Impact of Corporate Governance and Ethical Issues

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1) Describe your selected contemporary issue.

I have taken the issue of corporate governance and business ethics. Business ethics is the branch of ethics that examines ethical rules and principles within a commercial context; the various moral or ethical problems that can arise in a business setting; and any special duties or obligations that apply to persons who are engaged in commerce. The corporations apply business ethics by having good corporate governance.

Corporate Governance is all about promoting Corporate Fairness, Transparency and Accountability.

Self-regulation for the industry is an important step towards becoming more efficient and socially responsible. All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organization. Directors, workers and management receive salaries, benefits and reputation; whilst shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital. Hence it is clearly good that businesses should seek to minimize their negative social and environmental impact resulting from their economic activity.

Thus corporate governance is required to promote fairness, transparency, discipline and self regulation. Good governance is having a significant impact and benefit because traditionally, a company's worth was based on the tangible assets (Imhoff). More and more intangible assets such as goodwill, brand value and intellectual property are needed to be valued. Measuring is depending of the credit rating of a company which is the reliable resources for investors. Therefore, the investors expect to see the information of rating, "a high rating indicates good compliance with governance standards" (Imhoff). Board of Directors plays an important role in promoting corporate governance. Their role is to increase managerial performance and changing their incentives because they are the brains of the management. They frame the policies and regulations for the organizations. They directly regulate the activities of the management whereas shareholders don' t have direct control on the management.

2) Describe the financial strategy that your selected organization has created to manage your selected contemporary issue. Assess the impact of corporate governance and ethical issues on the organization's strategy.

I have taken Enron as an organization.

Enron saga

Enron was founded on January 1, 1985 with the merger of Houston Natural Gas (Houston, TX) and InterNorth (Omaha, NE), and became the nation's largest gas pipeline system with a network of more than 34,000 miles. The company was at a compound annual rate of more than 60 percent from 1995 through 2000. The highest and amazing growth came in 2000, which its revenues increased from $40 billion in 1999 to over $100 billion just a year later. At the time it filed for bankruptcy on December 2, 2001, it was considered the seventh largest publicly traded corporation in the United States. Enron's bankruptcy caught and shocked many investors because they were surprised that the company's executive members like Cindy Olsons were unaware of the firm's financial obligations. These obligations were "contingent liabilities related to unconsolidated off-balance sheet special purpose entities SPEs substantial liabilities appeared on the balance sheet as "liabilities from risk management activities." (Grazian).

Infact the executives like Cindy Olson and insiders at Enron knew about the offshore accounts that were hiding losses for the company, however, the investors knew nothing of this. Chief Financial ...