Business Ethics and Corporate Governance

484 Pages·2011·3.727 MB·English

by  Michael Hodgins, Philip Shrives

A Pearson Custom Publication
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Compiled by
Michael Hodgins and Philip Shrives
Northumbria University
Business Ethics
and Corporate Governance
We work with leading authors to develop the strongest
educational materials bringing cutting-edge thinking and best
learning practice to a global market.
Under a range of well-known imprints, including Financial
Times/Prentice Hall, Addison Wesley and Longman, we craft
high quality print and electronic publications which help
readers to understand and apply their content, whether
studying or at work.
Pearson Custom Publishing enables our customers to
access a wide and expanding range of market-leading
content from world-renowned authors and develop their own
tailor-made book. You choose the content that meets your
needs and Pearson Custom Publishing produces a high-quality
printed book.
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www.pearsoncustom.co.uk
A Pearson Custom Publication
Business Ethics
and Corporate Governance
Compiled from:
Business Ethics and Values: Financial Management:
Individual, Corporate Core Concepts
and International Perspectives by Raymond M. Brooks
Third Edition
by Colin Fisher and Alan Lovell Corporate Financial Management
Fourth Edition
Organizational Theory, Design, by Glen Arnold
and Change
Sixth Edition Fundamentals of Corporate Finance:
by Gareth R. Jones International Financial Reporting
Standards Edition
Managing Values and Beliefs by Jonathan Berk, Peter DeMarzo
in Organisations and Jarrad Harford
by Tom McEwan
Corporate Governance
Ethics: Theory and Practice Third Edition
Tenth Edition by Kenneth A. Kim, John R. Nofsinger
by Jacques P. Thiroux and and Derek J. Mohr
Keith W. Krasemann
Economic Approaches to
Ethical Theory and Business Organizations
Eighth Edition Fourth Edition
by Tom L. Beauchamp, by Sytse Douma and Hein Schreuder
Norman E. Bowie and Denis G. Arnold
Pearson Education Limited Fundamentals of Corporate Finance: International Financial
Edinburgh Gate Reporting Standards Edition
Harlow by Jonathan Berk, Peter DeMarzo and Jarrad Harford
Essex CM20 2JE ISBN 978 0 201 74159 9
Copyright © 2009 Pearson Education, Inc.
And associated companies throughout the world
Corporate Governance Third Edition
Visit us on the World Wide Web at: by Kenneth A. Kim, John R. Nofsinger and Derek J. Mohr
www.pearsoned.co.uk ISBN 978 0 13 609698 6
Copyright © 2010, 2007, 2004 Pearson Education, Inc.,
First published 2011
publishing as Prentice Hall
This Custom Book Edition © 2011 Published by Pearson
Education Limited Economic Approaches to Organizations Fourth Edition
by Sytse Douma and Hein Schreuder
Compiled from: ISBN 978 0 273 68197 4
Copyright © Prentice Hall Europe 1991, 1998
Business Ethics and Values: Individual, Corporate Copyright © Pearson Education Limited 2002, 2008
and International Perspectives
Third Edition All rights reserved. No part of this publication may be reproduced,
by Colin Fisher and Alan Lovell stored in a retrieval system, or transmitted in any form or by any
ISBN 978 0 273 71616 7 means, electronic,
Copyright © Pearson Education Limited 2003, 2009 mechanical, photocopying, recording or otherwise, without either
the prior
Organizational Theory, Design, and Change Sixth Edition written permission of the publisher or a licence permitting
by Gareth R. Jones restricted copying in the United Kingdom issued by the Copyright
ISBN 978 0 13 608731 1 Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London
Copyright © 2010, 2007, 2004, 2001 by Pearson EC1N 8TS.
Education, Inc., Upper Saddle River, New Jersey, 07458.
ISBN 978 1 84959 994 8
Managing Values and Beliefs in Organisations
by Tom McEwan Printed and bound in Great Britain by Henry Ling Limited at the
ISBN 978 0 273 64340 1 Dorset Press, Dorchester, DT1 1HD
Copyright © Pearson Education Limited 2001
Ethics: Theory and Practice Tenth Edition
by Jacques P. Thiroux and Keith W. Krasemann
ISBN 978 0 2056 7236 3
Copyright © 2009, 2007, 2004, 2001, 1998 by Pearson
Education, Inc., Upper Saddle River, New Jersey, 07458.
