Magazine article Risk Management

Beyond Corporate Scandal Headlines. (Risk Reporter)

Magazine article Risk Management

Beyond Corporate Scandal Headlines. (Risk Reporter)

Article excerpt

"To be ethical is profitable; but to be ethical because it is profitable is not ethical." These words of philosopher and consultant Peter Koestenbaum, Ph.D., were reiterated at a June conference of business ethics produced by The Conference Board. In a session dubbed the "parade of horribles portion of the program," the discussion revolved around whether recent corporate scandals would force change for the positive.

"Out of bad can come good," said Simon Webley, research director of the Institute of Business Ethics in London. He pointed to previous "ripple effects" from past corporate disasters. Out of the Union Carbide Bophal disaster came corporate responsibility for the actions of associates; out of Exxon Valdez came responsibility for environmental damage; from incidents at Nike and Motorola came responsibility for the supply chain, although this is still working itself out.

"What will come of Enron?" Webley asked. "To come is a permanent change in how large organizations are governed and how they are held responsible--that their license to operate can be withdrawn."

But Webley is not entirely confident in the path of current governance practice reforms. Specifically, he criticized section 406 of the Sarbanes-Oxley Act, which for the first time gives a procedure for companies to waive clauses in their code of conduct. "To waive this for the benefit of a few people is absolutely detrimental," he said.

But signs that change for the positive can occur are already dawning in the United Kingdom, where about ten years ago, following a rash of corporate scandals, private companies set up committees to create uniformity in codes that were drafted to determine corporate governance rules. In late May of this year, stockholders of the United Kingdom-based GlaxoSmithKline voted down pay packages for senior executives. Although it was not a binding vote, it sent a strong message, according to Webley, that the "fat cat syndrome" will be closely examined because stakeholders are disgusted by what they see as corporate cultures that "reward failure."

Improvements are also being made on the other side of the Atlantic, according Wayne Carlin, regional director for the Northeast Regional Office of the U.S. Securities and Exchange Commission. He emphasized that the corporate system is not entirely corrupt. "Most people who are senior officers in this country are honest," he said. "Unfortunately in my line of work, I don't get to meet many of those people."

Carlin outlined some of the actions that the SEC has taken in the past year, including those that may not have made headlines, but do mark important trends in governance regulation. …

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