Relationship between ethical dimensions of a firm and its active culture as well as their influence on corporate governance therein.

1. Ethics, Culture
&
Corporate Governance
Dr. Elijah Ezendu
FIMC, FCCM, FIIAN, FBDI, FAAFM, FSSM, MIMIS, MIAP, MITD, ACIArb, ACIPM,
PhD, DocM, MBA, CWM, CBDA, CMA, MPM, PME, CSOL, CCIP, CMC, CMgr

2. Learning Objectives
At the end of the course, participants should be able to
do the following:
 Explain the relationship between ethics and culture
 Identify various perspectives of values in corporate
governance
 Develop and implement fitting culture transformation
 Draft standard code of ethics
 Implement corporate governance structure which is
effectively aligned to ethical culture

3. “Ethics is defined as disciplined dealing with
what is good and what is bad and what are
moral duties and obligations.”
- Ranjana Kumar

4. “Organisational culture is a set of values,
symbols and rituals shared by the members
of a specific organisation, which describe the
way things are done in order to solve
managerial problems, both internal ones and
those related to clients, suppliers and the
business environment.”
- Llopis, Gonzalez & Gasco

5. “Corporate governance is the system by which
business corporations are directed and controlled.
The corporate governance structure specifies the
distribution of rights and responsibilities among
different participants in the corporation, such as,
the board, managers, shareholders, and other
stakeholders and spells out the rules and
procedures for making decisions in corporate
affairs. By doing this, it also provides the structure
through which the company objectives are set and
the means of attaining those objectives and
monitoring performance.”
Source: Organisation for Economic Cooperation and Development

6. Perspectives of Corporate Governance

7. The Shareholding Perspectives
This perceives corporate governance in terms
of issues relating to shareholder protection,
management control and the principal-
agency problems of economic theory.
Examples of the shareholding perspectives:
1. Inherent Property Rights Theory
2. Agency Theory
3. Stewardship Theory
4. The Finance Model
5. The Myopic Market Model

8. Inherent Property Rights Theory
It insists that a company is a corporate
property and should be seen as aggregation
of individual rights under a collective name,
united by contract and protected by company
law. The directors and managers as agents
of shareholders have no legal obligation to
any other stakeholder.

9. Agency Theory
This highlights the need to control the agents’
self-interest behaviour in principal-agent
relationship, so as to ensure that the social
contract aligns the behaviour of agents with
interest of owners/principals. Hence, it calls
attention to the relationship between agents’
behaviour and outcome (profitability).

10. Stewardship Theory
This criticizes problems envisaged by agency
theory and asserts that managers have a wide
range of motives beyond self interest such as
achievement, recognition, responsibility needs,
intrinsic satisfaction, pleasure of successful
performance, respect for authority, social status
and work ethics. Thus separation of ownership
from control actually empowers managers to
exercise unencumbered authority and
responsibility, thereby promoting maximization
of corporate profits and shareholders value
while developing the managerial profession.

11. The Finance Model
This is also known as efficient market model and
refers to the presupposed optimum of market-
based governance promoted by financial
economists, using financial economic theory
which holds that share price today fully reflects
the market value of all future profits and growth
that will accrue to the company. It claims
shareholders interests are best served by
maximizing share-price in the short-run because
the share-price is an indicator of corporate
performance and the stock market is the only
objective evaluation of management
performance.

12. The Myopic Market Model
This stands against the excessive concern for short-term
performance because of tendency to sacrifice long-
term value and competitive capacity such as R&D. It
points out that the stock market is not a good indicator
of corporate performance due to its inability to cope
with uncertainties; thus assets are usually mispriced
and prices of shares often change without
corresponding change in the fundamentals. Besides,
share prices may be driven by guesses, changing
moods and prejudices of investors rather than
estimates of corporate fundamental values. For that
reason, the myopic market model holds that corporate
governance should encourage shareholders and
managers to share long-term horizons.

