sesi 4 ethical governance & accountability
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SESI 4
ETHICAL GOVERNANCE
AND
ACCOUNTABILITY
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GOVERNANCE SYSTEMS
1970s: professional accountants realized
that the reports they were preparing orauditing were only as good as the internal
control systems of their clients. Thoseprocesses by which a corporation seeks toassure the safekeeping of its assets, the
propriety activities, and the properrecording of its transactions.
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GOVERNANCE SYSTEMS
1980s: financial scandals weakened thecredibility of accounting profession in Canadaand US.
1988 AICPA issued SAS 55 and SAS 60,Consequently, auditors are required to reportmaterial weaknesses in internal control to theaudit committee of the organization under audit.
Failure to do so effectively could result in legalliability for the auditor.
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GOVERNANCE SYSTEMS
Nov 1991: US and Canada increase thepenalties for ethical/environmentalmalfeasance
1994 & 1995: pronouncement from theToronto Stock Exchange and CICAspecified that directors were to be thesocial conscience of their companies andwere responsible for developing andmaintaining an ethical culture.
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GOVERNANCE SYSTEMS
During 1990s, it has become understoodthat management approaches must reflectaccountability to STAKHOLDERS, not justSHAREHOLDERS
Since 1995: The need for a company andprofession to ensure support of its primarystakeholder group to achieve its strategic
objectives optimally, led to thedevelopment of broader concepts andtheir inclusion in ethics programs withinmodern governance systems
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EMERGING GOVERNANCE
AND ACCOUNTABILITY
NEW EXPECTATION NEW FRAMEWORK
ACCOUNTABILITY TO SHAREHOLDERS &OTHER STAKEHOLDERS
GOVERNANCE PROCESS BASED ONSTAKEHOLDER INTERESTS
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Copyright Houghton
Mifflin Company. All rightsreserved. 1-7
Figure 4.1: External Stakeholders, Moral Stakes,
and Corporate Responsibilities
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STAKEHOLDER ACCOUNTABILITY
GOVERNANCE PROCESS (SAOG)
SHAREHOLDER + STAKEH0LDER
PUBLIC INTEREST
BOARD OF DIRECTORS
CORPORATE CULTURE
Lawyers
ExternalAuditors
ProfesionalAccountant
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DEVELOPING AND MANAGING
AN ETHICAL GOVERNANCE
1. ETHICS PROGRAM ORIENTATION:
2. CODE OF CONDUCT3. MONITORING AND REPORTING
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Improving Ethical Climate
Top
Management
Leadership
Ethics Programs
& Officers
Realistic
Objectives
Ethical Decision-
making Processes
Codes of
Conduct
Ethics Audit
Ethics Training
Whistle-blowing
Mechanisms
(Hotlines)
Discipline of
Violators
Effective
Communication
Codes of
Conduct
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ETHICS PROGRAM ORIENTATION
Compliance based
Integrity or value based
Satisfaction of external stakeholders Protect top management from blame
Combination of above
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CORPORATE CODE OF CONDUCT
Is a basic foundation block to building anethical culture to manage or governcorporate behavior.
Focus on:1. Interest of stakeholders/constituent
2. Strategic policies or responsibility or
responsibility of the organization3. A specific mission or several issues
4. A composite of the above
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EFFECTIVE IMPLEMENTATION
OF CODE OF CONDUCT
The development and maintenance of anethical corporate culture
An effective internal control system
A due diligence for directors and officers
Effective empowerment of employees to
make ethical decision The sending of proper signals to external
stakeholders
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