Importance Of Business Ethics And Corporate Governance In Organisations

Business Ethics

Discuss about the Business Ethics and Corporate Governance Description.

In the below mentioned project analyst has given a brief description about the business ethics and corporate governance in the business organisation. Analyst will be discussing the importance of business ethics in a company. Along with that moral duty and commitment to be given by the employees of the organisation will be also observed in below mentioned project. A small discussion in form of definition and importance of corporate governance in business culture will be mentioned at the beginning phase of the analysis. This report will be consisting of case study of Krispies Co. Ltd. (distributor of snack foods), according to which there is an accounting and financial misappropriations will be existing in the books of accounts of the group. To hide the organisational management incapability’s of managing the working capital requirements, manager followed the process of window dressing presentation of financial statements. Following that, there will be detailed discussion of stakeholders involved in the company; along with their role in the company with an analysis of effect of fraud on respective stakeholders will be also presented and attached along with the report.

The terminology of the “Ethics” has been taken from the Greek word “ethos”. According to such ethics here means good character. Ethics are standards or guidelines which need to be followed by an organisation which helps in judging what is right and what is wrong.

According to Oluwafisoye & Akande, (2013) business ethics here refers to application of ethical and moral guidelines in the operations and workings of business organisation. To be more particular business ethics refers to follow up of set standards in the desired manner and to avoid taking unjust advantage. For instance there are various questions which need to be answered while taking both financial and non financial decisions related to business operations. Some of them are listed below

• What should an ethical employee do if his/ her bosses pressurise them to follow unethical business operations?
• What should a business manager do if he/she innocently came across the secret information about the business rival, would it be ethical enough to utilize their secret information and take advantage of it?

The ethics is important for all the type of the business weather it is small or large scale business, manufacturing and service. The business ethics involves behaviour which is socially desirable even it is not binding by law and it is dynamic term and may change over time.

• Values- The values are the moral belief held by the individual, organization and society and carry moral conviction which are relatively permanent. For example a company despite of holding monopoly many charge nominal from the customer due to its value system.
• Rights- rights are the claim of individual and organization which are provided by the constitution.
• Duties- These are the obligation which the person of the organization needs to follow. For example every person has the duty to follow the law which is specified by the government.
• The importance of ethics in business
• Ethics correspondence to basic human needs- The people needs to be ethical in both personal as well as professional life because their behaviour may affect the life of the thousand of employee.
• Create credibility with the public- The Company who follows ethics while conducting their operation is respected and honoured by the society even when among those who don’t have knowledge of actual working of company. This increase the demand of the company product as customer will think that the company offers value for money.
• Management credibility with employee- The ethics helps the management in bringing their employee together and builds leadership. The ethics which are set by the organization if followed create common goal and increase the value of the management.
• Better decision making- The business ethics helps the management in better decision making which are in the interest of the public and employee and helps in creating goodwill of the company even though the decision making is slow. This is because the management who follows ethics takes all the aspect of business such as economic social and ethical while decision making.
• Ethics and profit are interlinked-The Company who follows ethics creates the value among the customer which values the company over the long run and increases its profitability. The company who emphasize on creating value attain success in the long run although the company may lose money in the short run.
• Ethics helps in protecting society- The organization which follows ethical behaviour takes measure to prevent the customer and protect workers health even when not mandated by the law. This helps to create company value in the society.

The corporate governance is defined as the set of system and process which ensures that the company manage all its operation for the best interest of the entire stakeholder. The system which helps in corporate governance should include certain structure and organization and aspect, the process helps the corporate governance how things are done within such structure and organization system. It is refers as mechanism, relation and process by which corporate is controlled and is directed, balancing the interest of the entire stakeholder. It is the system of rules and practice by which the company operation are directed and controlled (Connelly, 2010).

Corporate Governance

• Krispies Co. Ltd. (distributor of snack foods) has taken large loan from bank
• According to conditions of loan there must be at least $ 75,000 as a bank balance.
• As on 31^st march data cash balance is only $ 50,000
• There is a situation that bank might foreclose the loan and company might enter into liquidation process
• Accountant advised to keep the books open for one more day to keep the scope for future entries
• Past dated cheque received from Freers foods’ (a customer of Krispies Co. Ltd.) to match up with the banks requirement.

As per (Lee, 2007) Stakeholders are the person which are involved or might be interested in the business activities. Stakeholders are the pillars of the organisation standings. Any default in any of the business activity will put a great impact on the stakeholders. The following are the below mentioned discussed in above mentioned case study-