Ethical Theory and Business Eighth Edition
by Tom L. Beauchamp, Norman E. Bowie and
Denis G. Arnold
ISBN 978 0 13 208003 3
Copyright ©2009, 2004, 2001, 1997, 1993, 1988 by Pearson
Education, Inc., Upper Saddle River, New Jersey, 07458.
Financial Management: Core Concepts
by Raymnond M. Brooks
ISBN 978 0 321 15517 7
Copyright © 2010 Pearson Education, Inc.
Corporate Financial Management Fourth Edition
by Glen Arnold
ISBN 978 0 273 71041 7
Copyright © Financial Times Professional Limited 1998
Copyright © Pearson Education Limited 2002, 2005, 2008
Contents
Introduction
vii
CHAPTER 1 Perspectives on business ethics and values 1
CHAPTER 2 Decision making, learning, knowledge management, and
information technology
7
CHAPTER 3 The integration of corporate social responsibility, business
ethics and corporate governance
32
CHAPTER 4 Moral reasoning and applied ethics 44
CHAPTER 5 Values, beliefs and ideologies 54
CHAPTER 6 Organisational culture and stakeholder theory 77
CHAPTER 7 Corporate social performance, ethical leadership and
reputation management
93
CHAPTER 8 Consequentialist (teleological) theories of morality 115
CHAPTER 9 Nonconsequentialist (deontological) theories of morality 134
CHAPTER 10 Virtue Ethics 151
CHAPTER 11 Lying, cheating, breaking promises, and stealing 170
CHAPTER 12 Ethical theory and business practice 191
CHAPTER 13 The purpose of the corporation 231
CHAPTER 14 Corporate governance and business ethics 237
CHAPTER 15 The financial world 240
CHAPTER 16 Corporate finance and the financial management 261
CHAPTER 17 Executive incentives 271
CHAPTER 18 Accountants and auditors 284
CHAPTER 19 The board of directors 298
CHAPTER 20 Investment banks and securities analysts 313
CHAPTER 21 Creditors and credit rating agencies 330
CHAPTER 22 Shareholders and shareholder activism 346
CHAPTER 23 Corporate takeovers: a governance mechanism? 363
CHAPTER 24 Organizations 377
CHAPTER 25 Mergers and acquisitions 394
CHAPTER 26 Hybrid forms 425
CHAPTER 27 Corporate governance 437
Introduction
The rationale of the book
This custom book has been tailored for students interested in the fields of
Business Ethics and Corporate Governance. It consists of the most useful
parts of ten source books in both fields.
Why should ethics and governance belong together, in one book or in
one module of study? Adam Smith, who was a moral philosopher and an
economist, provides the basis of a reply to this question: specialisation. None
of us need perform the whole of any task alone. We can get partners to do this
and that, while we get on with something else. Specialisation (‘division of
labour’) is the source of economic efficiency, as Smith showed in his famous
illustration of the division of labour in a pin-factory: it magnifies productivity
by a factor of thousands. However, it creates dependency between partners.
Mutual dependency is not always symmetrical: I may need you more than you
need me.
This creates opportunities for opportunists. Those whose specialised
work is difficult to understand, who are difficult to replace and who can
easily abandon us to join forces with other partners can readily take advantage
of us by insisting on a greater share of any extra productivity. Or they can
threaten to do so. There would be no ethical or governance problems if none
of us depended on such people. Specialisation appears at the operational
level, on the factory-floor. It also appears in the appointment of directors by
the owners of a business so that they do not have to manage it themselves.
Owners often do want to get on with something else. There would be no
governance problems if owners did not depend on directors to refrain from
the temptation to take advantage.
The components of the book
A custom book is like a costume, specially made. A tailored costume fits.
Therefore, much of the material in most of the source books has been omitted.
Something not explained effectively in one source book has been replaced by
a better explanation elsewhere. However, there is repetition wherever it was
decided that a different approach to a repeated theme would be useful. The
concept of the ‘stakeholder’ is one such theme. So are mergers and takeovers.
