GGSR Wk7

GGSR
CODE OF ETHICS
CODE OF CONDUCT
Code of Ethics:
A set of principles and values that guides the behavior and

decision-making of individuals or organizations in
accordance with moral and ethical standards.
Code of Conduct:
A set of rules, policies, and guidelines that governs the

behavior and actions of individuals within an organization,
outlining acceptable and unacceptable behavior in specific
situations.
Corporate Governance and Ethics
Corporate Governance
 Consists
of the relationships between the
numerous stakeholders involved and the goals for
which the corporation is directed
 Alsoa process that aims to apportion corporate
resources in a way that enhances value for all
stakeholders such as the shareholders, investors,
employees, customers, suppliers, environment
and the community in general.
Aims of Corporate Governance
 High Degree of Transparency in an organization by
encouraging full disclosure of transactions in the company
accounts.
 Encourages strong accountability of the directors to the
shareholders.
 Ensures equitable treatment of all shareholders of the
company.
 Allows firms to evaluate their behavior before they are
scrutinized by regulatory bodies.
 Main objective is to protect the long-term interests of the
shareholders
Elements of Corporate Governance
1. Direction
2. Oversight
3. Stakeholder relations
4. Corporate citizenship
5. Independence of directors
6. Effective risk management
7. Solid structure and organization
8. Transparency
9. Self-Evaluation
Who is responsible for Corporate Governance
Potential Challenges in Corporate
Governance
 Conflict of Interest
 Oversight Issues
 Accountability Issues
 Transparency
 Ethics Violation
 Governance standards
 Short-termism
 Diversity
2 Distinct Approaches to Corporate Governance
 Rules Based Approach

 Principles based Approach
Rules Based Approach
All provisions are legal rules, supported by law,

failure to comply means punishment
Usual Characteristics of Rules Based Approach:
a. Approved set of requirements

b. Fast approach of ensuring conformity
c. Implements a checklist method
d. Clear difference between conformity and non-conformity
e. Easy to observe that entity is conforming
f. Lessening of flexibility on the part of management and auditors
g. Challenging to set rules entirely for all situations
h. Likely to misunderstand rules
i. Similar rules apply to all, whatsoever their sizes are
Example:
McDonald's Corporation:
 McDonald's has established extensive policies and procedures

governing food safety, quality control, and operational
standards across its global franchise network.
 The company's franchise agreements and operating manuals
provide detailed rules and guidelines for franchisees regarding
food preparation, customer service, cleanliness, and brand
standards.
 McDonald's governance framework emphasizes compliance with
standardized operating procedures and quality assurance
protocols to maintain consistency, brand integrity, and
customer satisfaction across its restaurants.
Exxon Mobil Corporation:
 Exxon Mobil operates within a highly regulated industry and has

established strict governance protocols to ensure compliance
with environmental, health, safety, and corporate governance
standards.
 The company's governance framework includes detailed policies,
procedures, and protocols governing operational practices, risk
management, and regulatory compliance.
 Exxon Mobil's rules-based approach to governance prioritizes
adherence to industry regulations, best practices, and internal
controls to mitigate operational risks and ensure safety and
environmental stewardship.
Principles –based approach
Is grounded on the outlook that a distinct set if rules

is unfitting for every company
Circumstances and situations vary from companies to

companies.
The circumstances of a company can change every

now and then.
Common Characteristics:
Example:
Johnson & Johnson:
 Johnson & Johnson (J&J) is widely recognized for its strong

commitment to ethical principles and responsible corporate
governance.
 The company's famous "Credo," written in 1943 by Robert Wood
Johnson, outlines its core values and principles, including
putting the needs and well-being of customers, employees,
communities, and shareholders at the center of its business
decisions.
 J&J's Credo serves as a guiding framework for ethical conduct,
decision-making, and corporate responsibility across its global
operations.
Toyota Motor Corporation:
 Toyota is recognized for its principles-based approach to

corporate governance and quality management.
 The company's "Toyota Way" is a set of guiding principles that
emphasize continuous improvement, respect for people, and
long-term thinking.
 Toyota's governance practices prioritize ethical conduct,
customer satisfaction, and stakeholder engagement,
reflecting its commitment to delivering value to society
while upholding high standards of integrity and excellence.
The Agency Theory
 Relationship between agency and principals

 Agent represents the principal in a particular business
transaction and takes decisions on behalf of the principal
in an agency relationship.
 Agents are expected to disregard his self interest on order
to represent the best interest of the principal
The Stewardship Theory
 Defined as someone who protects and takes care of the
needs of others
 In the theory, company top executives protect the
interests of the owners or shareholders and make
decisions on their behalf.
 The sole objective is to create and maintain a successful
organization so the shareholders prosper.
Several Models that a Company May use to
operate Stewardship
The Stakeholder Theory
 States that the purpose of a business is to create

value for wider group stakeholders other than just
shareholders.
 Considers the corporate environment as a network
of interconnected groups, all of which are
required to be pleased to sustain the healthy and
success of the company in the long term.
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GGSR

A set of principles and values that guides the behavior and

A set of rules, policies, and guidelines that governs the

 Rules Based Approach

All provisions are legal rules, supported by law,

a. Approved set of requirements

 McDonald's has established extensive policies and procedures

 Exxon Mobil operates within a highly regulated industry and has

Is grounded on the outlook that a distinct set if rules

Circumstances and situations vary from companies to

The circumstances of a company can change every

Johnson & Johnson:

 Johnson & Johnson (J&J) is widely recognized for its strong

 Toyota is recognized for its principles-based approach to

 Relationship between agency and principals

 States that the purpose of a business is to create

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