How companies prevent unethical issues and conflict of interest
Instructions:
Ethic paper — providing minimum 2 full pages excluding cover paper and reference page
* How does a company prevent unethical issues or conflict between management and stockholders of a company
Solution
How companies prevent unethical issues and conflict of interest
Companies are often run by people who are not the owners, through the stewardship principle. These people are entrusted with the responsibility of running the company in the best way possible, for the benefit of the shareholders, who are the owners of the business. This, however, is not always the case, as issues of ethics and conflicts of interest sometimes threaten to derail the objectives of the business. How then, do companies prevent unethical issues, including conflicts of interest?
According to OECD (2004), the rules governing the appointment of directors and managers of a company must consider the accountability and integrity of individuals before they are hired to steer a company. At the minimum, the people eligible for these positions must be people who have a track record of performance, diligence, and integrity. Such rules spell the qualifications of directors of the company, noting that among others, he/she must be a person of integrity, must not have a relationship with the company or its subsidiaries, his/her relatives and associates must not have a relationship with the company etc. such requirements limit, to a large extent, cases of conflict of interest in the company. Most importantly, before the appointment, managers and directors must make a declaration of their conflict of interest if any and subsequent measures taken to prevent such potential conflict of interest.
Unethical behavior in a company is significantly reduced by the layers of management, which are proposed by the principles of corporate governance. Having a management that is headed by the Chief Executive and supervised by a board of directors which comprises of independent directors ensures that there are sufficient checks and balances in the company, thus reducing the threat of conflict of interest. Besides, external auditors, who independently review the company’s financial statements, policies, and procedures, are also mandated, through their procedures, to identify and report to the shareholders during the annual general meeting any conflict of interest that may be present in the company.
References
OECDÂ (2004) Principles of Corporate Governance. Available at: https://www.oecd.org/corporate/ca/corporategovernanceprinciples/31557724.pdf