Finance Ethics & Governance: Case Studies of WorldCom & Unilever

This essay provides a comprehensive overview of business ethics and corporate governance in the context of modern finance. It begins by defining business ethics and its importance, highlighting concepts like corporate social responsibility and ethical theories such as virtue ethics and deontology. The essay then discusses corporate governance, emphasizing its role in aligning business practices with stakeholder interests and preventing corporate failures, using the WorldCom scandal as a prime example of ethical and governance breakdown. Furthermore, the essay analyzes Unilever's corporate governance structure, referencing stewardship and agency theories to explain the company's approach to management and accountability. The document also references Unilever's commitment to ethical conduct and its established Code of Business Principles. The essay concludes by underscoring the significance of ethical behavior and robust governance frameworks in ensuring long-term success and stakeholder value in the financial sector.

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Question 1
Business ethics refers to the morals and ethical principles, which are applied in the business
environment, for the problems raised under it. These relate to the study of proper policies and
practices of business, which guide the manner in which the businesses behave. Through business
ethics, the difference between right and wrong conduct is made (Minus, 2013). The businesses
are scrutinized in order to provide constructive criticism regarding the practices and the rules of
the business organizations. The modern day business ethics can be analysed through the concepts
like corporate social responsibility, which require the businesses to be responsible towards the
stakeholders while earning profits. In use of such concepts, the obligations of the business
towards the stakeholders can be determined, which further helps in clarifying the stance of
business ethics (Shaw, 2013).
The businesses are therefore required to follow certain ethical theories and the themes of such
theories, in order to conduct the business in an ethical manner. Virtue ethics provide the
businesses with the learning of upholding virtues like honesty and integrity in their conduct
(Winter, 2011). The deontological ethics require the business to act in a way which is guided by
the universal principles. There are at times, ethical theories which contrast each other,
particularly the deontological ethics where the action is judged, in comparison to the
consequentialist theories like utilitarianism, where the end results are judged for the actions
(Bykvist, 2010). The business should thus adopt a single approach in all their roles, and follow
the spirit of these theories, in place of finding loopholes and taking advantage of those (Ferrell,
Fraedrich and Ferrell, 2016).

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Corporate governance is a crucial concept which is aligned in the modern day business ethics.
This is due to the fact that corporate governance helps the businesses in working towards the
interests of the stakeholders. Corporate governance allows the stakeholders to exercise control on
the corporate managers and in providing direction to the company (Larcker and Tayan, 2015).
Corporate governance can be explained through both narrow and broad perspectives. From the
narrow viewpoint, it relates to the relations between the directors, corporate managers and the
different stakeholders. From a broader viewpoint, it involves a combination of the listing rules,
regulations and laws, generating profit, performing efficiently, meeting the legal and social
expectations, and voluntary practices allowing the company to attract capital (Gregory and
Simms, 2005).
There have been a number of blunders in the recent history which have led to the increased focus
on business ethics and corporate governance. These blunders show, that the failure in upholding
business ethics and corporate governance, results in corporate failures (Plessis, Hargovan and
Bagaric, 2018). WorldCom is amongst the leading examples which are given to show the failures
in upholding business ethics by the ones responsible to run the business of the company (Ashraf,
2011). The main player in the WorldCom fiasco was CEO Bernie Ebbers. From the outside, it
looked like the company was being led by a strong leader. The reality was that the company was
fraudulently reporting its profits as $3 billion, where the truth was that the company had incurred
a half a billion loss (Scharff, 2005). The investigations showed that the assets of the company
had been inflated by $11 million, which resulted in investors losing $180 billion and loss of
30,000 jobs. This led to Ebbers being fired ad sentenced for fraud, and the Sarbanes-Oxley Act

