ACC696 Week 4 Discussion Post 13 | ACC 696 - Situational Ethics in Accounting

135) A credit union has to adhere to regulations set forth by NCUA (National Credit Union Association), the federal government, and policy’s set forth by their board of directors. These are managed by using internal controls along with policies and procedures to monitor the credit unions activities. Credit Unions are examined/audited by not only CPAs but also by regulators, NCUA. My credit union was audited by outside CPA examiners once a year, monthly by a supervisory committee who would audit different aspects of the credit union each month, and every 12 to 18 months NCUA would do an extensive audit of the credit union to make sure we were following regulations and internal policies. In credit unions corporate governance is very important. As an employee you have access to very sensitive/private financial information that you are supposed to always protect. We had in place policies to help prevent unethical behaviour, for example, all employees had to take 5 business days in a row of vacation at least once a year. The theory was in those 5 days, someone else had to do your job and it would be possible to detect any wrongdoing by the employee on vacation. Sometimes in other credit unions this policy has been effective and has caught employees committing fraud. In my four years in zinc mining, I have experienced a lot of turnover within our company. However, one thing our company is committed to is safety. Every meeting between managers and/or mining personnel always begins with a safety share to bring awareness to a recent hazard somewhere from another minesite or close call within our own operations as a way to keep information fresh within our daily tasks. I have never heard a pressure within management, supervisors, or other experienced miners for individuals to cut corners with regards to safety measures as a way to cut costs or increase production. We are also constantly reminded that not only do we have the ability to speak up as employees (even the Finance department members like me) if we see an employee or contractor do something unsafe, we are expected to do so. It is better to make someone mad because for calling them out as opposed to just being a bystander and allowing someone to put themselves or others in harms way. For any company's ethical culture to be an asset, it has to begin with the upper management. Individuals making the rules have to be willing to set the example for the rules to have any positive effect. If the standard operating procedure is regarded as "red tape that slows down production," then it becomes very clear where the company's priorities lie. Secondly, these policies have to be communicated to everyone in the company and there has to be consequences within the company for not adhering to these policies. If the workers do not know the right way to do things as part of the company's desired culture, then the ethical culture is going to be poor. If there is nothing in place to keep people from deviating from the correct behavior, then it will not yield a good ethical culture either. Even our governing body, the Mine Safety and Health Administration (MSHA) will tell miners that issues within the company should be taken to their internal supervisor and/or the Safety Department before involving MSHA, as they are much more effective at keeping safe by setting a strong ethical culture of safety than MSHA can do by merely writing citations. Obviously, serious infractions should involve reporting to MSHA, but if the situation has risen to that level, it is usually the result of poor culture within the company. Corporate governance refers to the set of procedures, rules, and practices that guides the functioning of a company. It focuses on the structure, operations, as well as control of a company. Corporate governance aims to meet the long-term strategic goals of the business, take care of the employee interests, and contribute significantly to the local community. The main purpose of corporate governance is to add value to the company (Garzón, 2021). According to the stakeholder and agency theories, one of the essential components of good governance is accountability. Accountability refers to the act of taking responsibility for a certain action and owning the decisions (Corporate governance | diligent insights. Corporate governance, 2021). It involves providing explanations about the different decisions and activities taken by people in the company to the important stakeholders. The effect that accountability has on the ethical climate of the organization is that it helps in avoiding the risk of false blames. It creates a culture of transparency within the company and helps in preventing potential misunderstandings. Fairness is another essential component of good governance in a company. It ensures that all the stakeholders, vendors, employees, as well as the community as a whole are treated equally by the board of directors of the company. Fairness also has a significant impact on the ethical climate of the organization. It ensures optimum satisfaction of all the stakeholders and eliminates the chances of partiality or special treatment for any of the stakeholders. I feel transparency is also one of the most important components of good governance in a company. It involves providing clear, accurate, and timely information about different business operations to important stakeholders. Transparency also positively affects the ethical climate of the organization. It allows the company to continue operating in an ethical manner. As all the important information about the company is clearly disclosed, it minimizes the risk of unethical practices by any stakeholders in the organization. Corporate governance creates the practices and rules that provide guidance as to the manner in which the organizations should operate. It aligns the stakeholder interests, promotes ethical business practices, and ensures financial viability. It helps in maintaining a healthy relationship between the company and the important stakeholders.

Stakeholders, Economic and Agency Theory:

The stakeholder theory states that businesses exist to create value for all parties directly involved, like employees, customers, suppliers, investors, and communities. Managers are responsible to all who have a stake in the success or failure of the business. Freeman’s version of this theory is one of the most recognized. It recognizes that every business decision affects all stakeholders, benefiting some and imposing costs on others. The managers must recognize their ethical duty to shareholders but also acknowledge that other ethical responsibilities to other stakeholders have equal value (Mintz & Morris, 2020). The economic theory believes that companies must do the financial functions designed to help the profit increase, placing shareholders at the center and expecting managers to focus on serving the shareholders. Under this theory, managers’ responsibility is to increase profit. This theory recognizes that any decision that doesn’t involve fraud or deception is ethical, and the other stakeholders must work with the primary purpose of fulfilling the owner’s interest (Mintz & Morris, 2020). Under the agent theory, one party (owners) employs another (management) when the first party thinks this will result in value creation. The owners expect it to create value for them in the future. One of the problems with this theory in corporate governance is the possible resulting behavior of CEOs. CEOs seek to increase their utility at the expense of an organization by withholding effort or improving their compensation through self-dealing or honest incompetence. The CEO could conceal selfish actions at the organization’s cost (Bosse D.A. & Phillips, R.A. 2016). Analysis of corporate governance under the stakeholder, economic, and Agency theories: The main corporate governance components I have experienced are accountability and fairness, which ensures the management’s responsibilities to shareholders and other stakeholders. I am lucky to share that I have mostly worked for companies that follow the stakeholder theory of corporate governance that focus on creating value for all the stakeholders involved. For example, in most of the companies I have worked for, management’s primary focus has been to increase profit but always taking into consideration employees by evaluating the amount of work that is expected from each employee in a fair matter and allowing employees opportunity for growth within the company. Only on one occasion in my career as an accountant, I experienced the economic/agency theory, where all the focus was on creating profit for the shareholders at the employees' costs. Employees had a ridiculous amount of work assigned that kept increasing, they were not valued for the work performed, and had minimal growth opportunities. This place showed me the importance of adequate corporate governance because it directly affects the company's ethical climate. Treating people equally and fair is a moral/ethical value that must be cultivated as a component of corporate governance. The lack of it causes management to abuse employees by overworking them to achieve expected profits. Corporate governance is a system; it is not a job title or a specific role. It is a system that guides the conduct of the people within an organization, as well as the direction of the organization itself. Corporate governance is altogether different from the daily operational decisions and activities that are executed by the management of an organization. Corporate governance is the domain of the Board of Directors, as opposed to its management team (Peterdy 2022). If the company is under a poor corporate governance, it will loss the shareholders’ confidence and trust, difficult to raise capital, and so on. Therefore, a good corporate governance is necessary for every company. A healthy corporate governance function requires a clear and formal division of responsibilities between management and the board of directors. Corporate governance covers areas such as environmental awareness, ethical behavior, corporate strategy, compensation, and risk management. d Its basic principles are accountability, transparency, fairness, responsibility, and risk management. Changing market dynamics and economic realities put pressure on the corporate governance functions of organizations. Some components of corporate governance that I believe are essential and important in a professional environment. First, the board of directors plays an important role in company. Therefore, the most effective boards should have most independent directors who are able to oversee the company's management and independent committees for the benefit of shareholders. d Second auditors should be independent, and most of their income should come from audit activities, not consulting services. d Accounting issues should be handled in a transparent manner, complete and detailed information and reports should always be available to the board (Forsythe 2018). Third, companies need to take reasonable account of proxy voting and shareholder influence. Shareholders must have the ability to use their vote to send a message to the board. While corporate governance plays a key role in corporate development, ethical responsibility is playing an increasingly influential role. Ethical liability occurs when companies violate stakeholder expectations for ethical behavior, putting business values at risk. These two forms of responsibility are increasingly converging, as companies are subject to both legal and public opinion oversight - often more direct and pointed (Clarke). d

Reference:

Mintz, Steven M. & Morris Roselyn E. Ethical Obligations and Decision Making in Accounting. Mcgraw Hill Education (5th edition) Peterdy, Kyle. d August 16, 2022. Corporate Governance https://corporatefinanceinstitute.com/resources/knowledge/other/corporate- governance/Forsythe, Aimee B. July 24, 2018. Six Essential Elements of Effective Corporate Governance https://www.cambridgetrust.com/insights/investing-economy/six-essential-elements-of- effective-corporate-gove Clarke, Thomas. Ethics, Value and Corporate Governance. https://www.bbvaopenmind.com/en/articles/ethics-values-and-corporate-governance/ Mintz, S., & Morris, R. (2020). Ethical obligations and decision making in accounting (5th ed.). McGraw-Hill Education, New York, NY Bosse D.A. & Phillips R. A. (2016). Agency Theory and Bounded Self-interest. Academy of Management Review 2016, Vol. 41, (2), p. 276–297. https://gmdconsulting.eu/nykerk/wp- Corporate governance | diligent insights. Corporate governance. (2021). Retrieved September 14, 2022, from https://www.diligent.com/insights/corporate-governance/ Garzón Castrillón, M. A. (2021). The concept of corporate governance. Mintz, S. and Morris, R. 2020 Ethical Obligations and Decision Making in Accounting Fifth Edition The Investopedia Team. 2021. Agency Theory vs. Stakeholder Theory: What’s the Difference? Agency Theory vs. Stakeholder Theory: What's the Difference? (investopedia.com) Chen, J. (2022, August 18). What Is Corporate Governance? Retrieved from Investopedia: https://www.investopedia.com/terms/c/corporategovernance.asp Price, N. J. (2019, November 8). The Stakeholder Model of Corporate Governance. Retrieved from Diligent: https://www.diligent.com/insights/shareholder-engagement/stakeholder- model-corporate-governance/ Mintz, S., & Morris, R. (2020). Ethical Obligations and Decision Making in Accounting (5th ed.). McGraw Hill. Stakeholdertheory.org. 2022. About | Stakeholder Theory. [online] Available at: <http://stakeholdertheory.org/about/#:~:text=Stakeholder%20Theory%20is%20a%20view,all %20stakeholders%2C%20not%20just%20shareholders.> [Accessed 16 September 2022].