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MAAC 507 APPLIED CORPORATE GOVERNANCE

GROUP 4
NAME

REGISTRATION NUMBER

DANISTER JORI

M157230

ANDY CHIYANGWA

M122251

ANDREW JORI

M157232

DADIRAYI GONYORA

M101937

PERTUNIA DHLIWAYO

M101742

LEORNARD JERE

M101686

ARTWELL BATIRAI

M159862

GURAI PEPUKAI
LECTURER:

RTD COL. NHEMACHENA

BUSINESS ETHICS
Question: You are the directors of Doing Good Consultants and
you have been asked to present a paper on Business Ethics at a
business forum. With reference to a case of your own choice,
prepare and deliver a presentation that demonstrates the
negative impact of unethical behaviour and suggest the
measures that companies in Zimbabwe can take to avoid similar
pitfalls.

INTRODUCTION
Business Ethics definition-

The application of a moral code of


conduct
to
the
strategic
and
operational management of a business
Levels of business ethics

Macro level
Micro level
Individual level

INTRODUCTION (CONT.)
We shall present on the negative impact of unethical
behaviour at three levels, namely:

Company
Society

Economy
And on measures that can be taken to avoid the same
pitfalls

CASE: SIEMENS PLC


A regulatory investigation unearthed a raft of
fraudulent payments in order to win contracts.
Senior executives initially denied knowledge and
involvement although there was overwhelming
evidence of tacit approval of the practice.
The corporate culture seemingly tolerated
payment of bribes.
Four international investigations were instituted
while the company also ordered an internal inquiry
by a New York lawfirm, Debevoise & Plimpton.
Overall, the scandal cost Siemens 2.5bn, including
2bn of fines
Siemens voluntarily suspended its applications for
funding from the World Bank for two years

CASE: SIEMENS PLC (CONT.)


Siemens announced it would avoid competing in
certain known hotspots for corruption or unethical
practice, such as Sudan
It also agreed to a 15-year programme to pay $100m
to non-profit organisations fighting corruption
The firm was also barred from dealings with certain
clients
The firms employees also suffered two years of shame
under intense public scrutiny
The firm took over 900 internal disciplinary actions,
including dismissals.
Siemens rolled out strict new rules and anticorruption/compliance processes and hired over 500
full-time compliance officers (up from just 86 in 2006).

IMPACT OF UNETHICAL
PRACTICE TO COMPANY
Public Danger and Loss of Goodwill

Siemens lost the trust of the market and had to suspend


its applications for funding to the World Bank

Legal scandals/ litigation risk

In addition to the initial regulatory investigation and its


own internal inquiry, four international investigations were
carried out on Siemens. The company paid 2.5 billion in
fines and other costs.

IMPACT OF UNETHICAL PRACTICE


TO COMPANY (CONT.)
Recklessness

Unethical practices promote recklessness by employees and


the company at large. It was revealed at Siemens that
hundreds of workers siphoned off millions of Euros into
"phoney consultants' contracts, false bills and shell firms" to
pay massive bribes to win contracts.

Loss of stakeholder trust and difficult to win back


the lost trust

Siemens lost the trust of many of its stakeholders among them


the regulators, shareholders and investors and financiers
upon revelation of the scandals. A huge price had to be
paid to win back stakeholder trust. One leading group of
shareholders questioned the Board's basic competence for
its handling of the affair.

IMPACT OF UNETHICAL PRACTICE


TO COMPANY (CONT.)
Being unethical undermines competitiveness

Siemens had to voluntarily suspend its operations in some


markets and were barred from dealing with certain clients.

Poor Discipline

Siemens had to contend with 900 disciplinary cases including


dismissals whilst amnesty was extended to others.

Negative shareholder wealth as a result increasing


monitoring costs

Siemens increased its compliance staff from 26 to 500


including hiring a former Interpol officer. A lot of money was
also spent on massive anti-corruption training in the
organisation.

IMPACT OF UNETHICAL PRACTICE


TO COMPANY (CONT.)
Poor credit rating

The suspension of Siemens applications for funding to the


World Bank together with negative publicity could
significantly affect its credit rating on the capital markets.

Lead to a drop in stock price

A fall in Siemens profits due to increased costs as well as


lost business would inadvertently result in a fall in the
stock price

Employee Performance / Morale.

The scandal brought shame and humiliation to the


employees and this could have affected employee
performance and morale.

TO THE SOCIETY
Insufficient Community Development

Siemens could have used the money it was using for bribing
to improve the communities it was operating in.

Environmental degradation

Using bribes to secure contracts could result in bribing of


environmental authorities again so as to avoid remedial
actions for the degradation

Harm the people who used to depend on the company in


cases where it fails and closes

Individuals and companies who took Siemens as a role


model suffered and also the potential beneficiaries in the
markets it considered hotspot for corruption were denied
service

TO THE ECONOMY
Reduces economic growth

Siemens increased its compliance staff from 26 to 500


including hiring a former Interpol officer. A lot of money
was also spent on massive anti-corruption training in the
organisation and withdrawal of funds application.

Creates unemployment when the company fails and


closes

To the dismissed employees and potential employees


from hindered growth

Hinders potential growth

Accessing of funds from the World Bank could have


enhanced company growth beneficial to the economy

MEASURES TO BE TAKEN TO
AVOID SIMILAR PITFALLS
Develop, communicate and implement a code of ethics
Siemens had no one and their system seemed to support
unethical behavior

Quantify reputational and other ethical risks.


Siemens did not quantify the risks and only realized the
resultant loss after the scandal

Embed business in business models, organisational


strategy and decision making processes.
Siemens aggressive growth strategy has arguably,
compelled managers to see bribes as a tempting short-cut
to hitting tough performance targets; a complex, matrix-like
structure that allowed divisions to effectively run themselves,
and poor accounting processes.

MEASURES TO BE TAKEN TO
AVOID SIMILAR PITFALLS (CONT.)
There should be a process of reporting unethical activities
such as the whistle blower policy
When Peter Lscher took over he put in place the amnesty
and whistle blower policies which resulted in more evidence
be supplied

Carrot and stick method.


There should be a reward for good ethical behavior and
penalty for bad ethical behavior.
Dismissals Siemens

Senior managers and business leaders must be


exemplary in ethical approach.
Loscher led by example in Siemens to the extend that they
believed they have won the war against corruption

MEASURES TO BE TAKEN TO
AVOID SIMILAR PITFALLS (CONT.)
Allow independent individuals and organisations
review the companys operations.
Siemens appointed Michael Hershman, co-founder
of Transparency International, to serve as its adviser a
move to affiliate itself with a leading anti-corruption
expert

Governance structures should include people with


appropriate skills to scrutinise performance and
strategy across social, ethical and environmental
issues.
Siemens had no one conscious of the ethical issues until
the scandal was unearthed

MEASURES TO BE TAKEN TO
AVOID SIMILAR PITFALLS (CONT.)
Managers must not be short sighted to look short run
cost cutting measures at the expense of the long run.
Chasing short run growth targets might have contributed
to the scandals in Siemens

Taking social, environmental and ethical factors into


account when allocating capital, so that sustainable
innovation is encouraged.

CONCLUSION
Unethical behaviour is very costly in the long term and
can lead to business failure
Structural, procedural and cultural interventions should
be adopted to instill ethical behavior in organisations.

Voluntary penance is often necessary for effectively


restoring trust.

THANK YOU