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Ethical Leadership for the New Generation Training Programme Workshop 41106 Ethics: A Pivotal Asset

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Title: Ethical Leadership for the New Generation Training Programme Workshop 41106 Ethics: A Pivotal Asset


1
Ethical Leadership for the New Generation
Training Programme Workshop 4-11-06 Ethics A
Pivotal Asset in Corporate Governance Leadership
  • Professor Simon S.M. Ho
  • Dean, School of Business
  • Director, Centre for Corporate Governance
  • Hong Kong Baptist University

2
Contents
  • Common Ethical Issues in Business
  • Fraud Prevention Major Causes
  • Ethical Decision Making Approaches
  • Ethical Leadership Attributes Failures
  • Some Trends in Business Ethics
  • Business Ethics and Corporate Governance
  • Forces Shaping Good Corporate Governance
  • CG, Public Gov. Leadership

3
Enron-Inspired Definitions of Financial Terms and
Titles
  • CEO
  • CFO
  • CCO
  • INED

4
Corporate Public Scandals
  • The world today have a more interest in business
    ethics and corporate governance, especially in
    light of some of the recent corporate and public
    scandals
  • Corporate Enron, Worldcom, Euro-Agriculture,
    Skyworth, Ocean Grand
  • Public former Personal Privacy Commissioner,
    former IRD Commissioner, ……….

5
A Lesson Learned
  • We want free business and regulate ourselves with
    little regulations from the government. We have
    a soul, a conscience and a culture……and
    mission-driven……….
  • But business ethics failures have inevitably been
    met by increasingly tight government regulations
  • ? In US at least, regulation is back and business
    ethics need to be re-structured

6
Common Ethical Issues in Business
  • Fraud prevention
  • Creating a culture of integrity
  • Resolving or removing conflicts of interests
  • Equal treatment of shareholders
  • Cross-cultural ethics
  • Implementing code of ethics
  • Integration of fraud risk management CG

7
  • Heightened awareness of fraud as a result of the
    recent spare of corporate scandals and global
    developments in legislation

8
Definition of Frauds
  • Fraud is defined as any dishonest activity
    involving the extraction of value from a business
    (KPMG, 2004)
  • Malpractice, cheating, corruption, bribery,
    stripping assets, misappropriation, embezzlement,
    financial misrepresentation, false pretenses,
    counterfeiting, insider trading, money
    laundering, identity theft

9
More Corruptions in Private Sector in HK (ICAC,
2005)
  • Over the last few years, private sector
    corruption allegations comprising over half of
    the total number of reports (average about 4,500)
  • HK continues to be recognized across the world as
    a city of integrity
  • HK consistently ranked second in Asia after
    Singapore by TI
  • .

10
PWC Global Economic Crime Survey 2005
  • Interviewed 3,600 senior executives in 34
    countries
  • Globally, the no. of companies reporting fraud
    increased from 37 to 45 since 2003, a 22
    increase
  • Averagely co. suffered 7 serious incidents

11
PWC Global Economic Crime Survey 2005
  • Worldwide since 2003 there has been
  • A 71 increase in the number of companies
    reporting cases of corruption bribery
  • A 133 increase in the number reporting money
    laundering and
  • A 140 increase in the number of reporting
    misrepresentation

12
PWC Global Economic Crime Survey 2003
  • the anti-fraud controls (and ethic programs)
    mentioned by respondents were mainly in softer
    areas such as codes of conduct and ethical
    guideline.
  • Only 20 of organizations have fraud training for
    management.

13
KPMG Singapore Fraud Survey Report 2004
  • 78 respondents regard fraud risk management as
    essential for good business practice
  • But only 40 are highly satisfied that fraud risk
    management is adequately implemented in their
    organizations
  • Very few have a whistle-blowing hotline

14
Oversight Systems Corporate Fraud Surveys, 2005
  • Measures most effective in preventing frauds
  • The need for a strong tone from the top of the
    organization (41)
  • Visible prosecution (22)
  • Internal controls technology-enabled monitoring
    (17)
  • Manual quarterly audits (2)
  • Government regulations (1)
  • The single change that would result in the
    greatest reduction of frauds
  • Employers pressing charges against employees who
    commit fraud (39)

15
CFO Asia/ACCA Survey on Corporate Governance,
Business Ethics the CFO (2006)
  • More than 85 of CFOs in South East Asia say
    ethical practice in business is more important
    even a lot more important than it was 5 years ago
  • More than 2/3 of respondents say that building an
    overall corporate culture of integrity is among
    their top 3 challenges, for 1/3, this remains the
    top most issue

