Page 38 - FINAL CFA II SLIDES JUNE 2019 DAY 6

READING 23: CORPORATE PERFORMANCE, GOVERNANCE, & BUSINESS ETHICS
ACTIONS IN PURSUIT OF
ETHICAL BEHAVIOR
MODULE 23.1: CORPORATE PERFORMANCE, GOVERNANCE, AND BUSINESS ETHICS

Step 1: Hire and promote those with strong personal and business ethics (a sound moral compass). Psychological testing and careful review of past
employment can help identify these individuals.

Step 2: Build an organization and culture that value ethical behavior highly. This must include: explicitly stating that ethical behavior is required, employing
leaders who continually emphasize the necessity of highly ethical behavior, and promote those who act ethically and sanction those who do not.

Step 3: Select leaders who will implement step 2.

Step 4: Establish a systematic decision process that incorporates a moral compass, rights theory, and Rawls’s theory of justice. Then turn this process
into a series of yes or no decision tools such as:
• Does this decision meet our code of ethics and standards?
• Am I willing to have this decision widely reported to stakeholders and the press?
• Would others whose opinion I value and respect approve of this decision?

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

Step 6: Establish strong corporate governance procedures that include:
• A majority of the board of directors are independent, outside, knowledgeable members of high integrity.
• The chairman and CEO positions are held by separate individuals with the chairman an independent, outside director.
• The compensation committee is made up exclusively of independent, outside directors.
• The board should retain outside auditors with no conflicts of interest (such as also providing consulting services to the company).

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

Acting ethically is not simple or easy, but it is good business.