What Must Be Done to Improve Ethics in Finance and Corporate Governance?

1 January 2017

Corporate governance can be referred to the rules, processes, or laws by which businesses are operated, regulated and controlled. It can also refer to internal factors defined by the officers, stockholders or constitution of a corporation. After finding the meaning of Corporate governance, which can also be referred to corporate responsibility, I thought about the policies in which the company I work for have. I work for Northrop Grumman, which is one of the leaders in global security.

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My company does strive to remain committed to maintaining the highest of ethical standards, embracing diversity and becoming an ideal corporate citizen ,taking responsibility for the quality , delivering customer satisfaction, demonstrating leadership as a company, acting with integrity, valuing people, and regarding our suppliers as essential team members. A lot of training programs and ethics training must be completed every year in order to have access to computer systems. They have strict policies on which business associates are to conduct business.

So there are a lot of regulations on not sacrificing integrity to achieve business objectives. The goal is to abide by the highest principles and integrity and concern for others. With the reputation Northrop Grumman has, they strive on doing what is right, so respect and support is gained. Corporate governance has received a lot of attention because of the scandals involving abuse of corporate power, alleged criminal activity and unethical or illegal acts on the name of the company. Corporate governance matters because there is a level of confidence that is associated with a company that is known to have a good reputation.

Having the presence of a directors and board members contributes a great deal towards ensuring confidence the market. Since Northrop Grumman works in the US and internationally, investors are depending on this information, to know whether to invest in them or not. Having corporate governance makes it easier for companies to source capital at more reasonable costs. When you think about corporate governance and the scandals that come to mind is Enron. This turned out to be scan in which Enron lied about its profits, shady dealings and concealing debts.

A lot of regulations came down from the government regarding corporate responsibility and regulations. Big businesses had a lot of freedom to do what they wanted to do. Directors, Shareholders, and Presidents of companies needed to take another look at how their businesses were being run. What needs to change and what needs to be implemented so this doesn’t happen to us? The Securities and Exchange Commission voted on three measures that are intended to better inform and empower investors to improve corporate governance and help restore investor confidence.

The Commission proposed requiring public companies receiving money from the Troubled Asset Relief Program (TARP) to provide a shareholder vote on executive pay in their proxy solicitations . The Commission also voted to propose better disclosure of executive compensation at public companies in their proxy statements, and approved a New York Stock Exchange rule change to prohibit brokers from voting proxies in corporate elections without instructions from their customers.

Congress passed the Sarbanes-Oxley Act of 2002 (SOX) in an effort to protect U. S. capital markets and millions of American shareholders. SOX promote accountability and transparency in corporations. It also has a few provisions that enhance the effectiveness of corporate directors, in-house and outside counsel, and internal and external auditors. Some ways that the SEC can enforce these compliance regulations is to develop an inspection program to review corporation’s financial statement and accounting practices.

Shareholders should be given a greater role in voting, through nominations, election of individual candidates instead of slates, and majority instead of plurality decisions. The board’s compensation committee should be required to approve the compensation of all top-tier executives. The board’s audit committee should obtain control over the internal audit function as well as over the outside auditors, including the power to terminate personnel and to approve compensation. Tying ethics to finance isn’t that hard.

Ethics is the moral correctness of specified conduct, the study and practice of appropriate behavior, regardless of the behavior’s legality. Certain industries have professional organizations setting and promoting certain ethical standards. When we look at the banking industry for an example, we are putting our money into in a company, who is supposed to protect it, give us interest on it and possibly advise on making investing decisions. With investing, ethics helps inform the investment decisions of some individuals and companies.

But recently large banking has failed. The U. S. Financial system was rather free and didn’t have many regulations to control greed and fraud. Wrong and risky moves were made and in turn it affected the customer. There are more fees, less interest and failing banks. There are many ethical violations that affect finance but there are ways to improve financial ethics. Improving standards, such as creating a plan. The first step, as should be the case with any initiative, is to create a clear plan that focuses on addressing particular situational needs of the organization.

Each plan should be unique to fit the business, typical activities would include items such as improving the hiring process, clear communication of the ethics policy and codes of conduct, establish a systems of checks and controls to ensure wrong doing is discouraged and discovered in a timely manner, and finally a clear policy and procedure for investigating and handling breeches in ethics appropriate to its level and severity. Finding weak links in the business and once it has been identified; implement steps to improve the ethical environment.

Hold the training classes, circulate the code of conduct annually with each employee signing a statement that they have read it and will comply. Follow the plan for hiring even if it is inconvenient to check references and background. identified by the plan, develop clear policies and procedures for key processes, and then conduct training to ensure all relevant employees understand the expectations of how processes should be carried out. Clear policies and procedures communicated and followed by organizational members is a critical piece of an internal control.

Ethics is a part of the organizational culture, besides developing and executing a plan, the most important way for a business to improve ethics is for the organizational leaders to display the highest degree of ethical behavior in how they conduct business on a day to day basis. In conclusion, ethics in finance and corporate governance go hand in hand. The importance of honesty and integrity plays a critical part in any organization. In my professional career, I have witness both sides of the correct way of conducting business and the incorrect.

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