By MICHAEL J. SEGON                                                                                                                                   
                                                                                                                                                      
MANY people view corporate governance as a means by which                                                                                             
organisations can ensure their activities do not put at risk a                                                                                        
key feature of business, that of reputation.                                                                                                          
                                                                                                                                                      
Much of the literature addressing corporate governance focuses                                                                                        
on the duties and responsibilities of company directors, members                                                                                      
of company boards and those of the senior executives of                                                                                               
organisations.                                                                                                                                        
                                                                                                                                                      
This literature also tends to be around the appropriate                                                                                               
financial structures and reporting mechanisms that need to be in                                                                                      
place to ensure good decision-making and to minimise the                                                                                              
occurrence of damaging behaviour such as fraud and corruption.                                                                                        
                                                                                                                                                      
There can be no doubt as to the need for organisations, and in                                                                                        
particular the senior executives and directors of organisations,                                                                                      
to take these duties and responsibilities seriously. However,                                                                                         
solely financial or accounting based approaches to governance                                                                                         
are a limited and incomplete approach.                                                                                                                
                                                                                                                                                      
Organisations need to recognise that the financial and                                                                                                
legalistic framework of corporate governance is in fact                                                                                               
underpinned by ethics and morality.                                                                                                                   
                                                                                                                                                      
Every society codifies minimum moral standards as basic laws. It                                                                                      
is the duty of every citizen to abide by those laws whether they                                                                                      
refer to restrictions of civil liberty for the betterment of the                                                                                      
common good, such as the imposition of speed limits on highways,                                                                                      
or the duty of citizens to pay taxes for the provision of basic                                                                                       
services.                                                                                                                                             
                                                                                                                                                      
In the case of organisations, they are not a person in the true                                                                                       
sense, yet society has conferred upon them the right to be seen                                                                                       
as a legal person. With this privilege also comes responsibility                                                                                      
to be a good corporate citizen.                                                                                                                       
                                                                                                                                                      
Organisations, unlike people, are not conscious entities in the                                                                                       
same way that people are.                                                                                                                             
                                                                                                                                                      
Individuals within organisations are, in fact, limited in their                                                                                       
ability to make decisions to only those that advance the                                                                                              
interests of the organisation. This concept is known as agency.                                                                                       
Once employed by an organisation, an individual becomes its                                                                                           
agent and must make decisions consistent with its interests.                                                                                          
                                                                                                                                                      
Unfortunately, individuals sometimes misunderstand this                                                                                               
important concept and may make decisions that appear to advance                                                                                       
organisational goals in the short term, but undermine its duty                                                                                        
to society by breaking laws or putting individuals in society at                                                                                      
risk through unsafe work practices, products or services.                                                                                             
                                                                                                                                                      
These decisions – such as reducing costs, increasing profit,                                                                                          
firing workers, cutting safety inspections or obtaining sales or                                                                                      
contracts through corrupt practices – are often made in the                                                                                           
belief that they advance organisational interest. In reality,                                                                                         
these practices jeopardise the very basis of business activity,                                                                                       
that of trust. Trust, in turn, is based on acting with                                                                                                
integrity.                                                                                                                                            
                                                                                                                                                      
Governance structures primarily address issues associated with                                                                                        
financial reporting and following legal requirements. This can                                                                                        
be seen as the minimum moral duty of any citizen, that is, to                                                                                         
follow the law.                                                                                                                                       
                                                                                                                                                      
However, simple legal compliance does not necessarily result in                                                                                       
integrity. Organisations need to examine their relationship with                                                                                      
a range of stakeholders in society and to truly act as a good                                                                                         
corporate citizen by contributing to and advancing the common                                                                                         
good.                                                                                                                                                 
                                                                                                                                                      
In addition, it cannot rely on an assumption that all of its                                                                                          
employees or agents will automatically know what is the right                                                                                         
thing to do. Organisations need to devise strategies that                                                                                             
encourage appropriate internal behaviour. These strategies are                                                                                        
most often referred to as organisational ethical systems. A                                                                                           
common feature of such systems is the development of a code of                                                                                        
ethics and code of conduct.                                                                                                                           
                                                                                                                                                      
Unfortunately, many organisations make the mistake of assuming                                                                                        
that simply publishing a code of ethics is all that needs to be                                                                                       
done.                                                                                                                                                 
                                                                                                                                                      
Research conducted by the Centre of the Business Ethics at                                                                                            
Bentley College in Massachusetts, along with similar research                                                                                         
conducted in Australia and Europe by various ethics centres,                                                                                          
find that many organisations do not approach the issue of                                                                                             
developing a culture that fosters integrity, to the same extent                                                                                       
as planning marketing and advertising campaigns or expenditures                                                                                       
on new technology.                                                                                                                                    
                                                                                                                                                      
Moreover, the research shows that many organisations introduce                                                                                        
incomplete ethical systems, often failing to communicate ethical                                                                                      
standards, to train people in ethical decision-making and to                                                                                          
adequately reinforce desired behaviours through appropriate                                                                                           
reward systems.                                                                                                                                       
                                                                                                                                                      
Such partial strategies are rarely successful and only serve to                                                                                       
raise the cynicism so often found when discussing the issue of                                                                                        
business ethics.                                                                                                                                      
                                                                                                                                                      
The establishment of a holistic approach to governance needs to                                                                                       
include systems that identify not just legal and financial                                                                                            
reporting requirements but also the ethical duties of                                                                                                 
organisations. These must be developed within the organisation                                                                                        
and reinforced through appropriate communication and training                                                                                         
strategies.                                                                                                                                           
                                                                                                                                                      
A substantial body of research into governance and integrity                                                                                          
systems exists and is available to organisations as an aid in                                                                                         
establishing world’s best practice approaches.                                                                                                        
                                                                                                                                                      
It is the responsibility of managers, and in particular of                                                                                            
senior managers, to be aware of this research and its importance                                                                                      
as a strategy of enhancing organisational reputation.                                                                                                 
                                                                                                                                                      
Educational programmes, in particular business courses such as                                                                                        
the MBA, need to focus on these concepts in the same way that                                                                                         
they address the functional areas of business; that of                                                                                                
marketing, finance, accounting and strategy.                                                                                                          
                                                                                                                                                      
Without such knowledge, managers and employees are likely to                                                                                          
repeat the mistakes of the past, break laws, and engage in                                                                                            
corrupt practices, thereby exposing companies to unacceptable                                                                                         
risk.                                                                                                                                                 
                                                                                                                                                      
Being a good corporate citizen, being socially responsible,                                                                                           
acting with integrity and good corporate governance must be part                                                                                      
of a holistic strategy.