code of ethics

Ethics – Part II

Week 5 Workshop

MBA402 Governance, Ethics and Sustainability

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2

The Pen is Blue

Play Video

• Do you agree with Ancient Greek philosopher Plato when he says:

Small Group Discussion

Honesty for the most part is less profitable than dishonesty.

• In groups, create an innovative advertising concept for the Mitey Stuffed Crust pizza.

You are an advertising executive for a prestigious advertising firm that specialises in television commercials for the food and beverage industry.

The Pizza Hut franchise is about to launch a new pizza and has engaged you to create an innovative advertising concept for use in a television commercial.

The new pizza is called the Mitey Stuffed Crust. It is essentially a normal pizza containing melted cheese and vegemite inside the crust.

Small Group Challenge Adelaide, Australia 2017

Mitey Stuffed Crust

Play Video

Honesty

• Honesty means being honourable in principles, intentions, and actions.

• It is about truthfulness and respectability.

• Honesty enhances a company’s brand and reputation and assists in building long-term value for its investors.

Truth in Advertising

• In 2011, the Federal Court fined Harvey Norman $1.25 million for using advertising catalogues containing a fine print disclaimer that the prices in the catalogue were only offered at one Harvey Norman store, not all stores nationwide.

Principle 3

3. Instil a culture of acting lawfully, ethically and responsibly Companies should act ethically and responsibly.

Ethical and Responsible Action

• Acting ethically and responsibly is about more than meeting legal obligations and involves dealing honestly and fairly with suppliers and customers.

• This would include being honest in the marketing and advertising of products and services.

Recommendations 3.1 & 3.2

3.1 A listed entity should articulate and disclose its values.

3.2 A listed entity should: (a) have and disclose a code of conduct for its directors, senior executives, and employees; and (b) ensure that the board or a committee of the board is informed of any material breaches of that code

Code of Conduct

• The code of conduct should clearly state the company’s expectation that all directors, senior executives and employees will act honestly and with high standards of personal integrity.

Personal Integrity

• Good corporate governance depends on the personal integrity of those on boards and in management.

• Investor confidence can be enhanced if the code of conduct clearly articulates what is regarded as acceptable business practices for its directors, senior executives and employees.

Leonardo DiCaprio

Play Video

• Do you agree with Plato’s student Aristotle when he says:

Small Group Discussion

That which is common to the greatest number has the least care

bestowed upon it.

William Forster Lloyd, Drummond Professor of Political Economy at Christ Church, Oxford, has a problem. For weeks now he has struggled to come up with a suitable metaphor for the over- exploitation of the world’s natural resources.

He takes a stroll through the surrounding countryside to help clear his mind and passes by a pasture colloquially called “the commons”. The pasture is called this because it is common land and local farmers may bring their cattle to graze there as often as they like. He notices that “the commons” is currently overcrowded with cattle.

It suddenly occurs to William that “the commons” may somehow be the metaphor for over-exploitation he’s been searching for.

Small Group Challenge

• In groups, help William come up with a metaphor for the over-exploitation of the world’s natural resources.

Oxford, England 1833

Tragedy of the Commons

• The tragedy of the commons is an economic theory of a situation within a shared resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting that resource through their collective action.

Environmentalism

• The tragedy of the commons can be considered in relation to environmental issues such as sustainability.

• The commons dilemma stands as a model for a great variety of resource problems in society today, such as water, forests, fish and non-renewable energy sources such as oil and coal.

Ethical and Responsible Action

• Acting ethically and responsibly includes acting responsibly towards the environment.

• This would include not only complying with environmental protection laws but also following environmentally friendly practices such as waste minimisation and energy-saving initiatives.

Code of Conduct

• The code of conduct should clearly state the company’s expectation that all directors, senior executives and employees will comply fully with environmental protection laws and follow environmentally friendly practices and procedures.

Environmental Protection Law

• Environmental law prohibits organisations from: o causing pollution. o creating an environmental hazard. o creating unreasonable noise or

odour that will impact a residential area.

Environmental Practices • Environmental practices create positive

brand associations among consumers, politicians, and regulators.

• They also anticipate regulatory trends and position the company favourably when such policies become law.

• Employees have higher morale when they believe that what their company is doing is environmentally friendly.

Ed Snowden

Play Video

Small Group Discussion

Am I a hero or a traitor?

You are studying MBA402 Governance, Ethics and Sustainability at Kaplan Business School. You receive the following email:

Small Group Challenge

• In groups, decide what you should do about the email.

Whistleblowing

• A whistleblower is a person who informs on a person or organisation regarded as engaging in an unlawful or immoral activity.

• Whistleblowers may face retaliation from those they accuse of wrongdoing including legal action, criminal charges, social stigma and job termination.

Recommendation 3.3

3.3 A listed entity should: (a) have and disclose a whistleblower policy; and (b) ensure that the board or a committee of the board is informed of any material breaches of that policy

Ethical and Responsible Action

• Acting ethically and responsibly includes encouraging employees to report unlawful or unethical behaviour.

• This includes having and promoting an internal complaints handling system for effectively managing employee reports of unethical activity within the company.

Code of Conduct

• The code of conduct should identify the measures the company follows to encourage the reporting of unlawful or unethical behaviour.

• This would include how the company protects whistleblowers who report violations in good faith.

Whistleblower Programs

• AS 8004-2003 Corporate governance - Whistleblower protection programs for entities provides guidance on whistleblower programs for companies.

• An effective whistleblower program would need to focus on developing and implementing anti-retaliation policies to protect whistleblowers.

