ABSTRACT

Title : CORPORATE BUSINESS ETHICS AND

SUSTAINABILITY: SOCIAL RESPONSIBILITY AND
GOVERNANCE

Author : OASIA C. RECINA

Degree : DOCTOR IN MANAGEMENT MAJOR IN

ADVANCE HEALTH CARE MANAGEMENT

Professor : BIENVENIDO M. FLORES, D.M.

Date : AUGUST 18, 2019

Pages : 90

Objective and Scope

This study aims to summarize the Corporate Business Ethics,
Sustainability, social responsibility and governance.

Findings
.

Conclusion

Recommendation
TABLE OF CONTENTS

Chapter

I. ETHICS AND BUSINESS

Nature of Business

Importance of Ethics in Business

The Businessman’s myths about Business Ethics

Moral Reasoning in Business

Morality and Profit Motive

The Concept of Moral Responsibility

II. PHILOSOPHICAL BACKGROUND OF BUSINESS ETHICS

Ethics and Philosophy

Division of Philosophy

Ethics and Morality

Utilitarian Ethics

Deontological Ethics

Virtue Theory

Theories of Justice

Ethical Relationship in Business

The Machiavellian Principle

Kohlberg’s Stages of Moral Development

Moral Positivism of Hobbes

III. CORPORATE SUSTAINABILITY

Concept of Corporate Sustainability

Corporate Sustainability Footprints

Corporate Regulatory Compliance and Governance

Corporate Stockholders Engagement

Pillars of Corporate Sustainability

1. Environment

2. Social

3. Economic

Impact of Sustainability and the Bottom Line

Corporate Sustainability Strategy

Corporate Sustainability Management System

Sustainability Challenges and Solution

IV. CORPORATE SOCIAL RESPONSIBILITY

The Corporation

Corporate Social Responsibility in Practice

Relationship between Business and Society Ethics and

Capitalism

Stakeholders Relationship Analysis

Ethics and Responsibility in the Workplace

Employees

Consumers, end users and the general public

 Competitors

Suppliers

Globalization and Business Responsibilities

Corporate Social Responsibility towards the Environment

V. CORPORATE GOVERNANCE

Concepts of Corporate Governance

Pillar of Governance

Corporate Governance versus Management

Shareholders, Directors and Officers - Roles and Duties

Protectionism, Systemic Risk and Moral Hazard

Corporate Strategies and Policies: Internal and External

Government Influence in Business and Corporation

MODULE 1

Definition of Ethics
What Is Business Ethics?

Business ethics is the study of appropriate business policies and practices

regarding potentially controversial subjects including corporate

governance, insider trading, bribery, discrimination, corporate social

responsibility, and fiduciary responsibilities. The law often guides business

ethics, but at other times business ethics provide a basic guideline that

businesses can choose to follow to gain public approval. Defines right and

wrong behavior in the world of business. What constitutes right and wrong

behavior in business is determined by the public interest groups, and

business organizations, as well as an individual’s personal morals and

values.
DIVISIONS OF PHILOSOPHY

1. Logic -- the science of evaluating arguments Answers the question:

“What is good thinking?”

2. Epistemology -- the study of knowledge Deals with issues of

knowledge, truth, reason and faith Typical Epistemological questions:

What is knowledge and how does it differ from belief or opinion? What is

truth, and how can we know if a statement is true? What are the sources

of knowledge? Do absolutes exist, and if so, can we know them? What is

the relationship between faith and reason?

3. Metaphysics -- the study of the ultimate nature of reality Deals with

issues of reality, God, freedom and the soul Typical Metaphysical

questions: What is reality? Does God exist, and if so, can we prove it? The

problem of evil Are human actions free, or are they determined by some

forces outside of our control? Do minds/souls exist, or are humans simply

complex physical objects? What is time? What is the meaning of life?

4. Axiology -- the study of values Deals with issues of value in three

areas: Ethics, Social/Political Philosophy, and Aesthetics Ethics -- the

study of moral principles, attempts to establish rational grounds for good

conduct Typical Ethical questions: What is good/bad? What is

right/wrong? What is the foundation of moral principles? Are moral

principles universal?
5. Social/Political Philosophy -- the study of the value judgments

operative in civil society Typical Social/Political Philosophy questions:

What form of government is best? What economic system is best? What is

justice? Are we obligated to obey all laws of the State? What is the

purpose of government?

