses both law and ethics.

Part I
Introduction

1
Introduction

1.1 Fundamentals of good conduct

A basic code of good business behaviour is a bit like oxygen: we take an interest in its presence only when it is absent

Amartya Sen 1999: 264¹

A paradigm is defined as a pattern of thinking, a set of background assumptions taken for granted.² This book proposes a new paradigm for understanding, developing and maintaining standards of corporate governance. Its point of departure is not a position along the diverse and divergent paths of traditional corporate governance and regulatory theory, law and practice, nor specific instrumentalist questions of how to institute, implement and observe policies and practices that function as proxies for good governance. Instead, it starts with the idea of framing governance generally, and corporate governance specifically, firstly as a matter of conduct that is guided by a set of fundamental ideals and principles.

While discussion of the ideals and principles that determine the nature of corporate governance at a fundamental level would seem an obvious starting point, the reality is that the current corporate governance landscape is populated by structurally and operationally diverse regulatory models and approaches often formed in response to incidences of misconduct and poor governance. As a consequence, progress towards achieving universally recognised norms of responsible business conduct tends to be a secondary consideration to more immediate functional concerns and policy debates over jurisdiction, authority, the limits of the law and state-based regulation of global markets, and the public–private divide.

Taking a first principles approach that starts with the recognition of a set of shared core, or fundamental, values as the basis for acceptable business conduct has the potential to elevate governance discourse to a level that transcends conventional geopolitical boundaries, different regulatory approaches and philosophies, and functional differences. It also establishes a stronger foundation for constructive engagement with diverse perspectives on the common pursuit of effective, globally recognised standards of good corporate governance.

This engagement with diverse perspectives in turn increases the likelihood that ongoing governance discourse and the attitudes and behaviour that follow evolve informed and enriched by the multiple governance standards emanating from a plurality of ‘regulatory’ and ‘quasi-regulatory’ voices, respecting rather than obscuring historical and cultural differences and finding commonalities in existing legal, institutional and normative governance paradigms.

1.2 Discourse and the governance of business

Some jurisdictions—notably the United Kingdom, other member states of the European Union individually as well as collectively, Australia and South Africa— have advanced contemporary discourse on the interrelationship of economics, law, public policy and the public good, corporate governance and the responsible conduct of business.³

In the United Kingdom, a Committee on Financial Aspects of Corporate Governance was struck in 1991 by the Financial Reporting Council, the London Stock Exchange and the accountancy profession in response to business scandals that caused considerable damage to public and market confidence in the honesty, accountability and value of public companies.⁴

The Committee was chaired by Sir Adrian Cadbury, former Chairman of Cadbury Schweppes a company with a storied history or conducting business according to the high ethical standards of 19th century ‘Quaker capitalism’. It issued its findings in 1992 (Cadbury Committee 1992) following extensive consultation and consideration of more than 200 written submissions during the public comment process.⁵ The report—which came to be known as the ‘Cadbury Report’—its findings, recommendations and Code of Best Practice based on the principles of openness,⁶ integrity⁷ and accountability⁸ is generally considered to be the genesis of modern corporate governance having influenced governance in more than 28 countries and in institutions such as the World Bank (Cadbury 2010: 278).

While the Quaker values that influenced Sir Adrian’s understanding of how a company best operates, and that were evident in the governance best practices developed within Cadbury under his family’s leadership, were not mentioned explicitly in the Cadbury Code, their influence was crucial. In Sir Adrian’s view the aim of the code was to bring ‘greater transparency, honesty, simplicity and integrity to the process of running a company’ (as quoted in Cadbury 2010: 278).

