____________________________________________________________PROFESSIONAL ETHICS ϭϬϬ Inflated compensation for the director o When directors have unfettered discretion over their own compensation, they are highly likely to abuse their authority and overcompensate themselves. o Shareholders express their disapproval towards pay plans that fail to remunerate directors in accordance with clearly defined performance metrics. o The instances involving Royal Dutch Shell, AIG Group, HIH Insurance, and Enron serve as clear illustrations of the phenomenon when top executives, although exhibiting subpar performance, awarded themselves substantial incentives. Excessive corporate risk-taking and a deficiency in risk management o Directors undertake ventures with elevated levels of risk in order to further their personal objectives of attaining fame and influence, consequently jeopardising the assets of shareholders without justifiable cause. o Directors bear the responsibility of instituting risk management and internal control mechanisms aimed at safeguarding the assets and investments of shareholders. Poor communication of information o The timely and accurate dissemination of corporate information by the board of directors to shareholders, upon whom decision-making relies, may be lacking. o The implementation of a transparent communication policy by the board is essential in order to establish efficient channels of communication for shareholders. 5.5 Best practice in effective Corporate Governance Best practises encompass a range of factors linked to boardwork. A comprehensive analysis is necessary to evaluate the attributes and traits of board directors, encompassing their individual dispositions and methodologies in overseeing a company. The concept of governance encompasses a wide range of diverse procedures.In particular, some exemplary practises encompass the cultivation of a proficient board, the harmonisation of strategies with objectives, the assumption of responsibility, the
____________________________________________________________PROFESSIONAL ETHICS ϭϬϭ exhibition of elevated standards of ethics and integrity, the delineation of roles and obligations, and the proficient management of risk. Effective corporate governance practises in still within organisations the strategic vision, operational procedures, and organisational frameworks essential for safeguarding their sustained existence in the long run. Furthermore, it is imperative to provide backing for the promotion of sound corporate citizenship, encompassing a moral dedication within the realms of business strategy, operations, and culture. In the contemporary era of globalisation and interconnectivity, there is a growing acknowledgment among investors, creditors, and other relevant parties that the inclusion of environmental, social, and governance considerations is crucial for the overall performance and enduring viability of a corporation. Hence, it is imperative for boards to fully grasp and integrate these dimensions into their core decision-making processes in order to ensure the successful functioning and sustainable growth of firms. The mitigation of risk, corruption, and mismanagement can be achieved by the adherence to fundamental tenets of corporate governance, including the implementation of robust controls and the cultivation of a corporate culture rooted in ethical conduct and transparency. Board of Directors It is imperative for the organization to possess a proficient board, characterized by a harmonious blend of diverse abilities, extensive experience, impartiality, and specialized knowledge, which convenes at regular intervals. It is imperative for the organization to maintain excellent relationships with its shareholders and other stakeholders. Chairman of the Board and Chief Executive Officer (CEO) It is imperative that the roles of the chairman, who is responsible for providing leadership and ensuring the success of the board, and the chief executive officer, who is tasked with managing the operations of the firm, remain separate and distinct. The purpose of this measure is to ensure that no one possesses an undue amount of authority inside the organizational structure. It is imperative that the appointment of the chairman be conducted in an independent manner. Types of Directors 1. Executive directors Those who are responsible for the day-to-day implementation of management
____________________________________________________________PROFESSIONAL ETHICS ϭϬϮ 2. Non-executive directors (NED) • Those who attend board meetings on a regular basis. • The NED should exert a moderating influence and play a crucial role in minimising conflicts of interest between management and shareholders. • Function of NED: a. Direction-setting strategy b. Performance: management should examine management's performance in achieving aims and objectives. c. Risk management should guarantee robust risk management. • Constituents of NED • A minimum of fifty percent of the board should consist of independent NEDs. • A minor organization should have a minimum of two independent NEDs. • The 'senior independent director' position should be assigned to one of the NEDs. • NEDs should be as 'independent' as feasible and must not: • Have worked for the company for the past five years. • direct or indirect material business interest in the company for the past three years. • Participate in the company's stock options, performance-based remuneration, and pension plans. • have intimate familial ties to company executives and directors • serve as a NED with the same company for more than nine years • possess cross-directorship (i.e., two or more directors sit on the board of the same third-party company) or have substantial ties to other directors through their involvement in other organizations. Functions of Directors Six recommendations have been outlined by the MCCG regarding the functions of directors for effective corporate governance: ¾ Reviewing and adopting the company's strategic plan. ¾ Monitoring the company's operations in order to determine whether the business is being managed effectively. ¾ Identifying key risks and ensuring the integration of an appropriate risk management system ¾ Senior management