6. Aesthetics -- the study of the nature and value of works of art and the

aesthetic experience Typical Aesthetic questions: What is a work of art?

What is artistic creativity and how does it differ from scientific creativity?

Why are works of art considered to be valuable? What do works of art

communicate (if anything)? What is beauty? Does art have any moral

obligations or constraints?
DIFFERENCE BETWEEN ETHICS AND MORALITY

1. Moral constitutes a basic human marker of right conduct and

behavior, the ethics is more like the set of guidelines that define

accepted practices and behavior for a certain group of people.

2. Ethics relates to a society or profession where morality is related to

individual person.

3. Ethics relate more in a professional life while morals are what

individuals follow independently.

4. “Morals are how you treat people you know. Ethics are how you

treat people you do not know” (Ian Welsh).

5. Morals are the principles on which one’s judgment of right and

wrong are based. Ethics are principles of right conduct.

6. The morals are more abstract, subjective and often personal or

religion-based, while ethics are more practical, conceived as

shared principles promoting fairness in social and bus.iness

interactions.
The arguments in favor of corporate managers having an ethical

responsibility to society draw from four philosophical theories:

Social contract theory is that society consists of a series of explicit and

implicit contracts between individuals, organizations, and institutions.

These contracts evolved so that exchanges could be made between

parties in an environment of trust and harmony. According to social

contract theory, corporations, as organizations, enter into these contracts

with other members of society, and receive resources, goods, and societal

approval to operate in exchange for good behavior.

Social justice theory is a variation (and sometimes a contrasting view) of

social contract theory, focuses on fairness and distributive justice— how,

and according to what principles, society’s goods (here meaning wealth,

power, and other intangibles) are distributed amongst the members of

society. Proponents of social justice theory argue that a fair society is one

in which the needs of all members of society are considered, not just

those with power and wealth. As a result, corporate managers need to

consider how these goods can be most appropriately distributed in

society.
Rights theory is concerned with the meaning of rights, including basic

human rights and property rights. One argument in rights theory is that

property rights should not override human rights. From a CSR

perspective, this would mean that while shareholders of a corporation

have certain property rights, this does not give them licence to override

the basic human rights of employees, local community members, and

other stakeholders.

Deontological theory deals with the belief that everyone, including

corporate managers, has a moral duty to treat everyone else with respect,

including listening and considering their needs. This is sometimes referred

to as the “Golden Rule.”

Ethical Relationships in Business

Conflicts of Interest

Engaging in activities that are in direct conflict with the needs of your
customers or clients, or engaging in personal activity that is in conflict with
your business, are conflicts of interest. A conflict of interest is unethical
and can result in legal repercussions and damage to the ethical foundation
of the company.
Ethical Customer Relationships

Ethical relationships concerning your company's interaction with

customers can have a direct impact on the success of your company.
Ethical customer relationships should include honesty with customers,
delivering a good product or service and backing the product or service.
Favoritism

The ethical question comes into play when a company provides a potential

client or powerful government figure with an all-expense paid trip to Las

Vegas or wines and dines a client with the intention of stealing the client

away from a competitor. While the latter isn't illegal, and might well

accomplish the objective, your company risks placing itself in a vulnerable

position when dealing with others in the business world who have

witnessed the unethical way in which your company gets its clients.

Ethical Employee Relationships

Promoting ethical work relationships in the business can be encouraged

through staff meetings that discuss issues such as gossip among
employees and the consequences involved.
Nepotism

Nepotism occurs when a family member is shown special favors. While

hiring a family member who is unqualified for a job is not illegal, it can
open the door for perceived unethical behavior.

MACHIAVELLIAN PRINCIPLE is the use of the general principle of 'the

ends justifying the means'. This means the Machiavellian person

considers their goals to be of prime importance and that any method

may be used to achieve them.

The more extreme the Machiavellianism, the greater the harm the

person will be ready to indirectly (or perhaps directly) inflict on others to

achieve their own goals.

The Machiavellian approach includes using deception, manipulation,

theft and, in the extreme, even physical coercion or murder.

Niccol� Machiavelli (more fully, Niccol� di Bernardo dei Machiavelli)

wrote 'The Prince' (Il Principe) in 1513, during the turbulent days of the
Renaissance Medicis, as a set of pragmatic instructions to a new prince

on how to gain and retain power. The originality of his ideas has been

challenged and shown to go back at least to the Athenians, yet the

influence of Machiavelli's words still rings around the world.