In Australia, the Bosch Committee, comprising representatives from business and the professions and chaired by Henry Bosch, past Chairman of the National Companies and Securities Commission, the predecessor of the Australian Securities and Investments Committee, was established in 1990 at least partly in response to damaging publicity arising out of the malpractices of a small number of prominent companies in the 1980s.⁹ The formation of the committee reflected a genuine desire to restore the reputation of the business community and to prevent a repetition of past excesses (du Plessis, Hargovan and Bagaric 2011: 137). Its publication, Corporate Practices and Conduct, set out guidelines for directors of Australian companies with the main objective to ‘improve the performance and reputation of Australian business by encouraging and assisting the general adoption of the highest standards of corporate conduct’ (Bosch 1995: Foreword).

In that same period, the South African government, in 1992, asked former South African Supreme Court Judge Mervyn King, SC, to chair a private sector committee to draft corporate governance guidelines in keeping with the country’s move towards democratic government. The King Committee on Corporate Governance issued its first report in 1994. The report—The King Report on Corporate Governance for South Africa (‘King I’, as it came to be known)—incorporated a Code of Corporate Practices and Conduct, the first of its kind in the country, aimed at promoting the highest standards of corporate governance in South Africa (Institute of Directors in Southern Africa 1994). These highest standards went beyond the financial and regulatory aspects of corporate governance, taking an integrated and inclusive approach to good governance in the interests of a wide range of stakeholders beyond shareholders that was groundbreaking and to this day regarded as ahead of its time.¹⁰

A decade later in Canada, an independent national commission, the Canadian Democracy and Accountability Commission (2002) issued its report, The New Balance Sheet: Corporate Profits and Responsibility in the 21st Century, containing 24 recommendations to significantly broaden the concept of corporate accountability beyond the narrow focus on profit. Specifically, the Commission recommended that corporate accountability extend to employees, customers, communities, the environment, the country and the global community. This view of corporate accountability had broad-based support. According to a national survey conducted on behalf of the Commission to supplement the cross-country hearings and separate submissions¹¹ to the Committee, 74% of shareholders surveyed agreed that ‘business executives have a responsibility to take into account the impact their decisions have on employees, local communities and the country as well as making profits [sic]’.¹²

These expressions of a broad business accountability were echoed roughly a decade later in a 2010 communication by the European Commission, Towards a Single Market Act, stating that, ‘[I]t is of paramount importance that European businesses demonstrate the utmost responsibility not only towards their employees and shareholders but also towards society at large’ (European Commission 2010a).

Other jurisdictions have also witnessed over the past decade a broadening of mainstream business discourse to address issues of wider socioeconomic implication. Such shifts are evident even in the United States, where the long-established view of many academics, policy-makers and market participants—that economies have a separate and superior existence to the rest of society—fundamentally differs from the majority view in the rest of the world.¹³

At the same time, globalisation of business and profound shifts in the manner and means of communication and the dissemination of ideas and information over the past two decades present both challenges to and huge opportunities for this form of governance discourse broadly and, in the business context, specifically.

Questions such as whose rules and which boundaries exist to constrain and guide business behaviour arise when corporate activity occurs variously outside the specific geopolitical limits of the law in a marketplace that is populated by a plurality of standards, interpretations, expectations and incentives articulated by numerous diverse constituencies. While finding answers proves challenging, the need to address these kinds of question is ever more critical as the impact and consequences of business actions and decisions are far-reaching and enduring, and the boundaries between public and private sectors, individual and community interests are constantly challenged.

Whatever the private interactions and transactions and despite constitutional barriers to effective governance oversight, all business takes place within a wider social, political and economic framework and relies on public goods and social licence to operate. Its primary purpose is to satisfy human and material needs by efficiently producing and supplying goods and services and, as such, business activities—exploration, invention, research and development, production, trade, marketing, investment and finance among others—are inherently social acts between parties that take place, have implications and consequences for, and must be considered in light of the larger societal arena.¹⁴

Business conduct and governance have the potential to be good when guided by the ideals and principles of ethical behaviour that include fairness, honesty, humility, integrity, respect for others, responsibility and trustworthiness.¹⁵ This book sets out to explore the potential for ethics and ethical principles to constitute the overarching framework—or meta-framework—that guides and informs choices in the conduct of business and governance policies and principles, and the laws, rules and standards that reflect those choices.

