Ethics and Governance: Governance in Globalised Environment

This paper evaluates the charges against Walmart in light of the applicable directors’ duties and responsibilities, ethical principles and the relevance of the corporate social responsibility of the business organisations.

ETHICS AND GOVERNANCE

Agenda Item: Governance in globalised environment
Paper Type: Board Paper for discussion
Sponsor:
Draft Resolution: For the review of the issues, directors’ responsibilities’, challenges and the
recommendations in the implementation of governance framework in the enterprise.
Executive Summary: The following paper introduces the issue of the ethics and governance
in the management of the corporates with the aid of the case study of one the most renowned
organisations and retail giant, Walmart Inc. The paper evaluates the charges against the
company in light of the applicable directors’ duties and responsibilities, ethical principles and
the relevance of the corporate social responsibility of the business organisations.
Background:
The proposal has been raised to the directors of the company through the following board
paper to present the issue of the Walmart agreeing to pay hefty amount for the settlement of
the overseas corruption allegation. The objective of the following board paper is to highlight
the analysis of the issue, significance of the director duties in the corporates, the
recommendations on the issue and the barriers therein.
Issue and implications:
Ethics is a significant concept not just in the context of the individual lives but for the
conduct of the businesses as well. This is because; the ethical principles guide the businesses
to be considerate of the interests of the varied groups of the stakeholders (Elms et.al, 2010).
One of the most renowned organisations Walmart was in news in context of the ignorance of
the proper anti-corruption procedures in the wake of the international expansions. As per the
reports, the company had issues with the anti-corruption programs in the various countries
such as Mexico, Brazil, and China, through its foreign subsidiaries (Merle, 2019). Recently,
the company agreed to settle the criminal and federal charges by the payment of $ 282
million to the Justice Department and the Securities and Exchange Commission. The
corruption charges included the company executives bribing the foreign officials for the help
in the businesses. Hence, it can be rightly stated that the company focussed more on the
international growth and cost cutting rather than the compliances of the applicable laws and
regulations. Thus, not only the Walmart officials were aware of the discrepancies, but also
they failed to act as per the documents.

The analysis of the above issue in the light of the duties of the directors of the corporation is
conducted as follows. The chief reason behind the said issues of corruption and scandal is the
violation of the director’s fiduciary duties by the Walmart’s directors. In Australian context,
the matters of the corporate administration and the duties of the directors. It is known that the
chief duties of the directors are mentioned in section 180 to 183 of the Corporations Act,
2001 (Cth) (Legal Services Commission, 2019). The said general duties of the directors
ensure that the corporates are managed legitimately on the behalf of the shareholders and
other stakeholders. The general duties of the directors state that the directors of the company
must exercise their duties and power in good faith and with due care and diligence. In
addition, it has been stated that they should not improperly use their positions to gain an
unfair advantage over others. Hence, it can be rightly stated that the duties of the directors
have been prescribed in light of the fiduciary relationship of the directors and the corporate.
Thus, it is the responsibility of the board of the directors of a corporation to manage the
affairs and take the decisions of the corporate in the capacity of the agents and in the best
interests (AICD, 2019). In addition to the general duties of the directors, the yet another duty
of the director is to oversee the maintenance of the books and records of the entity and the
compliance with the rules and regulations.
On the analysis of the case of the Walmart in light of the directors’ duties, it can be stated that
the directors of Walmart failed to act in the interests of the shareholders. In addition, the
matter was hidden for almost six years. The said decisions were made in the personal
interests of the directors during the year 2000 to 2011, where the certain third-party
intermediaries were paid certain amount without extending the reasonable assurances that
such transactions were consistent with the prohibition that was made against improper
payments to government officials, or consistent with the stated purpose. In addition to the
above mentioned the directors of the company, on learning about the risks of the corruption,
failed to take the sufficient steps for the investigation of the allegations and the mitigation of
the risks. This is explained as follows. As per the reports of the Mexico Subsidiary Lawyer,
there were deficiency in the internal accounting controls, and the recommendations were
made for the additional procedures of the internal accounting records apart from those
existing. Those recommendations were not addressed by the implementation of the sufficient
anti-corruption related internal accounting controls until the year 2011 (SEC, 2019). Yet
another irregularity in the functioning of the company was identified in the form of breach of
the Section 13(b)(2)(A), Section 12 and the Section 15(d) of the Exchange Act which

