Ethical Issues In Corporate Governance
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Introduction to Ethics and Corporate Governance
Ethics and corporate Governancee are the issues that each and every firm should follow to get a successful outcomes and helps in the sustainability of the organisation. Ethics are the norms and regulation of the behaviour of firms towards the society and is defines what is right and wrong or the actions are morally acceptable or not. Corporate Governancee are the norms by which the organisation is been regulated and controlled. Basically it concerns of the interest of the stakeholders of firm (Aguilera and Jackson., 2010).
In this essay we will study about fraudulent act done by Valeant Pharmaceuticals. The need of following ethical and corporate Governancee in the firm is a very vital aspect. This firm has neglected it and faces issue at the end.
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Ethics and the corporate Governancee are the facts that the firm has to follow to run the business in moral and effective manner. The firm can not do anything which they want to do or they can not make the changes according to there wish, what ever they have to change should be related to the ethical and the corporate values. They should do the market research and many more things while making any changes or while doing anything new. Ethics is that things which is use to understand the things and about its character that is the thing going right or it can make any issues to the firm. And the decisions or the plans made by the firm is actually suitable for the firm or not. The firm must choose the correct option so that they can be able to make the things correct and they can achieve the goals and they can be stay able.
Business ethics are the implications of the morality and ethics in the functioning and operations of the business. It refers to the standards and the principles and the values that the firm is making to change in the organisation to make the operations go better. (Crane and Matten., 2016.). The practices of the business ethics has very described dimensions. Business ethics defines the fundamental objective of the organisation. The important role of the firm and its member is to make there the society better and they have to take care that they would not harm them. They are expected to do well in themselves as well as the society but if they are not able to do anything do for the society then they should not make any harm to them also.
Importance of business ethics
- Long term growth- Sustainable long term profit of the firm is far better than the non sustainable profits. It is very necessary for the organisation to consider the ethical part of the operations. Whatever the company is doing they should do it in the ethical manner so that it can work in an proper manner.
- Reduction in risk- The firm may face a lot of risk issues in the functioning of the operations of the organisation but, it is much more important to follow and apply the ethical form so that then the firm can be able to reduce the factors of the risks.
- Limited resources- the firm has to use the resources in very sufficient and effective manner so that the firm can be able to cope up with the problems related to the resources of the firms.
Corporate Governancee are the rules and the norm that every organisation must follow the basic things which it deals with the shareholder's wealth maximisation and also the welfare of the stakeholders (Fassin, Van Rossem and Buelens., 2011). It is a structure which help in the proper direction to control and it can be the interest of the firm and of the stakeholders.
Principles of corporate Governancee
- Good faith
Importance of Corporate Governancee in the organisation
- Laws and regulation- Law, rules and norms are the most important factor for the business to do the correction and to take the correct actions (Griseri and Seppala., 2010.). If the corporate Governancee is not applied in the required manner then the performance of the organisation get affected and there are chances where the firm can face many legislative issues to run the business properly.
- Performance- Corporate Governancee help the firm to do their work very properly and effectively. The outcomes from the actions are done so that it can be able to make in proper and positive manner. By properly following this the organisation will able to result in such a manner then the chance of the problems get reduced comparative.
- Long term prosperity- The organisation is thoroughly indulge in the activity of the corporate Governancee then the firm will prosper for long term. Organisation can get the proper way to make the survival of the firm for the long period of time in the market.
Corporate Social Responsibility is one of the act in which the organisation is included in it to make the ethic and Governancee aspects. This is the activity where the firm innovate new techniques and new opportunities that the firm can be able to satisfy the customers of the society. The customer should be the priority of every organisation. The organisation should do the proper market research to know about the people and they can know there needs and wants so that the firm can be able top fulfil their requirements. (Jo, H and Harjoto., 2011.). The firm has the responsibility towards the people as they are the one who accepts or reject the company's project, products and services.
This is the responsibility that the firm if fulfils appropriately then there are chances of the firm to sustain and survive in the competitive market for long period of time. The customers are the most important part of the market so the customers are been satisfied then it helps the firm to grow more and able to stay in the market.
The services from the company is been sometime done for free and the activities related to the society for there benefit like the charity, all these activities are been done to make the customers happy and to attain there attention so that it they can become more satisfied by the products and the services and by this the company is able to achieve there goals. This will influence the minds and heart of the customer which help firm in an effective manner and support in the survival growth in the market.
Corporate social responsibility is now a time in a grooming era where the firm is doing many such activities that are very much effectively influencing the objective of the organisation. It leads in the growth and long term survival of the organisation (Khan, Muttakin and Siddiqui., 2013.). The firm as a positive note for its own benefits do very effective actions for the society as well. Making roads, parks, water cooler are the basic things that the organisation do for the society's welfare.
Company indulged in the fraudulent activity
Volkswagen is a leading auto mobile brand in the world. There are many types of the vehicle which they are dealing with and make it for the customers according to there requirements. When the company had been established it had been giving the high and best quality of product to the customer. The product price ranges are affordable as because the owner of the organisation has focused to expand the business by targeting all levels of the people- upper class, middle class and the lower class. The products of the Volkswagen is always wished to reach the peak and was very greedy for its growth (Kolk and Pinkse., 2010.). The firm was when new had a tough part in the market because already there were very well established companies. He had tough competition with Toyota and the General Motors. The only market where it can grow was US.