13. The Stakeholding Perspectives
This views corporate governance as the
heart of both a market economy and
democratic society.
Examples of stakeholding perspectives:
1. Social Entity Theory
2. The Pluralist Model
3. The Trusteeship Model

14. Social Entity Theory
The social entity theory opposes the inherent property
rights theory because it does not view a firm as a
private association united by individual rights, but as a
public association formed through political and legal
processes and a social entity for pursuing collective
goals wit h public obligations. It perceives a firm as a
social institution in society based on the grounds of
fundamental value and moral order of the community. It
holds that corporations are granted by the state not
only as economic entity for commercial purpose, but as
a social entity for general community needs. The
corporation has a collective, rather than individual
identity, and executives function as representatives and
guardians of all corporate stakeholders interests.

15. The Pluralist Model
It holds that corporate governance should not
move away from ownership rights, but that
such rights should not be solely claimed by
shareholders; it should be claimed by other
stakeholders especially the employees.
Whereas social entity theory validates the
interests of stakeholders on two factors
namely fundamental human rights and moral
value, the pluralist model insists every
stakeholder has ownership right.

16. The Trusteeship Model
This model points out that a company is an
independent entity different from its members,
and has its assets, rights, duties, will and
capacity to act; and the managers should act as
trustees whose fiduciary duty is to uphold the
firm’s assets comprising the shareholders
wealth, expectation of government, capability of
employees, customers, suppliers, distributors
and demands of community and ecosystem, as
well as other concerns of the firm.

17. The Processual Perspectives
The processual perspective views corporate governance as
an emergent pattern of dynamic governing processes,
actions and activities in specific social and historical
contexts, rather than as any end-state and outcome of
activities and pre-defined abstract forms such as
shareholding or stakeholding, market or hierarchy, self-
interest or altruism, self-regulation or state intervention. It
holds that there’s no one static feasible model of
corporate governance that can work everywhere, but
insisted that its structure should be dynamic and
dependent on evolutionary factors (time of entry into
industrialization and institutionalization), political factors
(influence and regulation of state along with business
rules), and institutional factors (social organisation of
state elites).

18. “Currently there is move within the field of
organizational ethics that has the potential of
destabilizing the central position that codes of
ethics have played thus far in the governance of
corporate ethics. This move has been triggered
by an acknowledgement by both political and
corporate leaders that a too strong focus on
codes of ethics and their implementation can
give rise to a compliance mentality that does not
translate into deep cultural change in
organisations.”
- Deon Rossouw

19. Evolution of Ethics
Ethical norms are usually developed from
different conceptions of human beings
influenced by their nature.
The two products of such conceptions are as
follows:
1. Rule based cultures
2. Relationship-based cultures

20. Rule-Based Cultures
1. Equality of status for rational individuals.
- Ethics of Equality
- Ethics of Justice
- Ethics of Rationality
- Ethics of Human Rights
2. Equality of authority.
- Rules must be plain and all-inclusive
- Obligation to rules and not to persons

21. Relationship-Based Cultures
1. People are parts of groups and societies.
- Family
- Social Groups
- Associations
- Community
- Ancestors
- Whole World
2. Ethics of care
- Individual interests are key factors
- Human rights and justice are minor issues

22. The active culture of an organisation
could be adrift divergently from its
corporate ethical standards, thus
discarding the elements and direction of
established ethical values
The Dilemma of Redundant Ethics

23. Ethical deficit occurs when the character
of individuals in an organisation and the
corporate character are both diverging
from the standard ethical values.
Ethical Deficit

24.  Respect
 Responsibility
 Results
Source: George S. May International
The Three R’s of Business Ethics

25. Implementing Culture Transformation
 Establishment of strategic plan for using ethical
values to steer individual conduct
 Establishment of cross-functional team
 Organisation-wide campaign for buy-in of all and
sundry and execution of joint culture building
 Structured learning encapsulated in multi-modular
development
 Integration of ethical values into internal service
delivery system and performance expectation
 Culture embedded on individual leadership and
conduct
 Continuous monitoring and evaluation