is appointed, trained, and compensated as part of succession planning. ¾ Developing and implementing a company policy for shareholder communication
____________________________________________________________PROFESSIONAL ETHICS ϭϬϯ ¾ Examining the adequacy and integrity of the company's internal control systems and management information systems, as well as applicable regulations and policies. Remuneration Committee A "remuneration committee" should determine the director's compensation. The committee should include: x Independent Non-Executive Director ( 3 for listed companies and 2 for lesser businesses) x The chairman may serve as a committee member but not as chairman. x The chair must have served on the committee for at least one year. There should be transparent reporting on compensation, how it assists the organization in achieving its strategy and long-term success, and how it aligns with the compensation of the workforce. Due to the fact that large salaries were paid to directors for a number of years (which was viewed as a major corporate abuse), the Greenbury committee in the United Kingdom established guidelines for a sound remuneration policy: x Directors' compensation should be determined by independent board members. x Bonuses, increments, and other forms of compensation relate to measurable performance or increase share value. x Complete disclosure of the director's compensation. Additionally, the committee must consider: x The various tiers of management and leadership x The option for administrators to depart x Individual achievement x Overall organizational effectiveness Audit Committee The responsibility of monitoring and reviewing the financial controls and financial statement integrity of a firm lies with an audit committee consisting of independent non-executive directors. For bigger listed companies, this committee
____________________________________________________________PROFESSIONAL ETHICS ϭϬϰ should comprise a minimum of three members, while for smaller listed companies, a minimum of two members is required. The individuals in question bear the responsibility of engaging in communication with external audit entities, overseeing internal audit activities, and conducting a thorough examination of the yearly financial statements and internal control measures. Due to their responsibilities for supervising and providing an overall review, the audit committee's function is extremely important. They should have a keen interest in the internal audit's task. Furthermore, the organization undertakes a yearly evaluation of the efficacy of risk management and internal controls, subsequently providing a comprehensive report to shareholders regarding any significant controls. The advantages of a competent audit committee, x Enhance the quality of financial reporting by conducting an audit of the financial statements. x Reduce the likelihood of fraud by instituting a culture of discipline and control. x Permit the non-executive to play a positive role by providing an impartial opinion. x Assist the finance director by providing a forum for voicing concerns in otherwise challenging situations. x Enhance the position of the external auditor while providing a communication channel and a forum for concerns. x In the event of a dispute, provide a framework within which the external auditor can assert their independence. x Improve the standing of the internal auditor. x Increase the public's trust and confidence in the financial statements. Responsibilities of an Audit Committee, x Examine the performance and efficiency of the internal auditing function. x Observe the auditor's impartiality and independence. x When a change is required, a shortlist of external audit firms should be compiled. Nomination Committee There should be a nomination committee for appointing board members and making recommendations to the board. It should comprise primarily of independent directors. This ensures that all selections are based on merit and suitability, and that the board is balanced. A nomination committee should be responsible for identifying qualified candidates suitable for board vacancies and recommending their approval to the board.
____________________________________________________________PROFESSIONAL ETHICS ϭϬϱ Public Oversight Board As a recognised stakeholder, it is imperative that the public be informed about the governance structure and practises of a particular organisation. It may be observed that the general public possesses the entitlement to engage in the process of corporate governance. The publication of annual reports and financial statements serves as the most conspicuous method of public scrutiny of company governance. In addition to engaging with various stakeholders, such as media and local politicians, it is preferable for companies to initiate discussions regarding their plans. 5.6 Reporting of Corporate Governance The corporate governance system in Malaysia consists of many legislative enactments and standards. The relevant laws and regulations encompass the Financial Services Act 2013 (FSA 2013), the Malaysian Code on Corporate Governance (MCCG), the Bank Negara Malaysia's (Central Bank of Malaysia) (BNM) Guidelines on Corporate Governance, the Bursa Malaysia's Main Market, Ace Market, and Leap Market Listing Requirements, and the Companies Commission of Malaysia's (CCM) Code of Ethics for Company Directors. 2013 Financial Services Act Financial institutions in Malaysia are required to adhere to the corporate governance framework and internal controls as stipulated by the Financial Services Act 2013 (FSA 2013). According to the Financial Services Act (FSA) of 2013, it is mandated that prior written clearance must be obtained from the Bank Negara Malaysia (BNM) before an individual can assume the position of chairman, director, or chief executive officer (CEO) inside a financial institution. Furthermore, the Bank Negara Malaysia (BNM) is granted the authority by the Financial Services Authority (FSA) to define criteria pertaining to the fitness and propriety of financial institutions.The Bank Negara Malaysia (BNM) has also released Corporate Governance Guidelines that are specifically applicable to financial organisations.