There were tax benefits in the Europe country therefore the firm can avail special advantage of the small diesel engines. These engines are comparing with petrol are less generator of the carbon dioxide. So its will a positive impact in the nation as because the green house effect cab be reduced through that.
Volkswagen has planned to utilise the advantage that can help in the sustainability in the market. The organisation has the chances to capture the US market to sell there product. The organisation was not aware that the environment rules of that nation is not as similar to Europe, this nation's environmental rules guides that the small engines are hazardous and they emit nitrogen oxide in large number which is very bad for that environment. Use of diesel was very affective for the nature of that nation therefore it was advised by the government not to afford for the diesel engines. The company was not aware of the regulation and few team members of the company's engineers has decided to implant the small diesel engines in the vehicles. They made strategies to increase the ratio of the growth of the product in the market. If they meets the set target then it will definitely hike the money as well as the promotions of the firm and themselves. But they are not aware of the situation of the American market regarding the diesel issues.
With the objective of the growth and the promotion greediness they order the manufacture to inculcate the diesel engines (Kolk and Van Tulder., 2010.). The workers also do as was ordered to them. When the market people has started buying and using the vehicles then they were faced many issues related to the health.
A well reputed firm all the time was now stuck in a very big problem. Family controlled company was now has created such a scenario where the health issues was spreading like virus because of the use of the diesel in the vehicles of the firm which emits lots of nitrogen oxide which is a factor that create pollution in the environment (Mason and Simmons., 2014.). Many people even died due to this polluted situation occurred all around in the nation.
This circumstances directly lead the organisations share go down in a wide range. Such a big downfall was happened to the firm that was not ever imagined by the owners of the business. The biggest threat and loss faced by the firm is at this face. In hope of promotion and growth opportunity the decision taken was adversely get affected the market which was to be captured was seen to be getting out of the hands of the organisation. The organisation was probably cut off by the market for such a bug disaster created by them. They were very much ashamed for the situation that arise by the firm. The investors who were investing the finance for the company was also got shock even the whole market people were shook by the situation that was created by the engineers of the firm. It was a very bad and a negative impact that has been seen at that time. A very ecological and environmental friendly company can be come out with such drastic change impacting the whole market scenario.
When the issue was seen and the disturbing market is got analysed by the inspection department then the testing of the vehicle was taken place proper in depth study was done and it was tested in the laboratory then the experts have declared that the most pollution of the air has been done through the diesel engines that have been used by the organisation in their vehicles. Then after the whole nation and the world got the information about it and the vehicles that was bought by the customers were returned back to the firm. Overnight the customers were lined up in front of the Volkswagen's showrooms and without any question the firm have to take them back as quick as possible so as to maintain a good symbol of the firm (Rossouw and et. al., 2010). Although the situation of the firm is in severe condition as because once the trust is lose it become very difficult to build it up. The customers start switching form this firm to another and they are withdrawing their orders for the vehicles that they have done in advance this worst situation has taken place just because of not taking a proper decision. The engineer's did not think for the societal aspects they just thought for the firm's growth and their own promotion of the profiles. The organisation was suffered a lot just not for focusing on the environmental aspects. The major reason of this great loss to the firm is just because of the non concerning part of the firm towards the customers, society and the environment. The firm has focusing on the corporate Governancee and the ethical part that the firm has to consider then definitely the company would have been in other level in current market (Yan, Buchholtz and Kolb., 2010. )
Failure of the firm in ethics and corporate Governancee in Volkswagen
There are some of the issues that are as follows which leads the firm towards the failure of the ethical aspects and corporate Governancee-
Management incompetence- Incompetence means a person or a team is not able to perform certain things in the required manner. Similarly the organisation's management is said to be incompetence when the actions and the performances done by the employees and the whole management team is not up to the mark. In such situation the firm gets fail to attain the customer's satisfaction and due to which scandal like wrong thing takes place. The management due to untrained employees and staff may also face negative impact and can struggle in the operations. This factor affect the organisation to achieve the ethical aspects of the firm and also the corporate Governancee of the organisation.
Non observance- Another most important thing that the firm is facing is the non attentive part that the employees as well as the management is doing. It is been viewed that what all are the rules and the regulation has to be changed in the firm in within the internal environment is not carefully observed by the fellow employees. The decision is not been followed and they employees are doing what they themselves wish to to in certain areas. The rule are to be made for discipline ans maintaining the standard and decorum of the firm. But the people of the organisation is lacking in following those set regulations, this is leading factor for the fraudulent activity in the organisation and also failing in achieving the integrity of corporate Governancee and ethics (Spitzeck and Hansen., 2010.). The firm if plans something or new regulation is been implemented its for the favour of the organisation and its growth aspects not for self benefits.
