BUSINESS ETHICS & Corporate

Governance
BS425
1

PREPARED BY:
MRS B . MUCHENJE
(BZMUCHENJE@GMAIL.COM,07728
15871)
FACULTY OF BUSINESS
MANAGEMENT SCIENCES &
ECONOMICS, TLHM DEPARTMENT
B. Muchenje (UZ) OFFICE G10
 CORPORATE GOVERNANCE
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CONTENT
DEFINITIONS
THE STRUCTURE
PURPOSE
R E S U LT S
CASE STUDIES

B. Muchenje (UZ)
 What Entails Corporate Governance?
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What is CG?

B. Muchenje (UZ)
 What is Corporate Governance?
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 It is a moral obligation that directors have to take care of the
interests of investors and other stakeholders(Collier
&Robborts,2001).
 Governance is a task delegated by law and shareholders,
defined by government and regulators in legislation and codes
of good practices and shared by boards with company’s
management.
 Corporate governance is the manner of general management
and control of a corporation, business or corporate body
according to a mixture of principles and interests that may be
agreed or imposed.
 According to the Cadbury report in the UK, “it is the system by
which a company is directed and
controlled’’,(Smerdon,1998;1).
B. Muchenje (UZ)
 The Structure of Corporate Governance
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Who is involved?

B. Muchenje (UZ)
 Characteristics of a Balanced & Effective
Board
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Members must at least fulfil the following roles:

i) Innovation i.e. the original thinker who is able to identify
that ability in others.
ii) Analysis i.e. one who can sift through the minds and ideas.
iii) Organization i.e. one who insists that organized effort is
necessary.
iv) Execution i.e. running organizations, forcing performance
and meeting objectives.
v) Human relations i.e. being able to interact with others.
vi) Shareholder activist who fulfils shareholders’ interests.
vii) Integrator who connects the viewpoints and brings
meaning.
viii) Generalist who knows a little or a lot about everything.
NB.The board must act with Integrity, Competence,
Responsibility, Accountability, Fairness and Transparency(i.e.
ICRAFT)
B. Muchenje (UZ)
 Corporate Governance Structures
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The structures, processes and practices of corporate
governance determine:
i) How authority is exercised;
ii) Decisions are taken;
iii) How stakeholders have their say and
iv) How decision makers are held accountable;
v) Who is responsible for what i.e.
 Who sets the direction(company strategy) and the limits
within which that direction is to be pursued(budgets and
policies).
 Who is accountable to who and for what e.g. board of
directors to shareholders and CEO to the board
vi) The structure assigns power, define roles, responsibilities
and leadership, govern communication with stakeholders and
ensures accountability from which legitimacy is derived.
B. Muchenje (UZ)
 What does Corporate Governance Entail?
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 Governance is about the structures, frameworks,
controls, accountabilities and responsibilities that
together help business meet its strategic objectives
and manage risks.
 It also provides the means of attaining the company
objectives and how monitoring performance are
determined.
 Corporate governance is much more than the
determination of directors’ pay and conditions and
procedures for election to the board as it involves the
values and expectations of the stakeholders of the
business.

B. Muchenje (UZ)
 Theory of Corporate Governance
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What it serves

B. Muchenje (UZ)
 Key Elements of Corporate Governance
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B. Muchenje (UZ)
 The Key Elements
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Elements Explained
Goal is an overall objective,
what an organization aims to
achieve in the long run.
Strategy is a plan that is used
to achieve the targeted goal.

B. Muchenje (UZ)
 Corporate Governance Elements Purposes
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Major relationships supported by CG elements are:
1. The long term relationship which has to deal
with checks and balances, incentives for
manager and communications between
management and investors;
This encompasses the following:
 The implementation of a process whereby risks to
the sustainability of the company’s business are
identified and managed within the acceptable
parameters.
 The development of practices which make and
keep the company accountable to its identified
stakeholders and broader society to which it
operates.

B. Muchenje (UZ)
 Continued:
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2. The transactional relationship which involves
dealing with disclosure and authority.
This encompasses the following:
 The creation of ongoing monitoring of an
appropriate and dynamic system of checks and
balances to ensure the balanced exercise of
power with the company.
 The implementation of a system to ensure
compliance by the company with its legal and
regulatory obligations.