Machiavelli separates public and private morality. People in public office

often need to appear to have high morals, yet to succeed they may have

to use questionable methods. While many have viewed it as immoral (and

hence evil), Machiavelli's views are more amoral. The approach is

pragmatic, doing what is necessary to achieve goals, and is an honest

description of what many people do.

What is described now as Machiavellianism is more about individual

action rather than that of a person in political office, although politicians

are often still described as being Machiavellian.

Machiavellianism is not a defined personality disorder, although the

extreme forms of it may be classified as Antisocial Personality Disorder.

Machiavellianism is a part of of what is called the 'Dark Triad' which also

includes Psychopathy and Narcissism. The common thread that runs

through these is a selfish view that cares little for other people and will

allow or enact harm to others in the pursuit of personal goals.

SUSTAINABILITY is most often defined as meeting the needs of the

present without compromising the ability of future generations to meet

theirs. It has three main pillars: economic, environmental, and social.

These three pillars are informally referred to as people, planet and profits.
CORPORATE SUSTAINABILITY can be viewed as a new and evolving

corporate management paradigm. The term ‘paradigm’ is used

deliberately, in that corporate sustainability is an alternative to the

traditional growth and profit-maximization model. While corporate

sustainability recognizes that corporate growth and profitability are

important, it also requires the corporation to pursue societal goals,

specifically those relating to sustainable development — environmental

protection, social justice and equity, and economic development.

The Environmental Pillar

The environmental pillar often gets the most attention. Companies are

focusing on reducing their carbon footprints, packaging waste, water

usage and their overall effect on the environment. Companies have found

that have a beneficial impact on the planet can also have a positive

financial impact. Lessening the amount of material used in packaging

usually reduces the overall spending on those materials, for example.

Walmart keyed in on packaging through their zero-waste initiative, pushing

for less packaging through their supply chain and for more of that

packaging to be sourced from recycled or reused materials.

The Social Pillar

The social pillar ties back into another poorly defined concept: social

license. A sustainable business should have the support and approval of

its employees, stakeholders and the community it operates in. The

approaches to securing and maintaining this support are various, but it

comes down to treating employees fairly and being a good neighbor and

community member, both locally and globally.

The Economic Pillar

The economic pillar of sustainability is where most businesses feel they

are on firm ground. To be sustainable, a business must be profitable. That

said, profit cannot trump the other two pillars. In fact, profit at any cost is

not at all what the economic pillar is about. Activities that fit under the

economic pillar include compliance, proper governance and risk

management. While these are already table stakes for most North

American companies, they are not globally.

The Impact of Sustainability

The main question for investors and executives is whether or not

sustainability is an advantage for a company. In practical terms, all the

strategies under sustainability have been co-opted from other business

movements like Kaizen,community engagement, the BHAG (Big Hairy

Audacious Goal), talent acquisition and so on. Sustainability provides a

larger purpose and some new deliverables for companies to strive for and

helps them renew their commitments to basic goals

like efficiency, sustainable growth and shareholder value.

Perhaps more importantly, a sustainability strategy that is publicly shared

can deliver hard-to-quantify benefits such as public goodwill and a better

reputation. If it helps a company get credit for things they are already

doing, then why not? For the companies that cannot point to an overall

vision to improve in these three pillars, however, there is not a real market

consequence — yet. The trend seems to be making sustainability and a

public commitment to it basic business practices, much like compliance is

for publicly traded companies. If this comes to pass, then companies

lacking a sustainability plan could see a market penalty, rather than

proactive companies seeing a market premium.

The Bottom Line

Sustainability encompasses the entire supply chain of a business,

requiring accountability from the primary level, through the suppliers, all

the way to the retailers. If producing something sustainably becomes a

competitive edge for supplying multinational corporations, this could

reconfigure some of the global supply lines that have developed based

solely on low-cost production. Of course, that scenario depends on how

strongly corporations embrace sustainability and whether it is a true

change of direction or just lip service.

5 Key Steps to a Sustainable Corporate Strategy

1. Understand sustainability and recognize what it means to the
company
As a first step, it is important to define what sustainability means for every
area in the company and to identify its benefits. From investment
decisions, developing new products or services to changing procurement
practices, sustainability has an increasingly central role in these decisions.
It is necessary to identify issues that have the biggest impact and are most
relevant to the business and to stakeholders.

