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Chapter 5

MGSC14H3 Chapter Notes - Chapter 5: Fiduciary, Good Governance, Whistleblower

Course Code
Peter P Constantinou

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Chapter 5 Corporate Ethial Governane &
I. New Accountability and Governance Framework
Sarbanes-Oxley Act (SOX, 2002): mandated strict reforms to improve financial disclosures from publicly-traded
companies and prevent accounting fraud.
Foundation of good governance and accountability: a culture of integrity
Fiduciary duties of BoD:
1. Obedience: avoid committing acts beyond the scope of the powers of a company as defined in its charter or
law of the state of incorporation
2. Loyalty: act in good faith and must not allow his personal interest to prevail over the interests of the co.
3. Due care: to be diligent and prudent in managing the co.’s affais
Paramount duty of BoD: safeguard the interest of shareholders
Corporate shareholder accountability: legally accountable
Corporate stakeholder accountability: strategically accountable, if not legally
Shareholders, employees, customers, suppliers, competitors, lenders and creditors, gov’ts, activists, others (incl.
media) affected or can affect the ahieeets of the o.’s ojeties
II. Corporate Governance
Definition: the oesight, oitoig ad otollig of a opa’s atiities and personnel to ensure support
of the shaeholdes’ iteests, in accordance with laws and the expectations of stakeholders
Stakeholder-accountability oriented governance process (SAOG): incorporating all stakeholder interests into
the o.’s isio, issio, stateg, poliies, odes, paties, opliae ehaiss ad feedak
Elements: Stakeholders, BoD, lawyers, external auditors, internal auditors and accountants, ethics officer (EO,
report to CEO and Audit Committee), whistle-blowers (report to EO or AC)
Organizational values and actions development process
Difficulty: values and priorities differ in different cultures
→ “olutio: hypernorms (universal values): honesty, fairness, compassion, integrity, predictability, responsibility
- Itegit: a fi’s atios should e osistet / its piiples
Effective ethical code of conduct must be:
1. A blend of rules and principles
2. Reinforced by a comprehensive ethical culture
1) Included in training sessions
2) Refeed to i seio aageet’s speehes
3) Accompanied by a reporting mechanism linked to feedback and recognition systems
III. Threats to Good Governance
1. Misunderstanding obj. and fiduciary duty: Employees isudestadig of top gt’s epetatios due to
1) Misguidance of incentive programs
2) Lack of proper guidance/reporting mechanisms
3) Top management not understanding their duty as a fiduciary
Identify, assess, and
rank all stakeholder
Integrate into
value system
Corporate motivation
E.g. merits and rewards Actions
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