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being passed to ensure that the businesses followed governance principles (Accounting Degree,
2018).
The reason why WorldCom happened was that Ebbers was focused on his personal profits and in
showing that the company was in healthy position to continue investments from the investors. He
failed to uphold the virtue of honesty and let his greed guide his actions. He did not care of the
consequences of his actions, which not only proved costly for him, for the different stakeholders
of the company, including the employees and investors. Even the actions undertaken by him,
whereby he asked his subordinates to falsify the accounts shows the unethical aspect of his
leadership. In terms of the corporate governance principles, he failed to work towards the
protection of the interests of the stakeholders and instead focused on showing an unfair position
of the company which was against the interests of the company’s stakeholders. He falsely
portrayed that the business was a healthy one in order to continue the business. There was an
utter disregard of the interest of stakeholders with unethical practices being adopted. Due to
these reasons, Ebbers not only failed in terms of upholding business ethics but also failed in the
corporate governance principles.
Question 2(a)
The board of Unilever is given the ultimate responsibility regarding the long term success,
performance, direction, general affairs and the management of the business in its entirety. There
is a one-tier board, where the same people hold the board. The responsibility of directors is
collective for NV and PLC owing to their roles as non-executive and executive directors. The
majority directors have supervisory role and are non-executive directors (Unilever, 2016). Owing
to the one tier board system of the company, the company is governed by a single corporate body

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which undertakes both of the monitoring and management functions. This is the reason why the
board of directors of Unilever not only perform the management functions but also undertake the
supervisory role. As is the case with one-tier system, the majority of board of Unilever consists
of independent members (Szánthó, 2012). The working of Unilever is aligned with the
stewardship theory. This theory provides that the directors of the company are the stewards of
the assets of such company and that the directors are predisposed to act in the best interest of the
shareholders (Tricker, 2015). Unilever works in the best interest of its shareholders and conducts
such business which proves beneficial for them.
Another interesting aspect of Unilever is the delegation of operational running of the company to
the CEO of the company, save for the matters which have been reserved for the board of
directors. The responsibility of the CEO is towards the boards and they can delegate their
discretions and powers to the members of the company, who in turn report to the CEO (Unilever,
2016). This aspect of Unilever aligns the company to the agency theory. The reason for this
stems from the fact that the principal delegates the work to the agent (Tricker, 2015). Here, the
CEO is the principle who delegates the work to others. Again, the CEO is the agent of the board
of directors. Thus, for the actions undertaken by the agents, the CEO and the Board is held liable.
This helps in bringing accountability to the acts undertaken by the subordinates or the agents,
and also helps in holding the individuals responsible for the undertaken acts. So, to uphold the
principles of corporate governance or the breach of those, the agency concept under the
corporate governance proves to be of assistance for the company.

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Question 2(b)
Unilever has recognized the significance of good behaviour and corporate governance. As a
result of this, the company has put forth a Code of Business Principles which represents the
standard of conduct which is expected to be met by the employees of the company in their
business endeavours. In order to give details on the corporate governance arrangements of the
company, a document has been put forth by the Unilever Group, i.e., “The Governance of
Unilever” (Unilever, 2018). This document provides the details of the different committees and
of what is expected from them. The boards adopt this document as their statement of procedures
and practices to be followed by the employees, officers and members of the company. For
instance, the details on the tenure, limitations, independence and the like, of the directors are
included in this document (Unilever, 2015).
The roles and responsibilities of the CEO, chairman and vice chairman are clearly provided,
along with that of the corporate officers. The board meets on regular intervals and in order to
uphold the independence requirements under the concept of corporate governance, there is a
majority of non executive directors (Unilever, 2015). The company keeps its corporate
governance arrangements on constant basis through reviews, along with the compliance with the
drafted requirements as had been detailed in the corporate governance document of the company,
and in the annual report of the company. The business of the conduct is based on the globally
accepted principles of good governance and of the best practice. It is ensured by the company
that they comply with the requirements of corporate governance as are applicable based on the
nation in which they operate. In order to have a similarity in its operations across the group, both
the NV and the PLC part of the Unilever group are managed by same directors, follow same

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accounting principles and the dividends are paid to the shareholders on equalized basis
(Unilever, 2018).

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