code of ethics

Corporate Management

Week 2 Workshop

MBA402 Governance, Ethics and Sustainability

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2

• What does Irish statesman Edmund Burke mean when he says:

Small Group Discussion

The only thing necessary for the triumph of evil is for good men to do nothing.

• In groups, explain why Kitty’s neighbours ignored her cries for help.

Catherine ‘Kitty’ Genovese finishes her shift as bar manager at Eve’s Eleventh Hour Bar and drives home to her apartment in the early hours of the morning, unaware she is being followed by Winston Moseley. She only notices him after parking her car and runs for her life, but Moseley catches her and stabs her twice in the back.

“Oh my God, he stabbed me! Help me!” Kitty screams. Moseley flees after a neighbour shouts “Let that girl alone!” He returns ten minutes later however and finds Kitty collapsed and barely conscious at the rear of an apartment complex. He stabs her several more times, rapes her, steals $49 from her purse, then leaves. The attacks last around 30 minutes. The New York Times reports 38 witnesses saw or heard the attack and did not intervene.

Small Group Challenge Queens, New York City 1964

Responsibility

• A person is less likely to take responsibility for action or inaction when others are present and responsibility is not explicitly assigned.

• This is known as diffusion of responsibility.

• Corporations must assign managerial roles and responsibilities.

ASX Corporate Governance • The ASX publishes the

Corporate Governance Principles and Recommendations.

• Although the Principles and Recommendations only apply to ASX listed entities, they reflect a contemporary view of appropriate corporate governance standards.

Principle 1

1. Lay solid foundations for management and oversight Companies should establish the roles and responsibilities of their board and management and monitor their performance.

Recommendation 1.1 1.1 A listed entity should have and

disclose a board charter setting out: (a) the respective roles and responsibilities of its board and management; and (b) those matters expressly reserved to the board and those delegated to management

Clear Responsibilities • A clear division of responsibilities

between the board and management will minimise the risk of diffusion of responsibility.

• It will also help manage expectations and avoid misunderstandings about roles and accountabilities.

• The division of responsibilities could be captured in a board charter.

Example

Board Responsibilities

Management Responsibilities

Providing leadership and setting strategic objectives

Implementing company’s strategic objectives

Setting risk management framework and risk appetite

Operating within risk management framework and risk appetite

Overseeing management’s implementation of objectives

Providing board with accurate, timely, and clear information

Approving operating budgets and major capital expenditure

Responsible for day to day running of the company

In groups, come up with one example of each responsibility.

Recommendation 1.4

1.4 The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board.

Company Secretary • The company secretary has a crucial

corporate governance function. • The company secretary is responsible

for many of the compliance and governance related administrative tasks of the board and the company.

• Accountability to the board helps ensure this important function is exercised properly by the company secretary.

Insecurity

Play Video

• What does Roman philosopher Marcus Tullius Cicero mean when he says:

Small Group Discussion

The enemy is within the gates; it is with our own luxury, our own folly, our own criminality that we have to contend.

List ten internal risks or dangers lurking in an organisation’s ‘back seat’.

• In groups, think of at least two strategies Andre could implement to win the contract despite his wife’s refusal.

The opportunity of a lifetime falls right into the lap of small time scrap metal dealer Andre Poisson. Victor Lustig, Deputy Director- General of the Ministry of Posts and Telegraphs, invites Andre and five other scrap metal dealers to a highly confidential meeting at the Hotel de Crillon and explains the city’s plan to sell a dilapidated metal structure for scrap. Andre is suspicious of all the secrecy.

During the limousine ride to inspect the structure he asks Lustig if it’s near the Eiffel Tower. ‘It is the Eiffel Tower’ Lustig replies. Andre sees this as his chance to break into the big leagues. Lustig asks for bids to be submitted the next day; no problem for Andre, he has the cash on hand but his wife and business partner, Mrs Poisson, refuses to let him place a bid. She is suspicious of the secrecy, the urgency, and Victor Lustig.

Small Group Challenge Paris 1925

Security

• Among the greatest risks faced by corporations is the incompetence and dishonesty of their own board and management.

• Board and management should be carefully screened prior to appointment and provided with clear expectations in a written agreement.

Recommendation 1.2

1.2 A listed entity should: (a) undertake appropriate checks before appointing a director or senior executive or putting someone forward for election as a director, and (b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director.