Attention in risk management- The worst situation that is faced by the organisation is the the understanding of the risk management tools and there are many situation where the employees does not even pay attention in the understanding of the risk management. The employees if knows the tools also but they do not have core knowledge regarding the risk management. This is the issue by which company gets into fraudulent activities. The employees are just concerned for the self satisfaction but they are not thinking about what the organisation has to fulfil with the help of the efforts of the manpower working in the organisation.
Inconsistent delegation of the roles and responsibility- The negative part that the organisation has in its side is that the distribution of the roles, duties and responsibilities are not in the favour (Walls, Berrone and Phan., 2012. ). Any time the structure of the delegation of tasks and responsibility is been changed. The changes that takes place in the rules and the regulation affect the operations of the organisation hence it become difficult to meet up with the corporate Governancee and the ethical issues that being a corporate in the society has to fulfil. The organisation is consistently changes its distribution of the duties and the responsibility then the organisation has to face certain issues related to the firm's growth and survival.
Inefficient internal audit- The firm in periodic manner does audit of the firms every operations and actions. The inspecting department of the organisation for quick results does not do proper auditing of the functions related to every departments of the organisation. A quick overview is been done by the auditors which at the end does not shows what actual situation is the firm operating. If the internal audit of the organisation is not get done in proper manner then it become difficult to know the required places that the firm has to focus on more.
Ignorance of external audit- Many a time the organisation does not even consider what the external auditor has guided to do. They ignore the fact that has been suggested by the auditors just they focuses on what the internal auditor has suggested. Many a times it is seen that with time pressure and many other factors the internal auditor does not able to do proper core study of the operations hence they conclude the report with rough statistics and figures (Aguilera and Jackson., 2010). This will result in negative manner. But the organisation mostly rely upon the internal auditors rather than the external auditors therefore when ever the external auditor gives some signals that might not be in the favour of the organisation but the management does not consider them and they only follow the guidelines of the internal auditors.
Influence of the external auditors- Many a time the organisation get influenced by the auditors they opt many such things that may in real does not impact much effectively to the organisation. The organisation totally relies upon the auditors which may always not in the favour of the organisation because the auditing is done mostly at the end of the financial year therefore the proper investigation is not possible for the auditors (Crane and Matten., 2016.). This will impact in an inappropriate result and this will directly affect the operations of the organisation. The firm's activity can be analysed effectively only when the proper timely management is carried out.
1.Shareholder recognition-Shareholder recognition is the key to the success of the business. Without shareholder recognition it is not possible for the business to develop and achieve the targeted goal and objective of the organisation. It is also important to maintain company's stock price. Small shareholder have little interest in the company that's why they are called as minority shareholder so they always have caress to make interest for the minority shareholder and executive board. Good corporate Governancee and the ethics provide a way to the shareholder to get a voice into general meeting as well as board meeting. Corporate Governancee and the ethics help them to provide assistance to them.
2.Stakeholder interests-It is important for the company to have good practice of corporate Governancee and the ethics because it is very important in the interest of the shareholder and protect them from conflicts of their interest. Stakeholder interest is also recognized by corporate Governancee and stakeholder are the one who establish good relationship among the community and the press (Griseri and Seppala., 2010). Stake holder interest is the key element to the success of the organisation, if any of the organisation does not consider the shareholder interest while making decision then it can not succeed in the market and can not grow and achieve its future targeted result.
3.Board responsibility must be clearly outlined-Board responsibility must be clearly outlined to the majority shareholder and also required to clearly mention just because to check that the rights of minority shareholders are not misplaced by the large shareholder. Majority shareholder are the one who have large interest in the company and have power to easily influence the company. It is the duty of the board member to treat all the shareholder on the equal ground and provide equal assistance to each one of them.
4.Ethical behaviour-Ethical behaviour violations create many problem in the organisation as well as it harms the goodwill of the organisation the market which overall affect the market criteria of the organisation so it is important to consider by the organisation that ethical behaviour is followed in the organisation sop that the organisation can grow their business over the time (Kolk and Pinkse., 2010.). If the underplaying and abusing outsources employees come back then they bite the company hard. Code of conduct for all the member of the board must be established so that they can not influence the right the minority shareholder and minority shareholder get have positive attribute toward the organisation and have the faith over the company.
5.Business transparency-Business transparency is the key to achieve the shareholder trust over the company so that they can work even more better and contribute to the growth of the organisation. Financial records, earning reports and forward guidance are the key part of the organisation that must be considered and clearly stated. Financial records, earning reports and forward guidance should not be stated with exaggeration or creative accounting. By making the false record it will create the problem to the firm they should have to do the things or the changes according to that (Rossouw and et. al., 2010 ).
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Here we have also discussed about Volkswagen fraudulent act, that how the firm get into the scandal and what all situation the organisation had to face during that severe condition. Who were the people involved in this activity which put the organisation to such typical situation. Ethics are the understanding of difference between the right and the wrong ans what is moral and immoral. Corporate Governancee are the norms and the regulations that an organisation must follow. The issues that can be raised if the ethical aspects are not followed properly. We have also discussed about the situations that leads a firm to face failure in the ethical and corporate Governancee. What are the remedies that an organisation should follow so that the firm can be save from all the fraud and scandals are also been discussed.
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