2. Engage with stakeholders

Depending on its line of business, a company’s impact can vary among
stakeholders. Generally, companies engage with the most influential
groups, keeping close ties and a constant dialogue. However,
engagement can happen on different levels and should respond to
expectations from both sides. Different levels and methods of engagement
bring benefits to both companies and stakeholders and can be translated
into more sustainable practices.

3. Set goals and commitments

Once key environmental, social and governance issues have been
identified and engagement methods for each stakeholder group have
been defined, efforts must focus on reducing risks and seizing
opportunities around these issues centered on sustainable practices.
Whether driven by cost reductions, innovation or improved financial
performance, sustainability commitments and goals need to be
established.

4. Establish systems and processes

Once the goals are established, specific systems and detailed processes
need to guide the implementation of each initiative. Throughout the
design, processes and policies in place must be taken into consideration
and collaboration among areas encouraged

5. Track progress, communicate actions and meet expectations

Lastly, it is important to set a system that measures the performance
towards each goal. Defining key performance indicators to meet the
identified goals will allow to detect areas for improvement and will gather
relevant data to track progress. Metrics and indicators are also central for
the reporting and communicating activities of the company.

CORPORATE MANAGEMENT SYSTEMS

The Corporate Management System (CMS) is one of the most important

parts of the infrastructure of any modern company, automating financial

and logistics management functions. Successful companies always have

the latest, most accurate and most complete information analysis which

allows them to respond to market changes. Implementation of CMS

provides the full functionality necessary for analysis as well as

management of financial, personnel, operational activities and

maintenance services of the enterprise. CMS assists in the operational

control of all lines of activity of the enterprise and forms a solid base for

optimum solutions at all levels of management both at the present

moment, and in the long-term.

The advantages of the Corporate Management Systems are:

 Optimizing the decision-making process

 Providing real-time information, complete and reliable

 Identifying potential problems and timely elimination of negative

trends through broad analytical capabilities

 Increasing productivity, efficiency and speed

 Reducing expenses by increasing flexibility

 Adapting to changing business

 Cushioning of risks

 Improving financial and corporate management

 Optimizing IT expenses

 Providing quick and high return on investment

  Motivating personnel leading to higher productivity

SUSTAINABILITY CHALLENGES AND SOLUTIONS

(a) The impact of climate change threatens to escalate in the absence of

adequate safeguards and there is a need to promote the integrated and

sustainable management of natural resources and ecosystems and take

mitigation and adaptation action in keeping with the principle of common

but differentiated responsibilities;

(b) Hunger and malnourishment, while decreasing in many developing

countries, remain persistent in other countries, and food and nutrition

security continues to be an elusive goal for too many

(c) Income inequality within and among many countries has been rising

and has reached an extremely high level, invoking the spectre of

heightened tension and social conflict;

(d) Rapid urbanization, especially in developing countries, calls for major

changes in the way in which urban development is designed and

managed, as well as substantial increases of public and private

investments in urban infrastructure and services;

(e) Energy needs are likely to remain unmet for hundreds of millions of

households, unless significant progress in ensuring access to modern

energy services is achieved;

(f) Recurrence of financial crises needs to be prevented and the financial

system has to be redirected towards promoting access to long-term

financing for investments required to achieve sustainable development.

Over the past years, the global challenges to sustainable development

have been driven by a broad set of “megatrends”, such as changing

demographic profiles, changing economic and social dynamics,

advancements in technology and trends towards environmental

deterioration. A better understanding of the linkages among these trends

and the associated changes in economic, social and environmental

conditions is needed.
Corporate Social Responsibility (CSR) is a concept whereby

organizations consider the interests of society by taking responsibility for

the impact of their activities on customers, employees, shareholders,

communities and the environment in all aspects of their operations. This

obligation is seen to extend beyond the statutory obligation to comply with

legislation and sees organizations voluntarily taking further steps to

improve the quality of life for employees and their families as well as for

the local community and society at large.