The selection from Fisher and Lovell introduces us to the usefulness
of story-telling. Your studies will make you familiar with stories, nowadays
viii Business Ethics and Corporate Governance
called cases, which highlight good, bad and often ridiculous behaviour. We
hope that you will develop a keen sense of what is sometimes tragic and
sometimes comic in the deeds of important and powerful people.
The selection from Jones outlines how the aspiration to act rationally
may sometimes go badly wrong because of cognitive failings, not necessarily
because of moral weakness.
McEwan develops, in the context of personal moral development,
some of the work done by Jones. He also shows, in his history of capitalism,
predatory and benign, how arguments in business ethics and corporate gov-
ernance overlap. He shows how scholars have argued about stakeholders, and
about corporate purposes and responsibilities. He describes the ideologies,
including religious and cultural perspectives, that prompt such arguments.
Finally, his discussion of performance, leadership and reputation connects
these arguments with recent events and theory.
Thiroux and Krasemann explain three traditions: consequentialist ethics,
non-consequentialist ethics and virtue ethics, the latter with some reference
to ancient Asian as well as ancient European moral philosophers. Their
chapter on lying, cheating, breaking promises and stealing is instructive. They
identify some convergence between the three traditions but also show how
irreconcilably they differ: consequentialism emphasises the outcome of deeds
and misdeeds, and that it is outcomes that matter; non-consequentialism
stresses that it is not any outcome we prefer that matters, but how we achieve
it; virtue ethics highlights the habits and character we must cultivate to avoid
folly and vice.
For technical work on ethics by professional philosophers, specifically
aimed at students of business, a selection is taken from Beauchamp, Bowie
and Arnold. They cover much the same ground in moral philosophy as Thiroux
and Krasemann but to have alternative or complementary explanations of
ethical ideas that are not always very straightforward is a good thing. It is
good to shop around.
The brief selections from Brooks, Arnold and Berk et al. serve as
appetisers for the part of the book devoted to corporate governance. Brooks
reminds us of its relationship with ethical behaviour and stakeholder inter-
ests; Arnold argues that it is problematic to identify corporate purpose with
any single or simple maximand, like shareholder wealth; Berk et al. succinctly
provide us with definitions of types of business and of terms indispensable to
an understanding of the world of shareholders.
The book by Kim et al., unlike others in the collection, is included
almost in its entirety. It focuses on the USA but deals very efficiently with
concepts and problems of generic interest. Its arguments are transferable
outside the USA. Kim et al. describe the many parties to supervisory con-
versations that occur in any corporate governance community: auditors,
directors, analysts, creditors, ratings agencies and shareholders. The chapter
on takeovers and mergers explores the non-supervisory discipline imposed on
companies by stock markets and some of the tricks directors may devise to
avoid punishment.
Finally, the selections from Douma and Schreuder supply reflections
on corporate governance (including mergers and acquisitions – M&A – in the
market for corporate control, the stock market) worldwide. They deal with the
nuts and bolts of M&A, particularly with due diligence processes.
Equally important, they explain that specialisation gives rise to a
problem of coordination; that coordination means getting those who are
mutually dependent to do what is required of them; that coordination can
Introduction ix
be achieved in markets or in hierarchies or by some combination of those
two alternatives. There is a market for corporate control, where disciplinary
takeovers or the threat of them, hanging like the sword of Damocles, are
imposed on entrenched managers; and there are hierarchical arrangements
whereby, ideally, non-executive directors or supervisory boards supervise
executive directors and persons with decision making responsibilities (PDMR);
and, as well as these methods of aligning directors conduct with the interests
of stakeholders, there is training, there are rules, there are norms, there are
targets and there is the perpetual babble of mutual adjustment that goes on
informally between members of the corporate governance community.
Our job is to understand the difficulties humans encounter when they
try, if they try, to align their own (let’s face it) often selfish aims with the
interests and rights of others, be they shareholders or stakeholders of any other
variety. Please read good newspapers, daily. They are the morning prayer of
the modern world, full of fascinating gossip about ethics and governance.
Michael Hodgins