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3 Designed to give you knowledge and application of: Section A: Business organisational structure, governance & management A1. The business organisation & its structure A3. Organisational culture in business A5. Information technology & information systems in business A7. Business ethics & ethical behavior A8. Governance & social responsibility in business

4 Learning Outcomes  Business ethics and its importance  Influences that determine whether behaviour & decisions are ethical or not  Role of the accountant in promoting ethical behaviour. A7: Business ethics & ethical behavior

5 Ethics can be defined as abiding by a set of written and unwritten rules based on both legality and morality  Legality, because ethics involves obeying the laws of a country  Morality, because ethics involves doing what a society believes is just and correct  Ethics also involves having a permanent commitment to abiding by these rules  Ethics also has a very important place in the business world Business ethics The branch of ethics that examines rules and principles within a commercial context Business ethics & its importance

6 Original view Maximise profits for their owners or shareholders Only for the owner Later - changed view Ethical responsibility towards their various stakeholders e.g. their employees, suppliers, customers etc For various stake- holders Views of organisations regarding ethics

7 Individuals  As important as having a legal system  Allows basic level of trust between individuals  Allows society to function as a whole Organisations  Good business sense in the long run  People more willing to work for / buy products from an ethical organisation Importance of ethics

8 Individual personality traits Value system, upbringing, education, religious beliefs, experiences 1 Culture / Country The prevailing culture of a country 2 Culture of the organisation / industry The more ethical the organisation, the more likely it will bring out ethical behaviour in its employees 3 Influences that determine whether behaviour & decisions are ethical or not Refer to Examples on pages 84 and 85

9  One of the best ways for accountants to maintain their objectivity is by strictly following the code of conduct and ethics laid down by their profession’s regulatory body  These standards help to enforce objectivity by providing precise guidelines on how information / reports are to be prepared Accountants are the conscience of an organisation Need to prepare true and fair financial statements for the users Must, at all times, be seen as objective by  other employees and  the outside world The role of the accountant in promoting ethical behavior

10 RECAP  Business ethics and its importance  Influences that determine whether behaviour & decisions are ethical or not  Role of the accountant in promoting ethical behaviour.

11 Learning Outcomes A8: Governance & social responsibility in business  Separation between ownership and control.  Corporate governance and social responsibility  Best practice in effective corporate governance.  Social responsibility and needs of its stakeholders

12 Board of directors Set long term objectives for the organisation Hire executives for the organisation Responsible for overall performance of organisation Annual performance Review of annual performance Shareholders Appoint the board of directors Owners Separation between ownership & control Refer to Test Yourself 2 on page 105

13 Corporate governance Meaning - the system by which business corporations are directed & controlled Purpose - to align the interests of managers, executives and the board of directors with those of shareholders Common contents –  Accountability  Compliance  Transparency  Integrity Contents of corporate governance vary from organisation to organisation Social responsibility is the conscience of the organisation Corporate governance & social responsibility

14 Need for corporate governance and social responsibility standards To help ensure that managers, executives and the board of directors act in the best interests of the shareholders To ensure that organisation does not take any actions / decisions that will go against the interests of their stakeholders & society Corporate governance standards Social responsibility standards Being more ethical, moral and in line with the interests of their shareholders, stakeholders and society at large Need for Corporate governance & social responsibility

15 Best practice in effective corporate governance calls for the following: Non-executive directors Public oversight committee Remuneration committee Audit committee  To oversee governance & financial reporting of public organisations  Independent of management  Free from any business dealings with organisation  Appointed only on specific terms  Reasonable payment to attract & retain top executive talent  Payments to executives in line with performance of organisation  Compliance with all legal and regulatory requirements  Overall integrity of organisation’s financial statements Best practice in effective corporate governance

16 Social responsibility & needs of stakeholders To be paid a fair wage To have a hospitable work environment To be treated fairly Internal stakeholders External stakeholders Connected stakeholders Ethical dealings with them No unfair and illegal practices To improve the quality of life for their constituents Customers Employees Local community / Government  pay their fair share of taxes and  sponsor activities that will either better the condition of society Social responisbility & needs of stakeholders

17 Social & environmental responsibilities of business organisations Social responsibilities Environmental responsibilities Promoting corporate social responsibilities Giving something back to the society Engaging in activities for betterment of the society No polluting / damaging the environment Preservation for future generations E.g.: a pharmaceutical company sponsoring a cancer research programme conducted by a university E.g.: resurfacing of land once minerals are extracted by a mining company Continued…

18 RECAP  Separation between ownership and control.  Corporate governance and social responsibility  Best practice in effective corporate governance.  Social responsibility and needs of its stakeholders