Business Ethics and Corporate

Governance: A Global Prospective

Ms. Preeti Sehgal

Ms. Neha Singh
Models of Corporate Governance- Japan
• Japanese companies use a one-tier board system.
• According to Japanese Commercial Code, the board of auditors
must monitor the management and report on their performance to
the shareholders.
• The Japanese Commercial Code that was revised in 2003 enables
Japanese companies to abolish the board of auditors system.
Instead, it introduces a board committee system
• In 2004, about 70 companies, including Sony and Hitachi, adopted
this model. This approach is called the separation of execution from
auditing
• Toyota Motor, Matsushita Electric, and Canon, however, did not
follow suit.
Models of Corporate Governance -
Australia, Singapore, and India
• Singapore’s corporate governance is also based on the
Anglo- American model but departs from this in several
important respects.
• The government is a major shareholder in many large
Singapore companies, and government controlled
companies play a major role in many key industries
The CLSA Emerging Markets and the Asian
Corporate Governance Association survey, CG
Watch:

Basis China India Singapore

Rule and Regulations 5.0 8.0 8.5

Enforcement 4.0 6.0 7.5

Political and Regulatory environment 5.0 6.0 6.0

Institutional mechanisms and corporate 3.0 6.5 8.0

governance culture
Country Score 4.3 6.6 7.7

• These tables indicate that in relation to several indicators of the

corporate governance environment, rule of law, and enforcement
Models of Corporate Governance in
Europe
Values Shareholder Rights Transparency,
Management Equitable treatment Reporting & audit
Corporate Social Controlling Transparency
Responsibility shareholders Auditing process
Environment Anti-takeover devices Reporting
Social standards
Human rights

European Principles
For Corporate Governance

Directors Remuneration Other voting

Board structure Framework Issues
Board size Incentives, pension Company constitution
Role of chairman Contractual term Shareholder
Director training Resolutions
Extraordinary general
Meetings
Stakeholder engagement in the Asia-Pacific
region A common list of stakeholders
• Primary/Direct – financial investors
• Shareholder/security holders
• Banks and other finance providers
• Primary/Direct – other financial stakeholders
• Employees - Management/Non Management
• Customers and suppliers
• Directly involved government agencies such as the Taxation Office
and regulators, ASIC, APRA and so on
• Indirect –Social
• Local communities – Represented by local and state government
agencies and lobby groups
• Regional, national and global communities – represented by NGO’s
• Indirect – Environmental
• Government agencies such as Environmental Protection Authorities
and planning agencies.
• Non-government bodies representing environmental interests –
NGO’s, research institutes, and so on.
• . In India, community- and state-based investor
associations and NGOs have emerged recently and are
likely to become influential at state and federal control
levels, as financial markets grow.
• There was substantial government control over
investment, and consequently state-owned enterprises
were major asset managers in India.
Stakeholder engagement in Australia
• Government bodies and authorities: Attorney General, Australian
Competition and Consumer Commission (ACCC), National
Competition Council, Reserve Bank, ASIC, Takeovers Panel, APRA

• Professional associations: Chartered Institute of Company

Secretaries, CPA Australia and Institute of Chartered Accountants
(professional accounting bodies), Institute of Company Directors,
Law Council, Law Institute and Australian Corporate Lawyers
Association, and other legal professional bodies

• Securities and exchange organizations: Australian Stock

Exchange (ASX), Financial Markets Association, Independent
Shareholder Services, Investment & Financial Services Association.
The extent of stakeholder engagement
and ethics guidelines - Africa
• It is emphasized that the policy for stakeholder
engagement should not only be developed by the
company but also should be agreed on with the
respective stakeholders of the company
• companies should follow a triple bottom-line reporting
and disclosure approach based on the AA1000 process
standard and the Global Reporting Initiative (GRI)
reporting principles
The extent of stakeholder engagement
and ethics guidelines - Japan
• Many of the large companies would hold equal shares of
other large companies. This is referred to as cross-
shareholdings. It was used as a measure to prevent
takeovers.
• More recently, the practice of cross-shareholdings has
been decreasing, causing more Japanese companies to
become vulnerable to takeover bids.
• New stakeholders like managers of pension funds and
foreign investors, are at the same time becoming more
influential
The extent of stakeholder engagement
and ethics guidelines - Europe
• Stakeholders in European Corporate Governance
Codes
Issue Entries

Code of ethics, ethical standards 11

Cooperation, codetermination, 10
partnership
Reports, dialogue, communication 7
Wealth, prosperity, jobs 6
Social responsibility 6
Environmental protection 6
• The Swiss corporate governance code is the only one
that exclusively identifies shareholders as stakeholders.
• The Dutch code, to the contrary, identifies shareholders,
employees, whistleblowers, investors, suppliers,
customers, government, and the civil society
• In most of the European corporate governance codes,
shareholders, customers, employees, suppliers, and
creditors constitute the core of stakeholders.
• Shareholder-oriented codes emphasize the interests of
owners, problems of incomplete information,
transparency, accountability, performance based
remuneration, and sustained financial solidity.
Stakeholder-oriented codes, on the other hand, have a
wider frame of reference.
The relevance and role of business
ethics in corporate governance

• The main business ethics issue, from a

corporate governance perspective, is
the establishment of systems that
manage ethical concerns and establish
control procedures that seek to enhance
business integrity and ethical conduct.
One can reflect on ethics and governance from
two perspectives in the context of cross-country
comparisons.

• How have various approaches to governance

implicitly or explicitly focused on improving ethics
in organizations?
• How do social or organizational culture factors
influence how best practice models work in
different cultural settings?
The relevance and role of business ethics in
corporate governance- Asia pacific
• In China and India, the minority shareholder is openly
acknowledged as a potentially so-called endangered
species in reports on corporation governance and in new
codes (Balasubrumanian 2004; IFF Report, 2004).
• In Australia, the prime concern to be addressed is that
the dominant shareholders, directors, or senior
executives will maintain control to serve their personal
interests
• In China, a number of sections in their new code directly
note this concern, advising controlling shareholders that
they owe a duty of good faith toward the listed company
and other shareholders
The relevance and role of business
ethics in corporate governance - Africa
• In line with the inclusive model of governance that
prevails in Africa, the duty to protect the human and
other rights of all stakeholders enjoys prominence.
• Stakeholders that are singled out for special protection
are cultural or ethnic minorities, women, and children
• The duty of the board and the company to look after the
safety and health of its employees is also stressed
• Another obligation that commonly occurs in the national
codes is the social responsibility of corporations.
The relevance and role of business
ethics in corporate governance - Japan
• In Japan, there are some companies that have the
tendency to be embroiled in scandals repeatedly.
• Mitsubishi Motors Corporation (MMC), for example
• in 1997 when it was disclosed that it paid a third party
who illegally “fixed” shareholder meetings
• In 2000, it was brought to light that MMC managed for
years to cover up defects in cars.
• After that revelation, a business ethics program was
introduced, but MMC still refrained from electing
independent directors to its board.