Assignment 1: Business Ethics & Corporate Governance (EIB20103)

PREPARED FOR:

PROFESSOR SR DATO’ DR KAMARUDIN MOHD NOR

PREPARED BY:

NUR SHAZWANI ALZAHRRI (62283113273)

BBA (HONS) MANAGEMENT & ENTREPRENEURSHIP

1)      Definition of ‘Business Ethics’ and why business ethics is considered ‘Oxymoron’?

According to Brown and Petrello (1976) "Business is an institution which produces goods and services demanded by people" (Brown, Petrello). This means that business is an institution that produces goods and services needed by society. If the community needs increase, the agency also will increase business also developed to meet those needs, while getting a return. Every business requires some form of investment and enough customers to whom its output can be sold on a consistent basis in order to make a profit. Businesses can be privately owned, not-for-profit or state-owned. According to Paul and Elder define ethics as "a set of concepts and principles that guide us in determining what behaviour helps or harms sentient creatures" (Paul, Elder, 2013). Which means it shows that the basic concepts and fundamental of right human conduct. It includes study of universal values such as the essential equality of all men and women, human or natural rights, obedience to the law of land, concern for health and safety and increasingly also for the natural environment.  

According to Andrew Crane, “Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed” (Akrani, 2011). Business ethics manifests both as written and unwritten codes of moral standards that are critical to the current activities and future aspirations of a business organization. They can differ from one company to another because of differences in cultural perspectives, operational structures and strategic orientations. The guiding framework of business ethics permeates all levels of the organization. It is about having the wisdom to determine the difference between right actions and wrong decisions. Business ethics also can be defined as the critical, structured examination of how people & institutions should behave in the world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or for firm’s profits, when the actions of individuals or firms affect others.

Business ethics, it has been claimed, is an oxymoron (Collins 1994). By an oxymoron, we mean the bringing together of two apparently contradictory concepts, such as in ‘a cheerful pessimist’ or ‘a deafening silence’. This is means the mix of business and ethics which is without ethics the business could not function in a good condition because the behaviour requires a great deal of trust and integrity. For example if the business require unethical business behaviour the business operation might throw away their bad chemical on the river which might pollution the environment and might lied to their customer regarding their product and services was an unethical way in the business. Therefore business ethical is important in every business activity because it provide honesty, trustworthiness and co-operation between each others. So, business activity are impossible if the business always lied to their customers, buyers and seller are never trusted with each other and employees also refused to help each other. This might make the business meet to the bad earning goal.

So calling "business ethics" an oxymoron conveys the misguided assumption that ethical commitment and conduct have to be 100% in order to be valid. In other words, if you're going to be ethical you have to be a saint. Like being pregnant, being ethical is thought to be an all-or-nothing proposition you either are or you aren't. It's certainly not bad to strive for ethical perfection, but it can be very destructive to insist upon it. Demanding 100% ethical perfection can have the unintended reverse consequence of discouraging people from trying to be ethical at all. When faced with the impossible, sometimes people just give up. The answer, of course, is that we can always do better. So for me business ethics is not an oxymoron it's an opportunity.

2)      Definition of ‘Corporate Governance’?

The phrase "corporate governance" is often used but yet lacks a precise definition (Low, 2000: 436).  Most of the definitions focused on the structure and the function of the board of directors or the rights and prerogatives of any shareholders in boardroom decision making. The High Level Finance Committee Report on Corporate Governance in Malaysia also defined corporate governance from the same perspective. They defined corporate governance as  "the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value whilst taking into account the interest of other stakeholders" (Lee, 2003: 41).

Corporate Governance can be refers also as the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals. Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance. These dimensions of corporate governance should not be overlooked.

Well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and best practices as well as to formal laws. To that end, organizations have been formed at the regional, national, and global levels. In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.

Corporate governance is very important. Fundamentally, there is a level of confidence that is associated with a company that is known to have good corporate governance. The presence of an active group of independent directors on the board contributes a great deal towards ensuring confidence in the market. Corporate governance is known to be one of the criteria that foreign institutional investors are increasingly depending on when deciding on which companies to invest in. It is also known to have a positive influence on the share price of the company. Having a clean image on the corporate governance front could also make it easier for companies to source capital at more reasonable costs. Unfortunately, corporate governance often becomes the centre of discussion only after the exposure of a large scam.

There are three objectives of corporate governance which firstly is to build up an element of trust and confident. This is important in order to keep maintaining their stakeholder’s. For example like food company in Malaysia, as everyone know Malaysia is an Islamic country, so that all food company need to produce legal and ‘halal’ food. The company needs to have HALAL certificate from JAKIM, so that all customer will feel confident with the product and trust towards the company product. Secondly is to enhance stakeholders’ value by have a strong corporate governance structure because it sees that have a higher valuation to their shares. So if the company has well corporate governance will attract shareholders to invest in the company. Lastly is to enhance corporate performance and accountability. By improving the corporate performance and accountability will maximizing the long-term value of the company itself especially for their stakeholders and all of their partners.

Benefits of Corporate Governance

1. Good corporate governance ensures corporate success and economic growth.
2. Strong corporate governance maintains investors’ confidence, as a result of which, company can raise capital efficiently and effectively.
3. It lowers the capital cost.
4. There is a positive impact on the share price.
5. It provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders and the organization.
6. Good corporate governance also minimizes wastage, corruption, risks and mismanagement.
7. It helps in brand formation and development.
8. It ensures organization in managed in a manner that fits the best interests of all.

REFERENCES 

1) Business Definition According to the Experts (n.d). Retrieved February 7^th 2013 from http://minutefinance.blogspot.com/2010/01/business-definition-according-to.html

2) What are Business Ethics? Meaning Definition Features (n.d). Retrieved February 7^th 2013 from http://kalyan-city.blogspot.com/2011/09/what-are-business-ethics-meaning.html

3) Part A: Understanding Business Ethics. (n. d.). Retrieved February 7^th 2013, from http://www.oup.com/uk/orc/bin/9780199564330/craneandmatten3e_ch01.pdf

4) Nor Azizah Zainal Abidin and Halimah @ Nasibah Ahmad (2007). “Corporate Governance in Malaysia: The Effect of Corporate Reforms and State Business Relation in Malaysia”. Retrieved  February 7^th 2013 http://web.usm.my/aamj/12.1.2007/AAMJ%2012-1-2.pdf

5) Corporate Governance-Definition, Scope and Benefits. Retrieved February 7^th 2013, from http://www.managementstudyguide.com/corporate-governance.htm