No.	Stakeholders in the current situation	Role in business organisation	Impact on shareholders due to business liquidation
1	Employees of Krispies Co. Ltd.	Employees are part of internal stakeholder group. Their job in organisation is to perform the various task and activities for which they are assigned to, in lieu of respective wages or salaries. Stakeholder as employees is always concerned about their salaries. As more there is growth in organisation more will be there monetary benefits	Employees will tend to lose their jobs. Cost cutting and cost reduction will result in lots of job sack.
2	Shareholders and key investors of Krispies group	Business owners are part of internal stakeholder group. Owners are deeply interested in profitability of the business enterprise. More the profits more will be return on their capital employed.	Their capital will be eroded or might result in a significant loss due to reduction in share prices and decrease or very less payment of dividend.
3	Suppliers of group	Suppliers are part of external stakeholder group. Supplier want to continue business relations with the firm and most likely wants to increase the sales revenue generated due to business organisation	Reduction in sales revenue of the supplier.
4	Community including local residents and people in its geographical area of business	Community is part of external stakeholder group. They might be local residents, shop owners, tea and coffee vans operating due to purchases made by the staff of the organisation	Will affect the earnings of the locality badly.
5	Lenders including banks	Lenders are part of external stakeholder group. They want that both of their principal and interest portion is to be repaid by the firm.	Increase in NPA’s and loss asset criteria.
6	Customers of food products manufactured by Krispies Co. Ltd.	Customers are part of external stakeholder group. Consumer got adopted to particular taste and preferences and loyal to the products and services offered by the company	Unavailability of the required product and services
7	Government of land	Government is part of external stakeholder group. Government is interested in business due to earnings through taxation revenue. Further it creates employment opportunities to the residents of the country.	Reduction in taxation revenue and growth in unemployment rate of the economy.

According to (Goel, and Ramanathan, 2014) Ethics are the moral values which decide what is wrong and what is right while making a decision. In the above mentioned case study there are lots of issues related to accounting and financial disclosures which are unethical in nature. Such issues should be controlled, reviewed and monitored accordingly. Alternatively necessary actions are to be taken to stop such mal practises in future course of action. Taking reference from the above case study analyst has observed the following ethical issues in the organisation

• As in general like most accounting and financial disclosure frauds are due to misappropriation and wrongly presentation of financial statements. Similarly in the above case Naomi Kidman, accountant of the Krispies Co. Ltd. asked assistant accountant to not to close the books of accounts to cover up the illegitimate funds shortage in accounting books. This is to due to management of cash requirement as required by the lender bank. This was done intentionally and not following the general accounting guidelines and principles.
• Taking cheques of previous dates. Not managing the working capital requirement properly in timely manner.
• Taking huge business risk which might even affect the going concern aspect of business enterprise.

Organisation might take some actions which are unethical in nature just to ascertain unjust advantage. It is up to one’s discretion in choosing the right path in preparation of financial statements. This will not only violate the ethical laws but also breaches the criminal law of the land. The following are the unethical course of action taken by an organisation and its further consequences are tabulated below

No.	Course of action	Consequences of such action
1.	Not closing books of accounts and creating differences in dates and other relevant data of financial instrument.	Will be defaulter of the banking act and negotiable instrument act.
2.	Deliberate omission of data entry in accounting and financial statements	Has to face lots of penalties and fines. With further effect business has to face lots of troubles in terms of governmental controls and regulations. With effect of Sarbanes – Oxley act 2002, this enhances the chances of business to expose to various fines. Additionally persons responsible for managing the operations of business can be held liable for legal proceeding for unethically presenting the financial statements of the business. For instance in the present scenario of Krispies Co. Ltd can be held responsible for the above factor of financial statement misrepresentation.
3.	Wrong and misappropriation of assets recognition
4.	Wrong valuation of the business assets of the organisation
5.	Increase in business expenditure in wrongly manner

 

Conclusion

From the above research case study analyst with the help of framing up of a questionnaire on ethical principles and general norms which helps an individual to decide what is correct and what is wrong in the organisational sense. On reviewing the case study report on Krispies Co. Ltd various conclusion have been generated while analysing cause – effect relation in prospect of the organisational stakeholders. To be more precise this shows the results of unethical tasks on the group which is interested in the activities of business in direct or indirect manner. With further effect analyst has also discussed the various ethical issues involved in the present case study. Along with that there is a brief information on consequences of issues involved over the group performance of a business organisation was mentioned in above report.

References

Goel, M. and Ramanathan, M.P.E., 2014. Business Ethics and Corporate Social Responsibility–Is there a dividing line?.Procedia Economics and Finance, 11, Available at https://ac.els-cdn.com/S2212567114001750/1-s2.0-S2212567114001750-main.pdf?_tid=060c294a-dc88-11e6-8fb2-00000aacb362&acdnat=1484638925_4531fdda47a51910384dcac6f4d9a205

Lee, K., 2007. Who Are the Stakeholders?.Journal of Technology Studies, 33(1), Available at https://scholar.lib.vt.edu/ejournals/JOTS/v33/v33n1/lee.pdf

Connelly, B.L., Hoskisson, R.E., Tihanyi, L. & Certo, S.T., 2010, “Ownership as a form of corporate governance”, Journal of management studies, 47(8), Available at – https://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.2010.00929.x/epdf

Oluwafisoye, O. and Akande, O., 2013. Business Ethics and Corporate Social Responsibility” THE PERCEPTION OF EMPLOYEES ON BUSINESS ETHICS IN AN ORGANIZATION. Available at – https://bth.diva-portal.org/smash/get/diva2:831055/FULLTEXT01.pdf