____________________________________________________________PROFESSIONAL ETHICS ϭϬϲ Malaysian Code on Corporate Governance Non listed companies, including state-owned enterprises, small and medium enterprises, and authorised intermediaries, are strongly urged to adopt the practises outlined in the Malaysian Code on Corporate Governance (MCCG) in order to enhance their levels of accountability, transparency, and sustainability. BNM’s Guidelines on Corporate Governance The Guidelines on Corporate Governance issued by the BNM pertain to financial institutions and delineate various aspects, including the principal obligations of the board and senior management, the stipulations for quorum and attendance for board meetings, and matters concerning the membership of the board. It is of utmost importance to note that the regulations specify: x It is imperative that the board consistently maintains a majority of directors that are independent. x The adoption of a written policy by the board is necessary in order to effectively resolve both current and potential conflicts of interest that may arise among directors. x In order for a financial institution to remove an independent director, save in cases where the removal is due to disqualification under the Financial Services Act (FSA), or for an independent director to resign, written consent must be obtained from BNM. Code of Ethics for Corporate Directors The Code of Ethics for Company Directors (Code of Ethics) was introduced by the CCM with the aim of setting a benchmark for corporate responsibility in Malaysia. This code encompasses guidelines pertaining to the competence, professionalism, and trustworthiness expected from directors of companies, with the ultimate goal of upholding strong corporate integrity. o One of the recommendations put forth by the Code of Ethics is that directors should promptly declare any contractual interests, whether direct or indirect, that they may have with the company. o Directors must to refrain from diverting business efforts undertaken by the company or exploiting sensitive information acquired through their position for personal gain. o In any transaction involving the company, directors must always act with the utmost good faith and discharge their duties responsibly.
____________________________________________________________PROFESSIONAL ETHICS ϭϬϳ 5.7 Define Corporate Social Responsibility (CSR) o The topic of corporate social responsibility (CSR) has been a focus of discussion since the 1950s. Nevertheless, it was not until a later period that individuals started to grasp the importance, relevance, and consequences of this phenomenon. o Corporate social responsibility (CSR) is a managerial framework wherein organizations incorporate social and environmental considerations into their business practices and engagements with stakeholders. o Sustainability, often referred to as sustainable development and corporate responsibility, is a well recognized concept. Corporate Social Responsibility (CSR) can be defined as the comprehensive dedication of a corporation to its various stakeholders, encompassing all of its operations, with the aim of attaining sustainable development in the economic, social, and environmental realms. o Stakeholders encompass a diverse range of entities, including employees, consumers, suppliers, community organizations, the environment, subsidiaries and affiliates, local communities, the planet, investors, and shareholders. o The introduction of a Corporate Social Responsibility (CSR) framework for publicly traded firms in Malaysia occurred in the year 2006, as implemented by Bursa Malaysia. According to Bursa Malaysia (2006), Corporate Social Responsibility (CSR) can be defined as "open and transparent business practices based on ethical values and respect for the community, employees, the environment, shareholders, and other stakeholders in order to deliver sustainable value to society at large."
