CHAPTER 6
Ethics and the Boardroom ASSUME A VIRTUE – SHAKESPEARE
IF YOU HAVE IT NOT.
capital flows and international investments has created a sense of urgency to develop global standards of business ethics. As equity markets continue to globalize, companies throughout the world are being forced to look at various standards of corporate governance that affect their activities. Corporate governance is a term that describes how those entrusted with day-to-day management of a company’s affairs are held responsible by shareholders, the community, governments, customers and employees. It is also concerned with communication and how a company presents itself to the wider world and corporate stakeholders including shareholders, employees, potential investors, customers and regulators. Essentially, corporate governance is about the exercise of control over corporate entities. It is concerned with the structure and processes of the governing body (often the board of directors) and of the directors’ relationships with shareholders, regulators, auditors, top management and any other legitimate stakeholders.
THE DRAMATIC RISE IN CROSS BORDER
Strong Support For International Standards A strong system of ethical corporate governance can produce major benefits for societies—not the least of which is the prevention of large-scale banking and financial crises (witness what poor corporate governance practices did to Asia during the financial collapse of 1997-98). Strong corporate governance rules and procedures also prevent insiders from stripping any remaining value out of an insolvent firm, leaving workers and minority shareholders holding the bag. Corporations throughout the world have become increasingly dependent on open market equity to finance their expansion. Cross border sales and purchases of bonds and equities by US investors have risen from the equivalent of 9 percent of gross domestic product in 1980 to more than 170 percent in the mid 1990s. Daily foreign exchange turnover is up from US$15 billion in 1973 to US$2 trillion by 2008. The volume of cross-border financial transactions in London, Tokyo and New York alone is over US$1 trillion per day. All this adds up to a shifting of economic clout to investors with equity stakes. Increasingly, these investors are foreign to the country of the firm’s registry, and thus, governance structures are under pressure from cross-border investors to be more transparent. On average about 35 percent of the stock of companies on the French stock exchange is foreign-owned; the comparable percentages are 25 percent for Germany, 35 percent for Spain and 40 percent for the Netherlands. Many of these investors are ignorant of the local governance procedures that oversee their investments.
51
