Ethical Issues in Corporate Governance and Strategy - Doc
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Added on 2020-10-22
Ethical Issues in Corporate Governance and Strategy - Doc
Added on 2020-10-22
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Corporate Strategy andGovernance
Table of ContentsTitle..................................................................................................................................................1Introduction......................................................................................................................................1Literature Review.............................................................................................................................5Research Methodology....................................................................................................................8METHODOLOGY..........................................................................................................................1CRITICAL REVIEW ......................................................................................................................8RECOMMENDATION AND ACTION PLAN ...........................................................................18CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................21
Title“To analyse ethical issues in corporate governance and strategy. A case study onTESCO”IntroductionOverviewIn the words of Abor, Corporate governance is defined as the system by which companiesare directed and controlled. It is also considered as the way in which corporations are handled bythe boards and officers. It helps in defining the relation between the company and itsenvironment, the social and legal systems in which it is working. This research project is basedon analysis of ethical issues that arise in corporate governance of the company (Amran and et.al., 2014). As in the case of companies they have the directors that are working for developmentof the policies that will help them to achieve the organisational goals. It has now become a buzzin the global business environment to check over the ethics which are followed or not by theorganisation. Business of all sizes are nowadays employing the concept of corporate governanceso that they are able to enhance their work culture and an ethical working will be ensure withinfirm. If the company is following all the legal requirements and corporate ethics than it will beeasy for them to work efficiently and smoothly. Management should work in a way that it wouldcreate an ethical working condition for both the employees at the lower level as well asemployees at the higher level. Background Organisations in 21st century are facing exciting and dynamic challenges. For thecompany to be globally successful they have to make strategic policies so that they can becomestrategically competitive. In the present scenario, it is very important for the businessorganisations to build and create a policy to sustain in the market and to gain the competitiveadvantage in the global business (Bender, 2013). Management while involved in operatingactivities of the company, they should also create a level of ethics that should be bind all theemployees to follow rules and regulations and work in ethical manner. TESCO is British Multinational Groceries and retail store. This is third largestorganisation in world in terms of their revenues. This organisation is established in 1919 andhave head quarter in London, England UK. This association served in different parts of world1
such as Czech Republic, Malaysia, Thailand, Ireland, etc. The aim of the corporate strategicgovernance is to enhance the ethical structure so that the company is able to operate its businesssmoothly. Review of problem facedInsider trading has become one of the main ethical issue for the management. Trading onthe basis of insider information is one of the main problem as it impacts the main duty ofmanagement to protect the interest of shareholders. Various strategies should be formed by thecompanies to protect that unethical issue of insider trading and restrict it. For analysing theeffectiveness of ethical issues in corporate governance, TESCO has been taken intoconsideration which is a UK based company that operates its business in retail industry. It wasfounded in the year 1919. SignificanceIn this research module the learner of the research would be able to identify the level ofunderstanding that will help them to know the ethical issues that arise in corporate governanceand impact of it if not followed by employees. Insider trading is selling and buying of stocks,bonds and securities from a company with the implication of non public confidential informationwhich would impact on its price (Castañer and Kavadis, 2013). It is unethical action done by theinsider because its is unfair for stockholders and investors as a whole. As ethic in corporategovernance is one the main issue for every organisation in today's world and without this theorganisation cannot survive. It is the system of rules and practices that helps the organisation todirect the operations of the employees and control them. AimsTo analyse ethical issue of Insider trading that arise in corporate governance andvarious ways to deal with this issue – A case study on TESCO. Objectives The objectives of this research proposal are:To study the concept of insider trading and its drawbacks.To determine the impact of insider trading on growth and sustainability of TESCO.To assess how corporate governance helps in dealing with insider trading. To determine the relationship between the issue of insider trading and growth of TESCOQuestions2
The question that the reader of the researcher would be able to answer are:What is insider trading and what are its drawbacks?How does insider trading impact on the growth and sustainability of TESCO?How corporate governance helps in dealing with insider trading?What is the relationship between insider trading and growth of TESCO?Literature ReviewCorporate governance is a set of customs, policies, laws and processes affecting the waya corporation is directed and controlled (Donaldson, 2012.). It is a system of rules and practicesby which a company directs and control the employees and different department of theorganisation. It involves making the balance between the interest of companies shareholders andits stakeholders. It provides the company framework to attain the overall objectives of theorganisation. It encourages the trustworthy model in the ethical environment of the organisation.In this context there are some factors that unfavourable in identifying sources of a relationbetween corporate governance and insider trading. However some challenges in analysing theeffects of corporate governance on insider trading enables organisation to short out potentialinsider transactions from trades which were not based on personal information. But in practicalterms corporate governance it is hard to find potential insider transactions and trading incorporate stock by corporate insiders is unavoidable, particularly at organisation that employequity as major source.Insider trading and its drawbacks: As per the point of view of Filatotchev and Nakajima, (2014), Insider trading is the wordwhich can be defined in various ways and has illegal implications. It is defined as the buying andselling of a security by someone who has access to material non public information about thecontracts that are to be made in future which would impact the performance of the company as awhole. This action of the insider is considered to be ethically immoral since they affects otherunfairly. Its drawback is, by having the information which other people don't have will impactnegatively on company and its brand loyalty as well. It is analysed that ownership structure is asignificant determinant in firms objectives, increasing the wealth of shareholders andopportunistic behaviour. The board of directors is the first and foremost body responsible forgoverning the affairs of a corporation as directors has a running duty to look after the interest of3
the shareholders. The culture of all the companies should consist the reflection of the objectiveswhich should be a part of the mission statement.Although some theories have argued that company's existing control structure includingcorporate governance, is not effect for preventing managers from enjoying self- interest at a costto stockholders. A single case of insider trading causes negative and dangerous situations forconcerned activities. In insider trading process at a certain point when the prices reach atsatisfactory level then insiders along with his small group of people sells the stocks and makeprofits, such act resulting in huge losses for the public investors and company. Illegal insidertrading is considered unfavourable for both investors and market. Illegal insider trading showsthat there is no positive factors and there is no positive demand and supply of stocks, all otherfactors have negative effects on a healthy capital market.Impact of insider trading on growth and sustainability:According to the Formentini and Taticchi, (2016) insider trading is considered as themain issue and the person who have information about the decisions that are made for the futuresustainability of the business can impact its growth in destructive way. Misappropriation theory of Insider trading:According to the Goel et. al., (2012) misappropriation theory mainly concerned withfactors that arise due to fraud done by using insider information or vital sensitive information intrading to gain undue advantages. In countries all across the world, person who is guiltyaccording to the misappropriation theory will likely be convicted of insider trading.Misappropriation theory is different from the classical theory of insider trading as In case ofclassical theory, a person who is not involved in insider trading but knowledge of material non-public information and used this information in trading, is not deemed to be guilty of insidertrading. The classical theory emphasises on the person accused of insider trading be an actualinsider, such as an officer or employee of the company whose securities is traded. However inmisappropriation theory, the outsider or insider who is directly or indirectly engaged in activitiesof insider trading or providing access to non public price sensitive information is deemed to beguilty of offence under insider trading. Misappropriation theory is proposed with intends tosafeguard securities markets from outsiders who have access to non public and price sensitiveinformation but who do not owe a financial duty to the organisation or stakeholders. This theorystates that individual who misappropriates information from employer and use this information4
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