____________________________________________________________PROFESSIONAL ETHICS ϭϬϴ Pyramid of Corporate Social Responsibility Source: https://thecsrjournal.in/understanding-the-four-levels-of-csr •Investment or donations in capital, time, products, services, knowledge. •to create positive impact on local communities. Community •Activities to maintain high standard of recruitment, Workplace development and retention of employees. •Initiatives to conserve the ecosystems and biodiversity •to manage the effect of a firm's operations on the environment Environment •Activities to encourage potential investors and existing shareholders, vendors, customers •to maintain a sustainable manner across the value chain Marketplace
____________________________________________________________PROFESSIONAL ETHICS ϭϬϵ In 1991, Archie Carroll's "Pyramid of Corporate Social Responsibility" provided a definition of CSR in its current form, which led to its widespread adoption. Its simplicity and ability to characterize CSR in four areas have made the pyramid one of the most widely accepted CSR theories for corporations. Carroll's pyramid suggests that corporations have four categories of responsibility: x Economic responsibility – Economic responsibility is the imperative for businesses to generate profits, so enabling owners to obtain a decent rate of return on their investments and employees to receive a wage that sustains their livelihood. x Legal responsibility – Companies have a legal obligation to adhere to all relevant rules and regulations that pertain to their commercial activities. x Ethical responsibility – Ethical responsibility necessitates that enterprises conduct themselves in a morally upright, fair, and impartial manner towards all parties involved. It is imperative for companies to conduct their operations in alignment with society expectations and ethical norms. x Philanthropic responsibility – In the market industry, companies are expected to be philanthropically responsible corporate citizens. Focuses on the contribution of monetary and non-monetary resources to the well-being of the community's citizens. The traditional view of CSR has emphasized philanthropy, which is largely influenced by the CSR Pyramid, which places economic responsibility (to be profitable and create jobs for the community) at the base and philanthropic activity (to contribute to the welfare of humans and spread goodwill) at the top. The most frequently published CSR topics in Malaysia are: x Donations to community organizations and charitable contributions Government-sponsored scholarship programs and activities promoting national pride and activities x Employees volunteer their time. x Promotes ethical workplace practices and provides a secure working environment. x Assurances to prevent pollution x Respond promptly to customer concerns.
____________________________________________________________PROFESSIONAL ETHICS ϭϭϬ x Sponsor the skill development of local adolescents. x Provides safe and high-quality goods x Provides healthcare to the most less fortunate community Accountants play a pivotal role in the mitigation of environmental harm and the prioritisation of social responsibility within strategic frameworks. Individuals in their current circumstances possess a distinctive advantage in instigating significant transformations and assuming a leading role in the advancement of sustainable development. 5.7.1 Importance of corporate social responsibility in organizations According to the conventional perspective, corporate social responsibility (CSR) is believed to yield no tangible advantages for businesses and instead reduces shareholder value by redirecting resources away from core commercial activities. Traditionalists contend that companies ought to be primarily focused on generating profits for their shareholders, asserting that they are not obligated to consider their societal responsibilities. The responsibility for addressing social concerns should primarily rest with governments and charitable organisations, given that firms contribute to the public welfare through tax payments. This conventional viewpoint is losing support among enterprises of all sizes. Modern opinion holds that a coherent CSR strategy can provide business benefits by allowing an organisation to: x observe evolving social expectations x control operational risk or threats x identify the latest market prospects. x retain important personnel. By connecting its core principles with those of the broader society, the company may bolster its standing and secure its sustainability in the long run. The unwavering endeavour to maximise short-term profitability will paradoxically lead to diminished long-term earnings, since customers are likely to disengage from the company if they no longer see a sense of affiliation with it. There exists a considerable body of research supporting the notion that the expenditure on corporate social responsibility (CSR) activities need to be perceived as an investment in an intangible strategic asset, rather than a mere expense.