What Is a Corporation?
Separate from business owners, corporations are their own legal entity
which the owners control through the shares they have in the company.
When incorporating, you will have the opportunity to state how many
shares you own as the register of the corporation. For a one-person
corporation, this will be a 100 percent share.
Forming a Corporation
Corporations allow for individuals to work together to generate a profit.
Forming a corporation will be done on a state level and the requirements
may vary greatly from one state to another. Corporations, unlike people,
are given additional benefits from the state. As a corporation, a company
has an infinite lifespan unless it is closed by the owner(s).
Forming a corporation will require:

 Choosing an available business name

 Appointing directors
 Filing articles of incorporation with the state
 Paying filing fees and license fees if necessary
 Creating bylaws for your business
 Holding your first annual meeting
 Issuing stock certificates

Bylaws are not a legal requirement, but they are highly recommended.
Corporate directors will also need to be appointed and a registered agent
may be a necessity within your respective state.
If you haven’t set up your corporation, we provide an easy means
of incorporating online. Our system takes into consideration every state’s
rules and requirements for incorporation.
If you are unsure of which entity to choose, seeking help from a lawyer is
recommended. You can take advantage of our legal advice section. A
lawyer will be able to explain “what is a corporation?” and help you
determine if incorporation is the right choice for your business ventures.

Public and Private Corporations

When a corporation is formed, or later as it expands, shares can be open
to the public. A publicly owned corporation will allow investors to be able
to buy shares of your corporation. It’s possible to remain a privately owned
corporation wherein shares of the company are not publicly available.
When going public, there are further rules and regulations that your
corporation must follow to adhere to the strict rules of the U.S. Securities
and Exchange Commission (SEC).
Legal Protection Under Limited Liability
As a corporation, the owners are not held liable for the debts of the
corporation. As a separate entity, the company’s debts are not your
responsibility. Shareholders are never held liable for the debts of their
companies unless fraudulent activities have taken place and the corporate
veil has been pierced.
Liability of the owners of stock is limited only to the investment made.

Dividends and Stock Appreciation

While limited liability is present, stockholders are able to profit from a
corporation through dividends and the appreciation of stock. Non-profit
corporations also exist wherein profits aren’t distributed to the owners.
Owners of a business often receive a salary on top of the dividends and
stock appreciation seen. If an owner acts as a CEO or manages the
corporation, they will receive a salary as well as the benefits of the stock
dividends and appreciation if the stock is public.
 Corporate Social Responsibility’s Best Practices

Set Measurable Goals

Return on investment has always been a difficult thing to measure. In
order to accomplish this in your CSR policy, Goldschein suggests
implementing small changes close to home, such as improving employee
policies that decrease turnover and improve recruitment. Simple steps,
like minimizing waste and resource use are changes that can be
developed into a memorable story about how sustainability efforts support
your company’s overall corporate strategy.

Stakeholder Engagement

Leaving their stakeholders out of the loop is one of the top mistakes
companies make when trying to jump on the green/socially responsible
bandwagon. In order for your company to articulate its values, missions,
strategy, and implementation in the creation of your CSR plan, it is
important for everyone to be on the same page. Stakeholders can help by
partaking in the regulatory approvals process, improving relationships
proactively, or solving CSR roadblocks and potential crises. Include your
stakeholders from the start of the consultation process and sidestep
moving forward with developments in which they would otherwise have
little influence over or information about.

Sustainability Issues Mapping

This approach uses interactive maps to help prioritize and narrow down
key issues, saving your company time and money during the initial
research stage. For instance, Sir Geoffrey Chandler, founder and chair
of Amnesty International UK, praises sustainability issues mapping as “a
most stimulating approach. It brings together things which ought to go
together, but too frequently don’t.”

Sustainability Management Systems (SMS)

Develop a framework to ensure that environmental, social, and economic

concerns are considered in tandem throughout your organization’s
decision-making processes. Start by identifying and prioritizing
sustainability aspects and impacts. Take it one step further by looking at
legal requirements related to these impacts and evaluate your company’s
current compliance. Collaborating with an environmental consultant can
help during this process. Next, outline your company’s goals and
objectives. Finally, educate and train your employees on using the SMS,
and also periodically run audits to ensure that it’s carried out in the most
effective manner possible.
Lifecycle Assessment

Product design is critical. Gone are the days where the immediate product
the only thing that matters, without any given thought to its afterlife.
A cradle-to-cradle approach exhibits your company’s creativity and
innovation and can, consequently, improve your bottom line. Whether it’s
re-using your product or designing it in a manner that will keep it out of the
landfill, build customer rapport and brand loyalty by taking the pressure off
the disposal process for your products.

