Corporate Governance and Its Relation to Business Ethics in Case of BHP Billiton and Australian Corporate Governance Report

Executive Summary

The concept of business ethics should be incorporated into the principles of corporate governance in order to optimise the social responsibilities, risks, and strategies aimed at gaining profit.

• Ethical principles should be of primary importance for corporations due to their direct relation to the corporate governance strategies.
• Ethical training can save up to 3 percent of the company’s costs that are usually lost due to frauds.
• Corporate governance redesigns responsibilities and prevents frauds and negligence.

Introduction

Corporate governance has become a fundamental factor of corporate structure in decade business. Corporate governance established because fraud was happening in companies. In this respect, adequate governance can be used to prevent frauds and make the environment corresponding to the ethical standards established for contemporary organisations.

Define corporate governance and look at its relationship with business ethics is the primary purpose of this report. Besides, it is necessary to explain why ethics is important in developing corporate governance running. Finally, this paper is aimed at evaluating BHP Billiton corporate governance strategies.

Corporate governance and its relation to business ethics

Corporate governance

The number of concepts relevant to business operation, management, business ethics and corporate governance is large due to the differences in attitude and definition of those categories and identification of factors influential for those categories.

In this respect, the concept of corporate governance can be defined as including the interests of the organisation and resources that should be adjusted to one another and result in making profit and adequate assignment of resources. “It deals with the rights and responsibilities of an organisation’s board, its management, shareholders and other stakeholders and requires balancing their interests with the economic goals of the organisation as well as the interests of society as a whole” (Bonn and Fisher 2005, p. 730).

In this respect, the definition of corporate governance explains the goals of this concept meaning that all goals, expectations, and interests of a society, a company, and an individual should be taken into account. Moreover, it is necessary to set out a priority concerning the interests and goals that should be achieved taking into account all parties concerned.

Corporate governance is a strategy aimed at alignment of shareholders’, employees’, company’s, and society’s interests. Business ethics concern health, safety, and environment as factors that ensure that society and employees have no claims related to poor governance and shift in responsibilities that occurs as a result of poor governance that prevents people from receiving compensations or having healthy working conditions.

So, it is useful to incorporate principles of corporate governance suggested by ASX Corporate Governance Council of 2010 such as identification and appointment of positions and roles within the company to ensure that the same person is not obtaining the position of a chair and a chief executive officer (ASX Corporate Governance Council 2010, pp. 10-23).

Besides, an independent status of each manager can add value to the corporate governance ensuring that all interests are taken into account while all goals are achieved. As corporate governance can contribute to the success of the business, it should be exercised to the full capacity though the public opinion claims about the responsibility arising from corporate governance and a failure to take into account the human factor while producing plans and strategies for organisational changes.

Business ethics

The concept of business ethics should be incorporated by companies to the extent of the environment and company’s culture to ensure that all principles and rules of this phenomenon are followed; “many organizations are indeed making genuine efforts to develop cultures of ethics” (Bauer 2009, p. 19). However, some companies exercise the policy which includes the ethics departments and ethics officers that fail to promote the principles of business ethics so that employees and managerial observed the rules.

Implementation of business ethics principles can save up to 3 percent of the company’s costs due to reduction of fraud losses achieved by means of ethics trainings; “consider that a corporate ethics program could save a firm 2 percent to 3 percent annually based on the above two studies” (Bauer 2009, p. 21). So, not only frauds are reduced with the help of implementation of ethics as this concept includes human safety and other principles combining human factor and organisational policies.

Social responsibility standards and ethical norms including obedience to the law are expected from corporations assuming that they act in order to make some profit. “…organisations can address concerns about corporate social responsibility and, particularly, business ethics in their corporate governance structures, and [how] they can encourage high standards of ethical behaviour throughout their organisations” (Bonn & Fisher 2005, p 731).

In other words, current situation shows that sometimes companies fail to implement corporate governance principles bringing no harm to the production process, human safety, and other aspects that are usually interesting for public claimers.

Relationship between corporate governance and business ethics

The relation between ethics in business and corporate governance is obvious in the current situation when public searches for someone to blame in case of certain difficulties and discrepancies.

In this respect, the ASX Corporate Governance Council suggests companies to implement the principles of business ethics into the process of decision-making. “To make ethical and responsible decisions, companies should not only comply with their legal obligations, but should also consider the reasonable expectations of their stakeholders…” (ASX Corporate Governance Council 2010, p. 22).