____________________________________________________________PROFESSIONAL ETHICS ϭϭϭ Other important aspects of CSR include: x It is prudent from a business perspective to operate sustainably. There is a growing awareness among consumers regarding the importance of social responsibility, leading them to actively pursue items from companies that demonstrate ethical practises. x Improved public perception. This is crucial when consumers evaluate the public image of a company before making purchasing decisions. x The efficiency of processes is attributed to the repeatability and consistency of executed duties. x Increased brand awareness and recognition: when a company is committed to ethical practises, word will spread. Therefore, more people will become aware of the company's brand. x Cost reductions. Numerous simple changes in behalf of sustainability, such as using less packaging, will reduce the production costs of the business. x Increased employee motivation. It has been demonstrated that employees appreciate working for a company with a positive public image more than one with a negative one. x A competitive advantage over rivals. By adopting CSR, the company will distinguish itself from rivals in the same industry. 5.7.2 Reporting on Corporate Social Responsibility Non-Financial Disclosures in Malaysia Corporate Social Responsibilities (CSR) Sustainable Reporting Environmental, Social and Governance (ESG) reporting
____________________________________________________________PROFESSIONAL ETHICS ϭϭϮ In 2006, Bursa Malaysia implemented a requirement for Main and ACE Market issuers to provide information regarding their corporate social responsibility (CSR) activities or practises in their annual reports. The aforementioned criteria was perceived to prioritise the social dimensions of the organisation, specifically its workforce and the surrounding community, while having limited influence on the generation of profit. In general, organisations tend to place emphasis on philanthropic endeavours while potentially neglecting the sustainability-related concerns pertaining to their corporate operations. Numerous globally recognised firms have transitioned beyond the realm of Corporate Social Responsibility (CSR). Over the course of the past five decades, there has been a notable evolution in companies' understanding of sustainability, transitioning from a state of ignorance to the development of novel management frameworks that integrate sustainability principles. The level of stakeholder interest in understanding how businesses handle their economic, environmental, and social risks and opportunities is indeed on the rise. Organisations are increasingly recognising the significant consequences associated with sustainability-related risks, including resource scarcity, evolving social expectations, and emerging regulatory mandates in sustainability-related domains. Consequently, they are compelled to incorporate sustainability concerns into their operations as a means of addressing these risks and the problems they pose. Since 2007, a Sustainability Report (which incorporates a CSR Report) has been available. All publicly traded companies in Malaysia are required to disclose their sustainability practices in their annual reports. Bursa Malaysia has introduced a framework for sustainability that focuses on four key areas. x The environment x Workplace x Market x Participation The Sustainability Report makes extensive use of the terms economic, environmental, and social (EES). The explanation is as follows: x Economic This study examines the impact of an organisation on the economic situations of its shareholders as well as on local, national, and international economic systems. The organization's financial soundness is not given focus. The organization's practises pertaining to procurement or community investment may be encompassed within these considerations. x Environmental
____________________________________________________________PROFESSIONAL ETHICS ϭϭϯ This study examines the impact of an organisation on both biotic and abiotic components of natural systems, encompassing land, air, water, and ecosystems. These factors may encompass the organization's energy and water usage, emissions release, biodiversity loss, and so forth. x Social The effects an organisation has on the social systems it operates within. These may include the company's relationships with communities, employees, and customers, among others. Stakeholders, encompassing investors, consumers, employees, suppliers, nongovernmental organisations, local communities, and others, are increasingly aware of the influence that businesses exert on the economy, environment, and society. This phenomenon has the potential to yield either advantageous or disadvantageous outcomes. Agricultural activities can yield positive economic and social outcomes, such as generating employment opportunities and improving the quality of life within nearby communities. However, these activities can also have adverse effects on the environment, specifically in terms of local or regional air pollution, exemplified by the occurrence of haze resulting from open burning. The occurrence of this adverse consequence has the potential to pose a reputational risk for the organisation, which in turn may impede its capacity to obtain financial support. Hence, it is evident that sustainability-related concerns can significantly influence an organization's risk profile, potential liabilities, and overall worth. Therefore, it is imperative for the corporate community to respond in a suitable manner. Moreover, there is a growing acknowledgment among corporate executives regarding the benefits associated with the integration of sustainable practises. By incorporating sustainability into their operations, businesses are realising numerous benefits, such as: x Increasing threat management x Increasing innovation and customer acquisition x Maintaining a valid operating licence x Obtaining capital x Increasing productivity and optimising costs x Increasing brand value and standing.
____________________________________________________________PROFESSIONAL ETHICS ϭϭϰ Environmental, Social and Governance report x The disclosure of Environmental, Social and Governance (ESG) involves nonfinancial disclosures in nature, which related to the issues which is material to the company’s stakeholders and hence provides opportunity for the companies to be transparent in exchanging the information to stakeholders. x Additionally, potential investors have started to utilize ESG reporting as their benchmark in ensuring their investments are in line with their return. x Through ESG reporting, companies are able to provide a deeper overview of their operations, making it easier for stakeholders to have well and full informations about the company at that particular financial year end. x The ESG report is usually used to complement the company’s annual report and financial account where this report benefits the stakeholders in assessing the company’s strategy particularly in environmental, social and governance. x Environmental: Topics or concerns related to the state and functioning of the natural environment and its systems. Among the various topics encompassed within this category are greenhouse gas emissions, climate change, energy efficiency, air and water pollution, and trash management. x Social: Regarding the rights, well-being, and interests of individuals and groups. Among the various aspects encompassed within this category are human rights, labour norms, workplace health and safety, employee relations, and community relations. x Governance: Inquiries pertaining to the governance of corporations and investee entities Examples of topics that can be explored within the realm of corporate governance include board composition, company ethics, bribery and corruption, shareholder rights, internal control, and risk management. x The advantages of Environmental, Social, and Governance (ESG) reporting are as follows: o Enhanced transparency and comprehension of the organization's functioning. o The enhanced level of trust exhibited by stakeholders, investors, and customers has experienced a notable increase. o The aim is to establish a more robust competitive advantage in the marketplace.