26. George Legault Model of Joint Culture Building
George Legault proposed that joint culture building in
the whole organisation provides opportunity for
ethical values to become embedded on individual
and team conducts. He claims it promotes actions
and decisions based on shared meaning and
requires the following for successful
implementation:
i. Articulation of values
ii. Management by values
iii. Conflict resolution and shared decision-making
iv. Individual decisions

27. Code of Ethics
A code of ethics is a blueprint for developing a culture of
values in an organization. A code consists of a clearly
stated and written set of guidelines that managers,
employees, and agents of an organization must follow.
A code of ethics is a reference tool that provides
guidance to both employees and managers on how to
implement and practice business ethics in the
workplace. A code should embody both business
standards (such as customer satisfaction, a high quality
of products, safety, and employee rights) and values
(such as mutual trust, respect, and honesty).
Source: Glossary of Corporate Governance

28. Eight Steps for Preparing a New Code of
Ethics
i. Get endorsement from the Board
ii. Find a Champion
iii. Understand the purpose
iv. Find out what bothers people
v. Be familiar with external standards and good
practice
vi. Monitoring and assurance
vii. Try it out first
viii. Review
Source: Institute of Business Ethics

29. Content of Code of Ethics
Introduction (signed by the Chairman or Chief Executive Officer or both)
The Purpose, Values and Impacts of the Business
 A. How to use this code
 B. Employees
 C. Customer Relations
 D. Shareholders or other providers of money
 E. Suppliers Prompt settling of bills
 F. Society or the wider community
 G. Implementation and reinforcement
 H. Assurance, reporting and reviews
Key ethical issues to include
 How we compete
 Bribery and facilitation payments
 Gifts and entertainment
 Conflicts of interest
 Use of company assets
 Safeguarding important information
 Political involvement and contributions
 The application of human rights standards in our business
 Our environmental responsibilities
 Timely payments of suppliers
 Other issues
Source: Institute of Business Ethics

30. Corporate Code of Ethics Corporate Ethical Culture
1. Act-centered approach Agent-centered approach
2. Focus on individual Focus on individual, team and
the whole organisation
3. Operational engagement
hinges on acceptability or
non-acceptability of
individual behaviours
Operational engagement hinges
on evolving character of
employees and the organisation

31. Sama and Shoaf Corporate Governance
Structure
Enforcement Agencies Accounting Standards
External Auditors
Boards of Directors
Corporate Executives
Corporate Employees

32. Petrovic-Lazarevic Model of Corporate Governance
Structure
Enforcement Agencies Accounting Standards
External Auditors
Boards of Directors
Corporate Executives
Corporate Employees
Board Social
Responsibility Committee
Corporate
Environmental
Culture/
Ethical
Principles
Environmental
Policy
Community
Government

33. Ezendu Model of Corporate Governance Structure
Enforcement Agencies Accounting Standards
External Auditors
Boards of Directors
Corporate Executives
Corporate Employees
Board Ethical Culture
Committee
Corporate
Ethical
Culture
Ethics Policy
Community
Government

34. 1. They are strong communicators – with excellent and effective communication skills,
including public speaking, presentations and one-on-one interactions with employees at
all levels.
2. They are objective and thoughtful.
3. They have the ability to establish and maintain credibility and trust throughout the
organization.
4. They have the ability to quickly assimilate information relating to complex issues.
5. They have the ability to network on all levels of an organization.
6. They have reached personal and professional maturity.
7. They show rationality in tense interpersonal situations.
8. They have a deep organizational knowledge.
9. They have a working knowledge of applicable laws and regulations.
10. They have experience with training and development including best practices in ethics
and compliance education.
11. They have solid, broad management skills.
12. They are discreet and able to protect confidential information.
13. They are able and willing to take a difficult or unpopular position if necessary.
14. They have common sense.
15. They always show the highest integrity.
Source: Ethics Officer Association
Characteristics of Ethics Officers