Appropriate Checks • The Australian Standard AS 4811-2006

Employment screening provides guidance on appropriate checks.

• Directors should be screened for: o Character o Experience o Education o Criminal record o Bankruptcy history

Ethical Appointments • Yahoo appointed Scott Thompson as its

new CEO in 2012. • Thompson had lied to Yahoo on his

resume, falsely claiming he had a degree in computer science.

• What does the lie reveal about Thompson?

• What does his appointment reveal about Yahoo?

Recommendation 1.3

1.3 A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment.

Written Agreement

• The written agreement should generally set out:

o Time commitment envisaged o Requirement to disclose directors’

interests and any matters which may affect the director’s independence

o Requirement to comply with key corporate policies

Women on Board

Play Video

Small Group Discussion • What does US President Donald Trump’s tweet infer

about sexism in general?

• In groups, solve this riddle.

A father and his son are in a car accident. The father dies instantly, and the son is taken to the nearest hospital. The surgeon comes in and exclaims,

“I can’t operate on this boy!” “Why not?” the nurse asks. “Because he’s my son,” the surgeon responds.

Small Group Challenge

Sexism

• Sexism is prejudice, stereotyping, or discrimination, typically against women, on the basis of sex.

• The percentage of female directorships on ASX 200 boards in 2016 was 23.4%.

• A total of 20 boards in the ASX 200 still do not have any women.

Recommendation 1.5 1.5 A listed entity should:

(a) have a diversity policy; (b) through its board or a committee of the board set measurable objectives for achieving gender diversity in the composition of its board, senior executives, and workforce generally; and (c) disclose in relation to each reporting period:

Recommendation 1.5 1.5 (1) the measurable objectives set for that

period to achieve gender diversity; (2) the entity’s progress towards achieving those objectives; and (3) either:

(A) the respective proportions of men and women on the board, in senior executive positions and across the whole workforce (including how the entity has defined “senior executive” for these purposes); or

Recommendation 1.5 1.5 (B) If the entity is a “relevant employer”

under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act. If the entity was in the S&P/ASX 300 Index at the commencement of the reporting period, the measurable objective for achieving gender diversity in the composition of its board should be to have not less than 30% of its directors of each gender within a specified period.

Gender Diversity

• Increased gender diversity in corporations generates: o better financial performance. o a broader pool for recruitment. o enhanced employee retention. o a closer connection with customers. o improved corporate image and

reputation.

Measurable Objectives

• Measurable objectives should be meaningful benchmarks such as: o Specific numerical targets for the

proportion of women employed o Specific targets for the gender

equality indicators as outlined in the Workplace Gender Equality Act

Gender Equality Indicators

• Gender composition of the workforce • Equal remuneration between men and

women • Availability of employment conditions

supporting employees with family responsibilities

• Sex-based harassment and discrimination

X Factor

Play Video

• What does Chinese philosopher Confucius mean when he says:

Small Group Discussion

Real knowledge is to know the extent of one’s ignorance.

• In groups, think of at least two ways McArthur can conceal his identity

McArthur Wheeler, criminal mastermind, has a problem. He is close to finalising his preparations for an ingenious bank heist.

He has carefully selected the two banks he will rob, Fidelity Savings Bank and Mellon Bank, and the time of day that will afford him the greatest chance of a clean getaway. He has hand-picked a confident and capable accomplice, a man he can depend upon to keep his cool under pressure and get the job done. And he has chosen the most effective weapon, a large gun that will drive terror into the hearts of the people he threatens and force them to willingly comply with his demands. Only one issue remains outstanding.

McArthur sips his lemonade and turns his mind to the crucially important matter of how to best conceal his identity whilst performing his cunning crime.

Small Group Challenge Pittsburgh, US 1995

Ignorance • The Dunning–Kruger effect is a

cognitive bias in which low-ability individuals suffer from illusory superiority, mistakenly assessing their ability as much higher than it really is.

• It is important for companies to have formal and rigorous performance evaluations of their directors and senior executives.

Recommendation 1.6 1.6 A listed entity should:

(a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and (b) disclose for each reporting period whether a performance evaluation has been undertaken in accordance with that process during or in respect of that period.

Recommendation 1.7 1.7 A listed entity should:

(b) have and disclose a process for evaluating the performance of its senior executives at least once every reporting period; and (b) disclose for each reporting period whether a performance evaluation has been undertaken in accordance with that process during or in respect of that period.