____________________________________________________________PROFESSIONAL ETHICS ϭϭϱ o Enhanced brand reputation and public image are key factors in establishing a positive perception of a company or organisation. o The implementation of strategies that optimise the utilisation of resources and energy in a more effective manner. o The identification and mitigation of potential risks. o Enhanced levels of staff engagement. o Improved forecasting skills for long-term strategic planning. o The enhanced availability of financial resources from investors who consider factors within environmental, social, and governance (ESG) reporting as a determining factor in their investment choices.
____________________________________________________________PROFESSIONAL ETHICS ϭϭϲ EXERCISES 1. Define corporate governance. 2. Discuss the importance of corporate governance to an organisations 3. Discuss the roles of audit committee 4. List and briefly explain three (3) theories of corporate governance 5. Define corporate social responsibility 6. Discuss the pyramid of corporate social responsibility. 7. Explain theories of Corporate Governance. CASE STUDIES CASE STUDY 1 Super Infrastructure is listed on the Bursa Malaysia Securities Berhad. The company is a medium-sized developer of infrastructure projects with three offices in Kuala Lumpur, Penang and Iskandar Malaysia, Johor, respectively. The founder and Chief Executive Officer (CEO), Ricky Lee, is a high-profile entrepreneur with a penchant for a luxurious lifestyle and risky strategies. A few months ago, Lee had extravagantly spent RM250,000 on gold watches as gifts and installed a marble and gold bathroom in his office. He also bought a whopping RM1 million worth of paintings to adorn the guest area outside his luxurious office. Lee is very dominant personality in the company. He has a strong hold on the company by virtue of holding both the Chairman and CEO posts. Lee views are hardly challenged by other board members. It is not surprising that there is hardly any debate or disagreement during board meetings. Shareholders are very concerned about Lee’s dominance in the board and his pursuit of what they regarded as very risky strategies. They are certainly unhappy with Lee’s lavish lifestyle at the company’s expenses. Lee just brushed this concern aside. He said, “I know how to run the business and they should just trust me to do my job.” Last year’s earnings were down 20%. Lee was unperturbed by the decline in earnings and boasted that he knew how to turn the profits of the company around this year. The board of directors comprises Ricky Lee as Chairman cum CEO, four executive and two non-executive directors, and two independent directors. Three of these directors, excluding the independent directors, are Lee’s close family members. The company has established remuneration, nomination, and audit committees. Lee is the Chairman of both the remuneration and nomination committees. These two committees hardly meet to discuss issues such as the board’s nomination and
____________________________________________________________PROFESSIONAL ETHICS ϭϭϳ executive remuneration packages. It is widely known among board members and top executives that Lee regards corporate governance as irrelevant to real business. Supe Intrasturcture recently appointed an external auditor upon recommendation by Lee. This appointment received great attention in the financial press, particularly highlighting the fact that the same audit also provided consultancy services on Lee’s acquisition strategy about 10 years ago. You are required to: 1. Explain the nature of agency problem that exists in Supe Infrastructure. 2. Assess the corporate governance structures within the company, in light of corporate governance best practice. 3. Recommend any improvements you consider necessary for the corporate governance structures of Super Infrastructure. CASE STUDY 2 Giant Trading is the largest retailer in Malaysia, Singapore, and Brunei with RM15billion in sales. The company employs 50,000 employees in four countries and serves about 20 million customers per week. Giant Trading carries an extensive range of products from groceries and household items to home improvement and leisure products. The company has a core of loyal customers who love the fast, friendly services and high-quality products with lower prices. The CEO who is also the grandson of Giant Trading’s founder always ensure the company lives up to its credo of supplying consumers with low-cost quality goods. Business week reported that Giant Trading was one of the most profitable companies in Southeast Asia. Employees receive good training in customer service. Customers are assured of a pleasant hopping experience where Giant Trading’s employees are friendly