Sustainability/CSR Reporting

CSR reporting has increased in popularity over the past few years, due to
increasing government regulations as well as self-regulation by forward-
thinking companies. It’s important that your consumer base has easy
access to your latest and greatest efforts, in a way that doesn’t minimize
what you’re doing. A simple and environmentally-friendly way to do this is
to post your CSR reports on your website, in an easy to download PDF file
or other accessible format.

Sustainability Branding

Transparency is key in sustainability branding. For example, Clorox Green

Works, when endorsed by the Sierra Club, was able to capture 42% of the
market share in their first year! The market for natural cleaning products
has since increased, paving the way for smaller brands like Seventh
Generation and Method to reach to a broader customer base.
 The Difference Between Corporate Governance & Corporate
Management

Corporate governance differs from corporate management in that

governance is primarily about protecting a business, while management is
more about growing it.

Governance

refers to the policies and procedures set in place to ensure a business

operates within the law and for the optimal benefit of all stakeholders. It
comes from the word “govern,” which means to control the actions of a
group for the benefit of the whole. In the business world, this refers to
policies that specifically restrict or direct how people can act. For example,
governance policies might include prohibiting a board of directors from
awarding contracts to board members’ companies or the companies of
family members. A business might require its accounting department to
have two signatures on any check it writes to reduce the threat of fraud.
Set and norms, strategic vision and direction and formulate high-level
goals and policies
Oversee management and organizational performance to ensure that the
organization is working in the best interests of the public, and more
specifically the stakeholders who are served by the organization’s mission.
Direct and oversee the management to ensure that the organization is
achieving the desired outcomes and to ensure that the organization is
acting prudently, ethically and legally.

Management
refers to the techniques executives use to help the company operate and
flourish. It refers to the actions taken by a company to lead the business in
a positive direction. Examples of management include setting budgets,
giving staff members directions and making strategic plans about
marketing or product development. Corporations usually have
management teams once the company becomes too big for the founder or
one individual to oversee the entire business. Management team
members include titles such as department head, director, vice president
and manager, chief executive officer, chief operating officer and chief
financial officer. Run the organization in line with the broad goals and
direction set by the governing body.
Implement the decisions within the context of the mission and strategic
vision. Make operational decisions and policies, keep the governance
bodies informed and educate, be responsive to requests for additional
information.
Common Governance Activities

Businesses benefit from written policies and procedures that allow leaders
to avoid specific conflicts of interests and fraudulent activities before they
happen and to detect any fraud that might occur. Many governance
policies pertain to financial activities, setting procedures for soliciting and
awarding contracts, accounting practices and disbursing profits. Business
set strict rules for human resources activities that fall under state and
federal guidelines. When a corporation becomes a public company,
corporate governance expands to include following SEC rules and
providing transparency for shareholders. Unlike company policies that
govern the behavior of individual employees, such as dress codes or
grievance procedures, corporate governance policies pertain mostly to the
operations of the business.

Common Management Activities

Management activities help a business operate, with instruction from top

leaders directing the activities of staff members. Companies create plans
for developing, pricing, promoting and distributing their products, put
systems into place to oversee their plans and review and assess their
projections and performance. Companies manage their employees by
training workers to help them perform better. Analyses of operations help
management to determine if the company needs to change any practices,
such as bringing contracted work in-house or vice versa, setting new
goals, modifying the marketing mix and monitoring financial performance.
 Roles and Responsibilities of Directors and Boards
Understanding your roles and responsibilities should be your first task
when appointed. The board of directors is appointed to act on behalf of the
shareholders to run the day to day affairs of the business. The board are
directly accountable to the shareholders and each year the company will
hold an annual general meeting (AGM) at which the directors must provide
a report to shareholders on the performance of the company, what its
future plans and strategies are and also submit themselves for re-election
to the board.