16
Free Market Needs some Basic Assumptions
  • Public joint-stock-holding companies and the
    stock market are among the greatest inventions in
    human history
  • But such market mechanism assumes participants
    exercise implicit ethics (reputation effects) and
    there are market forces regulating behavior
  • Now need more explicit ethical codes, rules and
    laws due to ethical inadequacy

17
Major Reasons Causing Frauds and Misconducts
  • Lack of individual integrity
  • Lack of proper corporate culture
  • Failure of system control risk management
  • ? needs to enhance business ethics and to build a
    good corporate governance system

18
New Trends in Business Ethics (1)
  • Affected by new trends globalization,
    deregulation, knowledge economy, new IT,
    environmentalism, new competition model
  • More cross-border activities creates conflicting
    and shifting ethics norms
  • More difficult to enforce law and counts more on
    ethics
  • Business growth could create unintended unethical
    practices (IT bubbles -gt earnings management)

19
New Trends in Business Ethics (2)
  • Business executives need to ask What are our key
    values? and How could we create values to our
    stakeholders?
  • Values and ethics can drive business strategy
  • In turbulent times we insist the concept of
    business leadership that puts values and ethics
    front and center

20
Some Observations on Business Ethics
  • Evidence show that the worlds business ethical
    standards are becoming more stringent
  • What constitutes good business practice is
    becoming clearer
  • Ethics is always the most important attribute of
    a director/CEO
  • Over 60 of HK listed major companies have a
    corporate ethical code

21
What is Ethics?
  • Ethics is about people making tough choices
    (right vs wrong, harmony vs honesty, short term
    vs long term, etc.)
  • Concerned with moral duties showing how people
    should behave
  • Goes beyond the legal minimum requirements

22
What is Ethics?
  • Individuals have a moral obligation to discover
    and do the right thing.
  • When most people are responsible for their own
    conduct and others well-being, ethics serves to
    stabilize grow society
  • Research has shown that ethical attitudes and
    behavior can be learned and practiced at any
    stage of ones life

23
Values, Ethics and Morals Shirley C. Eagan (1995)
  • Values core beliefs or desires that guide and
    motivate attitudes and actions (Motivator)
  • Morals an individuals beliefs about what is
    right and wrong. A personal evaluation of values
    and behaviors (Inner Compass)
  • Ethics standards of conduct that indicate how
    people ought to behave based on specific values
    and principles that define what is right. Focus
    on ability and commitment
  • (Foundation)

24
Values Beliefs
  • People may hold different specific values
    beliefs
  • Philosophical, religious, cultural and political
    beliefs very over time and among different
    persons
  • Except universal ones, we should be careful about
    imposing our own beliefs on others.

25
Rests Model of Ethical Action (1979, 1994)
  • Grounded in Kohlbergs (1969) cognitive moral
    developmental perspectives
  • 4 components/stages
  • awareness
  • judgment
  • intention
  • behavior

26
Models for Ethical Decision Making (1)
  • Joseph Institute of Ethics Personal Warning
    System
  • Kid on Your Shoulder
  • Front Page of Newspaper
  • Golden Rule
  • Dont do what you dont want other do to you
  • Rule of Universality
  • If everyone did this, would it still be OK?

27
Models for Ethical Decision Making (2)
  • Shirley C. Egan (1995)
  • Bell
  • Book
  • Candle

28
Theories/Approaches in Handling Ethical Dilemmas
  • 1. Deontology ???
  • asks does the action treat every stakeholder
    truthfully and with fairness, respect integrity
  • 2. Utilitarianism ????, ???
  • asks how does ones action relate to everyone
    who is affected by it ad to produce the greatest
    good for the greatest number (consequentialist)
  • 3. Virtue Ethics ??????
  • focuses on the character and integrity of the
    moral actor and looks to moral communities
    (cultural professional), to help identify
    ethical issues and guide ethical action

29
Teaching Business Ethics
  • To engage students non-cognitively in a
    socialization process seeking to cultivate wisdom
    and virtue (McCann, 2006)
  • Respect local knowledge inherited traditions of
    wisdom/virtue which is intelligible (.e. Chinese
    Confucianism vs. British Gentlemanship)
  • Encourage students to use different lenses and
    enlarged perspectives

30
George Orwell
  • Most people wish to be good, but not all of the
    time.
  • Competition and lack of sanctions for misconducts
    have fueled the idea that honesty is not always
    the best approach and that cheaters often win
    more.

31
Some Problems with Values and Ethics
  • We dont know our own values
  • Bad faith
  • Self cheating
  • it is not unethical until you get caught

32
Common Rationalizations Used to Justify Unethical
Conducts
  • Shirley C. Egan, 1995
  • If its necessary, its ethical
  • If its legal and permissible, its proper.
  • I was just doing it for you
  • Im just fighting fire with fire
  • It doesnt hurt anyone
  • It cant be wrong
  • It is not for myself
  • It is a fair compensation for I lost
  • It doe sot affect my judgment
  • ? The real test of ethics is whether we are
    willing to do the right thing when it is not in
    our self-interest to do so.