1.3 Content and structure

Corporate governance is a complex, many-layered and multi-dimensional subject that continues to evolve in response to a range of influences that create, define, implement and shape it.

While often considered from legal, institutional and corporate centric standpoints, this study situates it in a wider context that opens the discussion to the influence of broader cultural norms in influencing attitudes, behaviour and the nature of decisions relating to choice and conduct beyond the narrow focus on compliance, and the roles played by diverse actors in the construction, testing and recalibration of corporate governance standards and practice both within the corporate sphere and in a wider societal context.

This book is divided into eight parts.

Part I introduces the book’s central concepts—ethics, conduct and governance— and its main themes of discourse, engagement and the evolution of contemporary norms and standards of behaviour for business conduct.

Part II considers the long-standing dynamic between business, government and society by providing an overview of recent and past crises in governance and the nature of past and recent responses to corporate governance and market failures. It examines how the consideration of alternative perspectives on the nature, source and expectations of business conduct standards can potentially broaden, enrich and legitimate corporate governance discourse, policy and practice.

Part III provides an overview of corporate governance regulation and standard-setting in three jurisdictions that have been influential in the evolution of modern corporate governance—the United Kingdom, the United States and Western Europe. Further, it suggests that approaching corporate governance from a socioeconomic standpoint provides a perspective on business conduct and governance that recognises its place in a wider systemic rather than strictly corporate centric discussion.

Part IV considers the implications of a global marketplace for the authority and effectiveness of state-based legal and regulatory mechanisms. It then examines the expressive and normative functions of informal as well as formal sources of governance standards and their connection as seen through the evolving co-existence of normative, principles-based and prescriptive approaches to regulating corporate conduct on a transnational level.

Part V juxtaposes the concept of pursuing common regulatory goals within a framework of constructive engagement with the powerful normative role that modern corporate entities play in shaping standards and expectations of business conduct and governance alongside and in some respects well beyond the formal role of state institutions.

Part VI addresses the evolving nature of the relationship of business to society, including the engagement of a range of stakeholders in the discussion and formulation of standards of corporate conduct and governance that extend to the ethical, environmental and social dimensions of corporate behaviour. It also considers change occurring in the traditional regulatory dynamic, where innovation has led to combinations of mandatory, voluntary and market-driven approaches.

Part VII explores developments in contemporary governance discourse and practice facilitated by modern advances in communication technologies that present opportunities for broader participation and positive change as well as inherent risks that come with hidden and powerful influences.

Part VIII returns to the initial proposition that ethics as a constitutive, or first order, framework for governance can advance discourse and practice towards a system where the standards of conduct for business include explicit recognition of fundamental norms such as fairness, honesty, integrity and responsibility and where ethical principles inform and guide decisions and actions. It concludes with a summation of the challenges and opportunities for those whose decisions and actions inform and shape the governance landscape.

1 1998 Nobel laureate in Economic Science.

2 Penguin Dictionary of Philosophy 2005. The term’s usage in this sense is associated with the influence of Thomas Kuhn’s 1962 The Structure of Scientific Revolution (Kuhn 1970 [1962]). Kuhn used the term to refer to the theoretical frameworks within which scientific thinking and practice operate and which encompass the gen...

Índice

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• List of figures, tables and boxes
• Preface and acknowledgements
• Part I Introduction
• Part II Responding to crisis
• Part III Regulatory frameworks: form and function
• Part IV Reframing regulatory discourse
• Part V The corporate structure: challenging conventional boundaries
• Part VI The changing governance landscape
• Part VII Beyond disclosure: evolution in governance discourse
• Part VIII Ethics: framing the way forward
• Appendix 1: List of notable scandals
• Appendix 2: Codes research sample
• References
• Index