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Wednesday, August 24, 2005

Ethics means more than ticking boxes

Corporate governance codes have proliferated and business ethics is a fast-growing industry. But has corporate behaviour changed? The scandals just keep coming: Citigroup, AIG, Volkswagen and SK Corp have all had to defend themselves against allegations of ethical misconduct in recent months. Meanwhile, boardroom pay and golden goodbyes continue to escalate far beyond any corresponding improvement in corporate performance. The actors may have learnt their cues better, but they appear to have lost the plot. Why is this? And what can and should be done about the serious ethical shortcomings in finance and business?

In an environment where much boardroom pay is in the form of equity or stock options, most scandals today involve cooking the books to keep the share price up. Add in the fact that chief executives are under greater pressure than ever before from fund managers and analysts to “hit the numbers” and you have the nub of the problem. Incentive structures in the boardroom and below, and the business strategies of the consultants, all push in a direction that is at odds with ethical behaviour and, it should be said, long-run corporate performance. Ordinary financial market participants and business people feel penalised, not supported, for raising ethical questions.

posted by Brian Moran @ 8:39 AM   0 comments


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