The objects of the company are defined in the Memorandum of

Association and regulations are laid out in the Articles of Association.
The board of directors' key purpose is to ensure the company's prosperity
by collectively directing the company's affairs, whilst meeting the
appropriate interests of its shareholders and stakeholders. In addition to
business and financial issues, boards of directors must deal with
challenges and issues relating to corporate governance, corporate social
responsibility and corporate ethics.
It is important that board meetings are held periodically so that directors
can discharge their responsibility to control the company's overall
situation, strategy and policy, and to monitor the exercise of any delegated
authority, and so that individual directors can report on their particular
areas of responsibility.
Every meeting must have a chair, whose duties are to ensure that the
meeting is conducted in such a way that the business for which it was
convened is properly attended to, and that all those entitled to may
express their views and that the decisions taken by the meeting
adequately reflect the views of the meeting as a whole. The chair will also
very often decide upon the agenda and might sign off the minutes on his
or her own authority.
Individual directors have only those powers which have been given to
them by the board. Such authority need not be specific or in writing and
may be inferred from past practice. However, the board as a whole
remains responsible for actions carried out by its authority and it should
therefore ensure that executive authority is only granted to appropriate
persons and that adequate reporting systems enable it to maintain overall
control.
The chairman of the board is often seen as the spokesperson for the
board and the company.

Appointment of directors
The ultimate control as to the composition of the board of directors rests
with the shareholders, who can always appoint, and – more importantly,
sometimes – dismiss a director. The shareholders can also fix the
minimum and maximum number of directors. However, the board can
usually appoint (but not dismiss) a director to his office as well. A director
may be dismissed from office by a majority vote of the shareholders,
provided that a special procedure is followed. The procedure is complex,
and legal advice will always be required.

Roles of the board of directors

The roles of the board of directors include:

Establish vision, mission and values

 Determine the company's vision and mission to guide and set the
pace for its current operations and future development.
 Determine the values to be promoted throughout the company.
 Determine and review company goals.
 Determine company policies
Set strategy and structure

 Review and evaluate present and future opportunities, threats and

risks in the external environment and current and future strengths,
weaknesses and risks relating to the company.
 Determine strategic options, select those to be pursued, and decide
the means to implement and support them.
 Determine the business strategies and plans that underpin the
corporate strategy.
 Ensure that the company organizational structure and capability are
appropriate for implementing the chosen strategies.

Delegate to management

 Delegate authority to management, and monitor and evaluate the

implementation of policies, strategies and business plans.
 Determine monitoring criteria to be used by the board.
 Ensure that internal controls are effective.
 Communicate with senior management.

Exercise accountability to shareholders and be responsible to

relevant stakeholders

 Ensure that communications both to and from shareholders and

relevant stakeholders are effective.
 Understand and take into account the interests of shareholders and
relevant stakeholders.
 Monitor relations with shareholders and relevant stakeholders by
gathering and evaluation of appropriate information.
 Promote the goodwill and support of shareholders and relevant
stakeholders.

Responsibilities of directors
Directors look after the affairs of the company, and are in a position of
trust. They might abuse their position in order to profit at the expense of
their company, and, therefore, at the expense of the shareholders of the
company.
Consequently, the law imposes a number of duties, burdens and
responsibilities upon directors, to prevent abuse. Much of company law
can be seen as a balance between allowing directors to manage the
company's business so as to make a profit, and preventing them from
abusing this freedom.
Directors are responsible for ensuring that proper books of account are
kept.
In some circumstances, a director can be required to help pay the debts of
his company, even though it is a separate legal person. For example,
directors of a company who try to 'trade out of difficulty' and fail may be
found guilty of 'wrongful trading' and can be made personally liable.
Directors are particularly vulnerable if they have acted in a way which
benefits themselves.

 The directors must always exercise their powers for a 'proper

purpose' – that is, in furtherance of the reason for which they were
given those powers by the shareholders.
 Directors must act in good faith in what they honestly believe to be
the best interests of the company, and not for any collateral
purpose. This means that, particularly in the event of a conflict of
interest between the company's interests and their own, the
directors must always favor the company.
 Directors must act with due skill and care.
 Directors must consider the interests of employees of the company.

Calling a directors' meeting

A director, or the secretary at the request of a director, may call a
directors' meeting. A secretary may not call a meeting unless requested to
do so by a director or the directors. Each director must be given
reasonable notice of the meeting, stating its date, time and place.
Commonly, seven days is given but what is 'reasonable' depends in the
last resort on the circumstances

Non-executive directors
Legally speaking, there is no distinction between an executive and non-
executive director. Yet there is inescapably a sense that the non-
executive's role can be seen as balancing that of the executive director, so
as to ensure the board as a whole functions effectively. Where the
executive director has an intimate knowledge of the company, the non-
executive director may be expected to have a wider perspective of the
world at large.