B. Muchenje (UZ)
 What Does Corporate Governance Relationship
Entail?
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 It involves a set of relationships between a company’s
management, its board, its shareholders and other
stakeholders.
 It is all about managing long-term risk, overseeing ethical
performance and sustainable business practices and
taking accountability for the company’s relationships with
multiple stakeholders.
 It requires sound ethical judgement by directors who
need to set ethically sound corporate goals in order to
protect the reputation/symbolic capital of the
organization.
 It regulates the exercise of power(i.e. authority, direction
and control) within a company to ensure the achievement
of its
B. Muchenje (UZ)purpose.
 Principal Activities of Governance
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According to Tricker (1984;7) these are:
1. Direction for the future of the enterprise in the
long term.
2. Executive action in crucial decision making.
3. Monitoring management performance.
4. Accountability to stakeholders.
NB: These checks and balances are meant to
detect, not to cure unethical problems.

B. Muchenje (UZ)
 Why is Proper Governance Critical?
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The major issues of concern

B. Muchenje (UZ)
 Corporate Governance Control
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Effective corporate governance revolves around the question of
where the locus of control is situated i.e. internal or external.
Internal corporate governance is when control is within i.e.
with the board of directors and executive management who
direct and control their own affairs.
Their main functions are:
1. To direct and control the company through determining the
strategic direction and the ultimate performance of the
company (Rossouw,2009).
2. To ensure that the management pursues the chosen
strategic direction effectively in a fair and responsible manner
in accordance with legal, professional, societal and
organizational standards that are expected (conformance
responsibility).

B. Muchenje (UZ)
 Continued:
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The governing board’s responsibility according to King
IV(IODSA, 2016:40-41) are:
 to set the strategy for the organization(direction).
 To ensure that policies are in place to guide the
organization in the execution of the strategy(control).
 To exercise oversight in order to ensure that the
organization’s performance is in accordance with its
strategy and policies(authority).
 To report and disclose the organization’s performance to
its stakeholders(accountability).

B. Muchenje (UZ)
 External Governance Control
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This is exercised by regulatory institutions like laws,

regulations, professional standards, listing requirements, etc
which are imposed on corporations and is mandatory.
Corporate control can also be done informally through
societal norms.

B. Muchenje (UZ)
 Pillars of Good Corporate Governance
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Components of Effective CG

B. Muchenje (UZ)
 Benefits of Good Corporate Governance
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Results

B. Muchenje (UZ)
 Governance Outcomes
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The test of good governance is felt from the following
outcomes:
1. An ethical culture
2. Sustained good performance that creates value for
stakeholders.
3. An effective control environment that ensures that risks
are identified and dealt with.
4. The legitimacy of an organization as displayed in good
reputation and trust by stakeholders.

B. Muchenje (UZ)
 Problems/ Scandals that Hinder Effective
Governance
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i) Ensuring sufficient checks and balances to keep directors

and management accountable to shareholders.
ii) Ensuring that potential conflicting interests of managers and
shareholders are not allowed to prevail over those of the
company and to minimize agency costs.
iii) Ensuring the necessary delegation of authority (power)
within the company while limiting the abuse of that authority
by individuals.
iv) Ensuring that the right questions are directed to the right
people and that managers are held accountable for the
exercise of delegated authority and for the company’s
performance.
v) Ensuring that the policies and structures in place are flexible
enough to allow the company to achieve its purpose and
enable the company to anticipate and respond appropriately
to risk.
B. Muchenje (UZ)
 Investors’ Corporate Assessment
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Before investing, the investors consider:
i) The vision and strategy of the business.
ii) The trustworthiness and competence of the
management team.
iii) Access to reliable information about current and future
developments in the company.
iv) Recourse to compensation in the case of
mismanagement.
v) Assurance that the business will conduct its affairs in a
reputable manner.

B. Muchenje (UZ)
 Testing Questions
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The following questions can be asked to test whether the
business decision meets a set of normative criteria:
i) Is it legal?
ii) Does it meet company standards?
iii) Is it fair to all stakeholders?
iv) Can it be disclosed?

B. Muchenje (UZ)
 Thought Questions
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1. How important is good corporate governance in

business?
2. What roles must be fulfilled by a balanced and effective
Corporate Board?
3. What major problems can hinder effective corporate
governance?
4. Give examples of organizations that have managed to
uphold good corporate governance in Zimbabwe and
what they benefited out of that?
5. Which organizations in Zimbabwe have experienced
failed corporate governance and their repercussions?

B. Muchenje (UZ)