• Do you agree with this statement by Ancient Roman poet Horace:

Small Group Discussion

We are often deterred from crime by the disgrace of others.

• In groups, come up with at least two strategies that will deter parents from collecting their children after four in the afternoon.

You are the manager of a day-care centre for young children. The centre is scheduled to operate every day until four in the afternoon, when the parents are supposed to come and collect their children. Quite frequently, however, parents arrive late, forcing child care workers to stay after working hours.

The proprietors of the day-care centre expect you to resolve this issue.

Small Group Challenge

Deterrence

• Deterrence is the use of punishment as a threat to prevent people from offending.

• Research indicates that increasing the severity of a punishment does not have much effect on crime, while increasing the certainty of punishment does have a deterrent effect.

Punishment

• In some circumstances, the punishment can actually encourage the misconduct it was supposed to deter.

• Care must be taken to ensure any punishment is not viewed as the price for non-compliance.

• In groups, think of some punishments that encourage misconduct.

Ethical and Responsible Action

• Acting ethically and responsibly includes not only training employees on behavioural expectations but also deterring non-compliant behaviour.

• This includes having an effective system for responding to instances of unethical behaviour with appropriate disciplinary action.

Code of Conduct

• The code of conduct should be reinforced by proper training and proportionate disciplinary action if it is breached.

Disciplinary Action • Forms of disciplinary action include:

o Counselling o Verbal warning o Official written reprimand o Performance management meeting o Final written warning o Suspension or demotion o Termination of employment

Corporate Culture

• The board of directors should lead by example when it comes to acting ethically and responsibly.

• The board should specifically charge management with the responsibility for creating a culture within the company that promotes ethical and responsible behaviour.

Playtime

Week 5 Workshop

MBA402 Governance, Ethics and Sustainability

“Every company has a few skeletons in the closest,” you begin. “Hmmm… I don’t like where this is going,” interrupts Eric Driscoll,

Meridian’s company secretary. “Senator Stone broadsided me last week at the Committee hearing with a

fistful of submissions that reflected very poorly on our corporate culture. I need to know what else he might have up his sleeve so he doesn’t ambush me again tomorrow.”

“I can walk you through the company’s complaints register,” Eric offers. “No, I don’t have time for that,” you say, “I need to know about the matters

the company has tried to bury, the ones that can come back to hurt us.” “Stone mightn’t have anything else. Meridian’s gone to great lengths over

the years to keep its dirty laundry private.” “Are you kidding me, Eric? Our former board is facing prosecution for

multiple Chapter 7 breaches. A small army of ASIC officers and investigative journalists are trawling through our garbage with fine-tooth combs. We have no choice but to assume Stone knows the worst of it, and that means I need to know the worst of it. Right now.”

Eric scratches his head, “Did Stone mention anything specific?” You think back to Senator Stone’s closing remarks at the hearing. “Yes, he

said a company’s code of conduct should include its expectations regarding honesty and personal integrity, environmental responsibility, and a program for protecting whistleblowers.”

“Ok. Here’s what I think he’s referring to,” Eric says. “Last year Meridian paid two substantial fines to the government. The first was to the ACCC for misrepresenting the true price of Meridian services in advertising to potential clients. The second was for discharging commercial trade wastewater from one of our commercial sites without a proper authority.”

“What about whistleblower protection?” you ask. “He must be talking about Brendan Johnson. He’s the internal auditor who

first reported the illegal activities of the former board to ASIC.” “Please tell me Meridian didn’t fire him.” “We didn’t. But everyone treated him like a pariah until he resigned.” You realise you need to draft a revised code of conduct addressing these

issues that will also be strictly enforced…

Group One In your group, draft a statement introducing the revised code of conduct Focus on the following:

• Explain the concept of honesty • Discuss how Meridian employees have engaged in

dishonest conduct • Propose a statement for inclusion in Meridian’s

code of conduct that addresses dishonest practices

Group Two In your group, draft a statement introducing the revised code of conduct Focus on the following:

• Explain the tragedy of the commons • Discuss how Meridian employees have engaged in

conduct that is harmful to the environment • Propose a statement for inclusion in Meridian’s

code of conduct that addresses environmentally harmful practices

Group Three In your group, draft a statement introducing the revised code of conduct Focus on the following:

• Explain what a whistleblower is • Discuss how Meridian employees have engaged in

retaliatory conduct against whistleblowers • Propose a statement for inclusion in Meridian’s

code of conduct that addresses whistleblower protection

Group Four In your group, draft a statement introducing the revised code of conduct Focus on the following:

• Explain the concept of deterrence • Discuss how Meridian can deter employees from

breaching the code of conduct • Propose a strategy for enforcing Meridian’s code of

conduct

Group One Group Two

Group Three Group Four

• Deliver your address to the Parliamentary Joint Committee on Corporations and Financial Services.

By the time you pass through the security checks and enter the hearing room the members of the Parliamentary Joint Committee on Corporations and Financial Services are already seated and waiting for you.

Deputy Chair Stone is wearing the same expression of disapproval from last week.

Madam Chair Allen invites you to address the Committee.

When you finish your address, Deputy Chair Stone is again the first to speak.

“I have to say I hold a dim view of Meridian’s past dealings and little faith in the new board and management’s ability to save the company from the end many of us believe it genuinely deserves.”

His stern words once again make your heart thump. “But I want to thank you on behalf of the Committee for appearing here

again this morning. I personally appreciate your candour and I sincerely hope your proposed code of conduct will bring much needed guidance and certainty to the directors, senior executives, and employees of Meridian Group.”

You breathe a heavy sigh of relief, “Thank you, Deputy Chair Stone.”