Page 36 - FINAL CFA II SLIDES JUNE 2019 DAY 6

ACTIONS IN PURSUIT OF ETHICAL BEHAVIOR READING 23: CORPORATE PERFORMANCE, GOVERNANCE, & BUSINESS ETHICS

Step 1: Hire and promote taking account of strong personal
and business ethics. Psychological testing and careful review of
past employment. MODULE 23.1: CORPORATE PERFORMANCE, GOVERNANCE, AND BUSINESS ETHICS

Step 2: Build an organization culture that value ethical behavior highly –employment, promotion, sanctions!

Step 3: Select the right leaders who will implement step 2.

Step 4: Evaluate all decisions using say Rawls’s theory of justice: Meets our code of ethics and standards; open to stakeholders and press?

Step 5: Appoint ethics officers who articulate, propose, train, monitor, and revise a code and behavior.

Step 6: Establish strong corporate governance procedures: majority independent NEDS, Chairman and CEO separate, independent REMCO etc.

Step 7: Support managers who make tough decisions consistent with good business ethics, even at the expense of short-term profits.

LOS 24.a: Describe objectives and core attributes of an effective corporate governance system and evaluate whether a company’s corporate governance has those attributes
‘’The system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome conflicts:”
1. Eliminate or reduce conflicts of interest, especially between management and shareholders.
2. Use the company’s assets in a manner consistent with the best interests of investors and other stakeholders.
• Defines the rights of shareholders and other important stakeholders.
• Defines and communicate to stakeholders the oversight responsibilities of managers and directors.
• Provides for fair and equitable treatment in all dealings between managers, directors, and shareholders.
• Assures transparency and accuracy in disclosures regarding operations, performance, risk, and financial position.

LOS 24.b: Compare major business forms and describe the conflicts of interest associated with each.

Sole proprietorships - owned and operated by a single individual (no legal distinction between the business and owner –hence no conflict).

Partnerships -two or more owners/managers (also no legal distinction between the business and owners). Unlimited liability shared among partners but
partners can pool knowledge and capital). Potential conflicts between partners?

Corporations are distinct legal entities with rights. Separation of ownership and control creates the potential for conflicts between management and
shareholders.