33
The Development of Moral Courage
  • Examples of individuals with solid values who
    failed to do the right thing always because of
    constraints imposed by authority structures and
    unethical corporate cultures
  • Business students should learn not only how to
    act on their values to confront unethical
    behavior, but also how to use ones voice
    effectively (including whistleblowing).

34
3 Kinds of Leadership (R.E. Freeman, 2002)
  • Amoral
  • Value-based
  • Ethical

35
Ethical Leadership
  • Leadership is the creation and fulfillment of
    worthwhile opportunities by honorable means
    (Herb Rubenstein, 2004)
  • Leaders should be ethical in their behaviors
  • They should influence others to make ethically
    sound decisions and to behave ethically
  • Not an event but is a continuous process that
    takes time

36
Ethical Leadership
  • Ethical leaders consider all elements at once in
    searching for an outcome that considers the
    values and ethics of the leaders, followers, and
    society as a whole.
  • Include others and minimize us vs. them
  • Get the right things done the right way

37
Ethical Leadership
  • History shows that if a leader does not use his
    or her leadership actions on worthwhile
    opportunities or use honorable means, the world
    will rise up against his or her and destroy the
    leader
  • E.g. Hitler, Stalin, Clinton, Marcos, Taskin,
    Bian(?)

38
Important Attributes of Ethical Leadership
  • Character/virtue
  • Best on a philosophical/religious basis
  • Integrity/honesty
  • Competence/Knowledge
  • Commitment
  • Visionary
  • Inspiration
  • Independence
  • gtTime is the acid test that determines the
    trustworthy and morality of any leader

39
Cognitive Moral Development Research
  • Verify that most working adults look outside
    themselves, primarily to peers and leaders, for
    guidance in ethical dilemma situations
  • The messages leaders send and the context they
    create are potentially the greatest motivating
    force behind ethical conduct in business
    organizations.

40
Ethical Leadership Failures
  • In Business
  • Directors, CEOs, sales managers, audit firm
    partners
  • In Public Service
  • Political leaders, senior government officials,
    public body executives

41
Types of Leadership Failures
  • Direct leader misconduct
  • Leaders allow to develop an environment that
    influence other to engage in misconduct

42
Ethics ad Anti-fraud Measures should be
Integrated within CG
  • Pro-ethics measures and anti-fraud controls are
    not always integrated under an risk management
    program or a corporate governance system

43
Business Ethics Corporate Governance (CG)
  • Business ethics is a central part of good
    corporate governance
  • Poor ethics CG ? breeds corruption, misconducts
    and frauds
  • Good CG ? a better chance of avoiding malpractice
    and secure performance in longer term and in
    better ways

44
CG is not just compliance
  • Moral realism avoids both idealism and cynicism
  • Cultivating a sense of moral sensitivity, an
    attitude of earnestness towards to CG

45
Major Attributes of Good Corporate Governance
  • Checks and balances
  • Integrity
  • Fairness
  • Transparency
  • Responsibility
  • Accountability
  • Monitored Respect by Different Stakeholders
  • Social Awareness Participation

46
CG Perspectives
  • Taking a multi-stakeholder perspective
  • Regardless of shareholdings, all decision makers
    should fulfill fiduciary duties
  • Board directors are expected to be ethical leaders

47
4 Levels of Forces Shaping CG
  • Individual ethics and corporate culture
  • Internal control and incentive mechanisms
  • External monitoring bonding mechanisms
  • Regulations and their enforcement and other
    institutional arrangements
  • Market and Environmental Forces

48
HK Needs more Ethical Leaders
  • During crisis leaders need to answer the question
    How do we get the right things done in time to
    make a difference in peoples lives?
  • We need technically competent leaders who share
    an ethic based on service, caring, respect,
    compassion, humility and duty.

49
The Challenge
  • How then do we get people to serve as leaders who
    are able to figure out what is right and the have
    the courage and competence to act on behalf of
    all the stakeholders?

50
Ethics Education and Ethical Leadership
Development in Schools
  • Educational institutions at all levels also
    should take a major role in leadership
    development.
  • Required subjects to foster students awareness
    of ethics issues and to equip with them an
    ethical framework for handling ethical dilemma
    decision making.

51
Implications
  • Raising the awareness ethical decision making
    ability of all stakeholders
  • Securing leaders commitment to ethics good CG,
    and cultivating a healthy corporate culture
    core values
  • Trained be an ethical leader

52
Questions are welcome ????
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