The chairman of the board

The articles usually provide for the election of a chairman of the board.
They empower the directors to appoint one of their own number as
chairman and to determine the period for which he is to hold office. If no
chairman is elected, or the elected chairman is not present within five
minutes of the time fixed for the meeting or is unwilling to preside, those
directors in attendance may usually elect one of their number as chairman
of the meeting.
The chairman will usually have a second or casting vote in the case of
equality of votes. Unless the articles confer such a vote upon him,
however, a chairman has no casting vote merely by virtue of his office.
Since the chairman's position is of great importance, it is vital that his
election is clearly in accordance with any special procedure laid down by
the articles and that it is unambiguously minuted; this is especially
important to avoid disputes as to his period in office. Usually there is no
special procedure for resignation. As for removal, articles usually
empower the board to remove the chairman from office at any time.
Proper and clear minutes are important in order to avoid disputes.

Role of the chairman

The chairman's role includes managing the board's business and acting
as its facilitator and guide. This can include:

 Determining board composition and organisation;

 Clarifying board and management responsibilities;
 Planning and managing board and board committee meetings;
 Developing the effectiveness of the board.

Shadow directors
In many circumstances, the law applies not only to a director, but to a
'shadow director'. A shadow director is a person in accordance with whose
directions or instructions the directors of a company are accustomed to
act. Under this definition, it is possible that a director, or the whole board,
of a holding company, and the holding company itself, could be treated as
a shadow director of a subsidiary.
Professional advisers giving advice in their professional capacity are
specifically excluded from the definition of a shadow director in the
companies’ legislation.
PROTECTIONISM, SYSTEMIC RISK AND MORAL HAZARD

PROTECTIONISM is when a country tries to shield its own industries from

internation competition. Historically protectionism has been associated

with countries trying to develop from rich to poor. The most common

argument for protectionism is that before a contry can compete

internationally it needs time to develop it’s own industries, which

sometimes called the infant industry argument. When a country closes its

borders to trade, it gets time to learn how to produce things for itself that it

otherwise would have imported from abroad - a strategy called “import-

substitution”. If all goes according to plan, eventually the protected

industry will get really good at what it does, and will be able to stand up to

foreign competition without government help.

MORAL HAZARD exists when a person or entity engages in risk-taking

behavior based on a set of expected outcomes where another person or

entity bears the costs in the event of an unfavorable outcome. It means

that people with insurance may take greater risks than they otherwise

would because they know they are protected. A moral hazard is created

when banks lend more recklessly because they know they will be bailed

out if things go wrong. Bailing out the banks reinforces the belief they will

be protected from reckless lending, which could result in more

irresponsible lending in the future.

SYSTEMIC RISK is the possibility that an event at the company level

could trigger severe instability or collapse an entire industry or economy.

Systemic risk is the likelihood of damage being done to the health of the

system as a whole. It is the risk of collapse of an entire system or entire

market, as opposed to risk associated with any one individual entity, group

or component of a system. It refers to the risks imposed by inter-linkages

and interdependencies in a system or market, where the failure of a single

entity or cluster of entities can cause a cascading failure, which could

bankrupt or bring down the entire system or market.

Reference:

https://sustainabledevelopment.un.org/content/documents/2843WESS201
3.pdf 7/10/19

https://www.issgovernance.com/file/publications/MaximizingTheSharehold
erRelationshipVol_13.3.pdf 7/10/19
http://greeneconomypost.com/csr-best-practices-11001.htm 7/11/19

http://greeneconomypost.com/csr-best-practices-11001.htm 7/11/19

https://www.slideshare.net/IqraAfsar1/corporate-governance-
13958616?next_slideshow=3 7/11/19

https://smallbusiness.chron.com/difference-between-corporate-
governance-corporate-management-61799.html 7/11/19

https://www.brefigroup.co.uk/directors/directors_roles_and_responsibilities
.html 7/12/19

https://www.investopedia.com/terms/s/systemic-risk.asp 7/12/19

https://www.ecnmy.org/learn/your-world/globalization/what-is-
protectionism/ 7/12/19

https://iveybusinessjournal.com/publication/corporate-sustainability-what-
is-it-and-where-does-it-come-from/ 7/12/19