required the maintenance of the keep books, records, and accounts comprehensively in detail
for the issuers of the securities. In addition, such documents must lead to the fair reflection of
the transactions and dispositions of their assets. Thus, the directors did not fully comply with
the duties of maintenance of proper records and efficient internal accounting controls. Thus,
various legal principles of the US Exchange Act were violated.
The application of the various ethical principles to the given scenario must be noted
additionally as elaborated follows for the attention of the board of directors. It is imperative
to understand the effect of the organisational forces on the individual morality, judgement,
and behaviour on the decision making of the management of the entities. Jones and Ryan
(1998), the agents or the directors of the company must take following four steps in the
ethical decision-making, namely the recognition, judgement, intent, and behaviour. The work
also points out that the organisational forces play a key role in the influence on each of the
above-mentioned steps in ethical decision-making. In addition to the above mentioned, it is
imperative to note that the leaders, who possess the greater cognitive skills, would indulge
into moral actions on behalf of the enterprise. Yet another factor that plays a critical role in
the moral decision-making is the moral approbation that refers to the desire of the agents of
the company to be seen as moral with the desire to set example in the corporate world. Thus,
the discussions conducted in the above segment, lead to the conclusion that when the agents
have a strong sense of the leadership, it not only sends the message in the corporate world but
also leads to moral decision makings in the various aspects of business functions in the
entities.
The yet another feature of the efficient business functioning in light of the issue of the
Walmart and the corruption charges is the significance of the corporate social responsibility.
Corporate social responsibility of an enterprise refers to the framework within which an
entity must function which is comprised of the legal rules as well as the ethical principles
(Du, Bhattacharya and Sen, 2010). According to Scherer and Palazzo (2011), there has been a
considerable expansion in the ambit of the CSR activities of the present globalized
organisations, and the societal responsibilities form the part of the business activities due to
the long term values attached to the same. The authors additionally pointed out the challenges
faced in the global governance by the virtue of the MNC structure of the present entities.
Some of the features of the modern globalization approaches are that voluntary CSR
approaches are encouraged. In addition, the CSR activities are viewed as more of an approach
to achieve the social connectedness, instead of a business liability. Thus, the business

organisations are not only benefitted with a sound base of the customers, employees, supply
chain partners and others, but also an overall improvement in community is achieved by the
implementation of the varied CSR programmes.
One of the yet another ethical principles that are significant to pay the attention is principle of
the ethical relativism. The ethical relativism denotes the doctrine, which states that that
morality is relative to the norms as set by a particular culture (Vitell, Ramos and Nishihara,
2010). The doctrine states that whether an action is right or wrong is dependent on the moral
norms of the society in which the same are carried on. Thus, a same action in which is
morally wrong in one community may be morally right in another. The ethical relativists hold
the view that there are no universal moral standards that can be applied to each individual or
organisation (Dion, 2010). Thus, the proponents of the ethical relativism hold the view that
there exists no common framework for the resolution of the moral disputes or for reaching
agreement on ethical matters among the players from the different communities. However,
the same cannot be stated as true in the case of the role of the directors. This is because not
matter where a corporate is established, the role of the directors is equivalent to the agents of
the company and same must act in the fiduciary relationship (Trevino and Nelson, 2011). In
addition, as per the discussions about the morality and role of leadership, the role of the
global governance and the significance of the CSR activities, it can be stated that the role of
the directors is empirical in achieving the good governance in the entities.
Challenges and Recommendations:
However, there may arise certain challenges in the path of achievement of the sound
governance structures, such as the conflict of interest of the directors, lack of resources in
terms of financial resources, and volunteers, diversity and accountability issues, and others
(Loewenstein, 2013). Thus, in order to curb the above mentioned challenged and to achieve
an overall good governance in the enterprise, the board of the directors are recommended to
implement the following steps as suggested below. It is imperative for the management of
the enterprises to design and implement of code of ethics not only for the employees and
other members of the entity, but for the directors as well. The same must clearly set out the
statutory duties as per the applicable legal frameworks, but also the ethical responsibilities of
being the agents of the companies. In addition, there must be implemented enhanced levels of
transparency in the business transactions and the addressing the issues of non-compliances of
any legal frameworks if any. Further, it is suggested to separate the duties of the Chief

Executive Officer and Chairman of the Board of Directors. The said step will ensure that
there is sound vigilance of the company board of directors as well. Further, the accountability
responsibilities must be exercised fairly by monitoring of the risks of the business and
addressing them timely with due disclosures.
The discussions conducted in the previous parts aid to conclude that good governance is one
of the key requisites of the functioning of the present business entities. The case study of the
Walmart and the foreign corruption charges aided to understand the significance of the role of
the directors in an entity in fiduciary capacity. In addition, the role of the CSR and the moral
leadership are evaluated to further support the sound governance argument. Thus, it can be
stated that ethical relativism cannot be practiced as far as the roles and responsibilities of the
directors are concerned. The recommendations are suggested to promote the sound
governance framework in the entity.

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