Performance Evaluations • Corporations should consider

periodically using external facilitators to conduct performance reviews of their boards of directors.

• Many companies conduct regular reviews of their directors’ and senior executives’ performance but some remain reluctant to disclose review practices or explain non-compliance.

Playtime

Week 2 Workshop

MBA402 Governance, Ethics and Sustainability

Your mobile phone sings and dances its way right off your bedside table, then continues to ring and vibrate on your bedroom floor. Still half asleep, you clumsily feel around the floor for it in the dark.

“Hello?” you say, groggily. “Hi, it’s me, sorry about the time but we need to talk,” Angela Lynn says. Angela is an old friend who studied with you at Kaplan. She has spent the

years since graduation climbing the corporate ladder at News Limited and holds a senior position overseeing the Financial Review.

“We’re working up a piece on the directors of the old Meridian board. It’s pretty brutal. We’re covering the finger pointing, the meetings at strip clubs, the incompetence and…” She pauses.

“And what?” you ask. “Did you know the Chairman lied on his resume? He never did an MBA.” “No, I didn’t know that,” you sigh. “Look Angela, thanks for the heads-up

but I need time to convene the board and get them across all this.” “We go to print in three hours,” she says.

The directors arrive one by one at the emergency board meeting you convene to discuss the newspaper story about the old Meridian board.

“Thank you for coming on such short notice and at such an ungodly hour,” you begin. You then explain the newspaper story about the previous Meridian board that will be in the Financial Review by sun up. You also explain that the new Meridian board will need to issue a strong statement to mitigate the anticipated impact on shareholder confidence.

Eric Driscoll, executive director and Meridian’s company secretary, speaks up. “This whole mess is about the old board – we are the new board. I think it’s best if we just keep quiet and say nothing.”

“Our refusal to respond becomes our response,” you point out, “as in: ‘Meridian Group was contacted but declined to comment’.”

“I don’t think that’s so bad in the circumstances. We don’t need a statement,” Eric replies.

Some of the other board members nod in agreement with him. At that point you realise Meridian needs more than just a statement, it

needs a management strategy…

Group One In your group, prepare a management strategy for Meridian to help diffuse the newspaper article. Focus on the following:

• Explain the concept of diffusion of responsibility • Discuss Recommendations 1.1 and 1.4 of the ASX

Corporate Governance Principles and Recommendations

• Propose three things Meridian could do to implement the Recommendation

Group Two In your group, prepare a management strategy for Meridian to help diffuse the newspaper article Focus on the following:

• Explain the nature of internal threats faced by corporations

• Discuss Recommendations 1.2 and 1.3 of the ASX Corporate Governance Principles and Recommendations

• Propose three things Meridian could do to implement the Recommendations

Group Three In your group, prepare a management strategy for Meridian to help diffuse the newspaper article. Focus on the following:

• Explain the concept of sexism • Discuss Recommendation 1.5 of the ASX Corporate

Governance Principles and Recommendations • Propose three things Meridian could do to

implement the Recommendation

Group Four In your group, prepare a management strategy for Meridian to help diffuse the newspaper article. Focus on the following:

• Explain the Dunning-Kruger effect • Discuss Recommendations1.6 and 1.7 of the ASX

Corporate Governance Principles and Recommendations

• Propose three things Meridian could do to implement the Recommendations

Group One Group Two

Group Three Group Four

• Present your management strategy to the Meridian board.

“You know what, Eric?” you ask, “You’re absolutely right. Meridian doesn’t need a statement.”

Eric smiles, pleased to have your agreement. “We need a management strategy,” you add. “A what?” Eric asks. “A management strategy. If we really want to distance ourselves from the

behaviour and practices of the old board we need to prove to our shareholders and the general public that we genuinely are different from them. And not just because we say we are but because we operate by different standards.”

“What kind of standards?” Eric asks.

The Board Chair, Veda Hosnik, places a hand on your shoulder and thanks you for your presentation. She rises from her seat to address the board.

“Our CEO has proposed to us a management strategy for the company that lays a solid foundation for management and oversight. We will now take a vote as to whether we adopt the proposed management strategy. All those in favour please raise your hands. Thank you. All those against, please raise your hands. Thank you.”

She records the votes tally on her iPad. “The board resolves to…”