35. “The character and behaviour of employees of
any organisation will dictate whether that
organisation can claim to be ethical or not. It
follows that processes used in staff
appointments and management will
contribute to the extent to which an
organisation conducts its business and
displays ethical behaviour.”
Source: Santam

36. “Transparency means that the public can see a
company’s true financial position or security
posture without distortions and, therefore, can trust
financial and investment information available to
the public. Investments in internal control systems
are necessary, but insufficient to assure the
integrity of financial reporting. Organizations must
look beyond the quality of the internal control
system to the quality of the individuals responsible
for implementation. There must be a good fit
between individuals and the ethical and corporate
climate of the organizations in which they find
themselves working.”
- Kermis & Kermis

37. Example of Ethical Deficit in Governance
“Madoff's clients had considered themselves
fortunate members of an elite investing circle,
centered in New York City and Palm Beach, which
provided them with steady returns regardless of
how the market fared. Now their common bond is
disbelief that it was a fraud. A great irony of this
massive fraud was that Madoff had campaigned for
greater transparency in NASDAQ and he will
ultimately be charged with fraud and losing billions
for innocent investors through his culture of deceit.”
Source: Wall Street Journal, 2009.

38. Case Study
Santorem Patori is a multinational firm that operates
in Europe, Middle East, North America and Africa.
The Chief Executive Officer was involved in
malfeasance which dragged the corporate
reputation of the firm down the ladders. Due to
organisational restructuring, you have just been
employed as the firm’s Head of Human Resources.
The new CEO requires you to develop a feasible
framework for building and fostering corporate
ethical culture in the whole organisation. Prepare a
well articulated response.

39. Dr Elijah Ezendu is Award-Winning Business Expert & Certified Management Consultant with expertise
in Interim Management, Strategy, Competitive Intelligence, Transformation, Restructuring, Turnaround
Management, Business Development, Marketing, Project & Cost Management, Leadership, HR, CSR, e-
Business & Software Architecture. He had functioned as Founder, Initiative for Sustainable Business
Equity; Chairman of Board, Charisma Broadcast Film Academy; Group Chief Operating Officer, Idova
Group; CEO, Rubiini (UAE); Special Advisor, RTEAN; Director, MMNA Investments; Chair, Int’l Board of
GCC Business Council (UAE); Senior Partner, Shevach Consulting; Chairman (Certification & Training),
Coordinator (Board of Fellows), Lead Assessor & Governing Council Member, Institute of Management
Consultants, Nigeria; Lead Resource, Centre for Competitive Intelligence Development; Lead
Consultant/ Partner, JK Michaels; Turnaround Project Director, Consolidated Business Holdings Limited;
Technical Director, Gestalt; Chief Operating Officer, Rohan Group; Executive Director (Various Roles),
Fortuna, Gambia & Malta; Chief Advisor/ Partner, D & E; Vice Chairman of Board, Refined Shipping;
Director of Programmes & Governing Council Member, Institute of Business Development, Nigeria;
Member of TDD Committee, International Association of Software Architects, USA; Member of Strategic
Planning and Implementation Committee, Chartered Institute of Personnel Management of Nigeria;
Country Manager (Nigeria) & Adjunct Faculty (MBA Programme), Regent Business School, South Africa;
Adjunct Faculty (MBA Programme), Ladoke Akintola University of Technology; Editor-in-Chief, Cost
Management Journal; Council Member, Institute of Internal Auditors of Nigeria; Member, Board of
Directors (Several Organizations). He holds Doctoral Degree in Management, Master of Business
Administration and Fellow of Professional Institutes in North America, UK & Nigeria. He is Innovator of
Corporate Investment Structure Based on Financials and Intangibles, for valuation highlighting
intangible contributions of host communities and ecological environment: A model celebrated globally
as remedy for unmitigated depreciation of ecological capital and developmental deprivation of host
communities. He had served as Examiner to Professional Institutes and Universities. He had been a
member of Guild of Soundtrack Producers of Nigeria. He's an author and extensively featured speaker.

40. Thank You