and ready to assist whenever they need help. However, this good image is tainted with complaints against the way Giant Trading treats its employees. In Indonesia, for example, employees complained that they were forced to work ‘round the clock’ without or with only little overtime pay. The backroom employees receive low pay and few or low benefits, mainly because they are immigrant workers. Employees are often asked to sacrifice their ret and meal breaks, in Malaysia, Giant Trading was accused of hiring illegal immigrants with low pays to do menial jobs. These employment practices are clearly against the law, but Giant Trading got away de to weak enforcement of laws. While customers love Giant Trading, small local sundry shops and merchants complain of unfair competition. Many went out of business because Giant Trading sells similar products, but at lower prices. Giant Trading could afford to offer lower
____________________________________________________________PROFESSIONAL ETHICS ϭϭϴ prices due to hefty discounts given by its suppliers for large orders. In addition, in Malaysia, many local suppliers complained that Giant Trading gives priority to foreign products such as those from China and Bangladesh. Some even had to close their business. Giant Trading buys its products from these two countries due to cheaper prices. In Indonesia, Giant Trading has embarked on an aggressive expansion strategy due to great market potential. Giant Trading plans to open 20 stores each in East Java and Northern Sumatra next year. Ten new stores are due to be opened in Sulawesi end of the year. Giant Trading receives severe resistance from local communities in some of the new locations. Their main grouses are traffic congestion, noise and other forms of pollution during and after the construction of the new stores. They do not want Giant Trading’s presence disturbing their daily lives. In Malaysia, Giant Trading gets the same resistance, but at lower scale. The main grievance is the employment of illegal immigrants to construct new stores, which raises security concerns among locals due to a sudden influx of foreign workers in their area. Despite its critics, Giant Trading receives wide support, and many consider the company to be socially responsible in addition to being a provider of thousands of jobs, low prices and high value and service. Giant Trading also undertakes some initiatives to give back to the society. For example, Giant trading awards annual scholarship to secondary school children from poor and underprivileged families in Indonesia and Malaysia. The company is also active in promoting good environmental practices such as recycling and using paper bags. Moreover, it also sponsors educational programmes organized by local environmental groups to educate the public about recycling and other environmental topics. You are required to: 1. Assess Giant Trading’s corporate social responsibility based on economic responsibility, Legal responsibility, and Ethical responsibility. 2. Assess whether Giant Trading has balanced its economic and social responsibilities through its various programmes? 3. Identify the stakeholders in Giant Trading case. 4. Explain what should Giant Trading do with regards to the issues raised by its various stakeholder?
____________________________________________________________PROFESSIONAL ETHICS ϭϭϵ REFERENCES al, R. A. (2018). Management Accounting (3rd Edition). Oxford Press. al., C. T. (2018). Cost Accounting (15th Edition). Prentice Hall. Aznurullaili Binti Ahmad Sarkawi, M. Z. (2017). Final Practices. Pahang: Politeknik Muadzam Shah. Das, P. (2013). Cost Accounting (1st Edition). Oxford. Drury, C. (2017). Management and Cost Accounting (10th Edition). Cengage Learning EMEA. Nolder, C.J. (2018), Accounting, Organizations and Society, https: //doi.org/10.1016/j.aos.2018.03.010 Bursa Malaysia Sustainability Reporting Guide https://thecsrjournal.in/understanding-the-four-levels-of-csr/ https://www.frc.org.uk/directors/corporate-governance-and-stewardship/historyof-the-uk-corporate-governance-code Freeman, R.E. (1984). Strategic Management: A Stakeholder Approach. Pitman Publishing. Khalidah Khalid Ali, Z. R. (2018). Business Ethics (2nd ed.). Oxford. Mohamad Hafiz Rosli. (2018). Corporate Governance: Principles and Practices in Malaysia. Malaysia: Oxford Fajar. International Ethics Standards Board for Accountants. (2018). Handbook of the International Code of Ethics for Professional Accountants. IFAC. Malaysian Institute of Accountants. (2019). BY-Laws (On Professional Ethics, Conduct and Prctice). Retrieved from Malaysian Institute of Accountants. Suruhanjaya Sekuriti. (2017). Malaysian Code on Corporate Governace. Malaysia: Suruhanjaya Sekuriti.
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