Business ethics makes it difficult for the company to ignore the human safety and social responsibility because various organisations analyse and evaluate the performance of companies in terms of ethical decision-making and social responsibility.

In other words, one of the recommendations suggested concerns the opportunity to increase the level of ethical decisions in companies was that the corporations should “clarify the standards of ethical behaviour required of the board, senior executives and all employees and encourage the observance of those standards” (ASX Corporate Governance Council 2010, p. 22).

Evaluation of BHP Billiton companies

Optimisation of opportunities and reduction of risks can be considered the primary goals for the BHP Billiton Group as stipulated in their annual report (2010) whereas shareholders remain the main focus because all decisions and solutions are adjusted to the needs of shareholders (HBP Billiton 2010, pp. 10-14). So, the long-term shareholder values are developed through creation of high-quality corporate governance within the company’s structure.

The steps for attaining the ethical standards incorporated to the BHR Billiton governance include integrity of employees inside the company and respect for others, culture of ethical norms established in society, and personal integrity of every particular co-worker. “…we have committed to the highest level of governance and strive to foster a culture that values and rewards exemplary ethical standards, personal and corporate integrity and respect for others” (HBP Billiton 2010, p. 129).

In this respect, the company managed to incorporate the basic principles of corporate governance suggested by ASX Corporate Governance Council (2010).

As a rule, the ethical standards concern the risk management, health and safety aspects, optimisation of the board membership, engagement of shareholders, redesign of role and responsibilities among directors in the board, and other changes that are sure to contribute to the company’s success and ethical principles’ incorporation in future.

For instance, the engagement and roles of shareholders towards the members of the board were defined as following: the results of regular investor meetings were reported directly to chairman who reported those to the board whereas the results of these meetings were also reported to CEO and CFO who report those to the board.

“The Board’s role is to represent the shareholders and it is accountable to them for creating and delivering value through the effective governance of the business” (HBP Billiton 2010, p. 130). On the other hand, the results of the annual general meetings are reported to the board directly.

Conclusion

Summary of the information used in the report

The relations between corporate governance and business ethics are defined with the help of strategies aimed at engagement of employees in ethics training and establishment of ethics culture within an organisation to maximise the effect of corporate governance.

In other words, both concepts are used to increase the productivity, improve the culture and environment, and enhance the exercising of ethical practices to make sure that all parties concerned are aligned. Frauds and inadequate engagement of shareholders can result in decrease of productivity and loss of positions in the market hence loss of profit for the company.

The corporate governance is a method for shifting and optimising the responsibilities and roles assigned within the organisation. Business ethics is the concept that ensures that all parties concerned have equal rights and responsibilities in case of certain difficulties or problems. Frauds and unethical decision-making practices made negative contribution to the strategies of corporate governance.

However, it is adequate corporate governance that can eliminate the threat of frauds and other instances of unethical behaviour in the company. In this respect, the HBP Billiton Group that include a group of companies that deal with oil and gas development, can be considered one of the most successful in terms of ethical practices incorporated with the help of corporate governance strategies.

Recommendations

The companies that suffer from unethical behaviour of employees and experience losses with regard to costs can implement the following recommendations in terms of corporate governance and ethics training:

• Follow the example of the HBP Billiton who managed to reorganise the appointment and responsibilities of the board members and executive directors.
• Provide all staff members with ethics training opportunities thus enabling them to acquire information about advantages of ethical behaviour for individuals and company contrasted to drawbacks and penalties for unethical behaviour.
• Monitor and evaluate the business ethics standards established in a company with regard to the level of frauds, shifts of roles and responsibilities, and corporate culture.

References

ASX Corporate Governance Council. (2010). Corporate governance principles and recommendations with 2010 amendments. 2nd edition. Sydney: Australian Securities Exchange.

Bauer, Christopher. (2009). Baking ethics into company culture. Financial executive, pp. 19-21. Web.

Bonn, Ingrid, and Fisher, Josie. (2005). Corporate governance and business ethics: insights from the strategic planning experience. Corporate Governance, November, 13(6), pp. 730-737.

HBP Billiton. (2010). Our strategy delivers, Annual report 2010. Melbourne, Australia.