Ethics, Governance and Corporate Crime: Challenges and Consequences: Volume 6

Subject:

Table of contents

(18 chapters)
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List of Contributors

Pages vii-viii
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Purpose

Corporate crime affects the stability of the international financial system and the business world system has made considerable efforts to fight all aspects of corporate crimes. Fraud and white-collar crime has increased considerably over the recent years and this trend is expected to continue.

Design/methodology/approach

This chapter defines corporate crime and its categories as well as considering the ways in which such crime occurs. This is set within the context of other failures such as Enron.

Findings

These crimes are considered in the context of ethical behaviour but it is reported that the various measures taken to dissuade these crimes at various levels just have not seems to reduce such crime.

Research limitations/implications

In many respects this chapter introduces the contexts and acts as preparation for the other chapters in the book and so is not exhaustive in scope.

Practical and social implications

Since not all fraud and abuse is discovered and reported, the cost of fraud to businesses is hard to be estimated.

Originality/value

The chapter discusses the context in which corporate crime occurs.

Purpose

This paper proposes the concept of sustainability as a forward looking strategic intent of the organizations, which requires financing capabilities and investment. We structure the relationship between financial capabilities, product-led and process-led innovation approaches and corporate financial performance, in particular, we attempt to answer an important question: is sustainability-corporate performance relationship contingent upon the access and use of the financial resources?

Design/methodology/approach

We used a sample of Top 100 Sustainable global companies and tested several hypotheses regarding the likely financing policies of sustainable firms underlying their product-led and process-led sustainability approaches and financial performance.

Findings

Our results show that investment in R&D and capital expenditures provide a reasonable prediction of financing strategy chosen by the sample companies. Furthermore, our findings show that surplus (deficit) in financial capabilities influence the financing trajectory of the companies. Our results show that financial capabilities of companies, that is, financing choice (conservative vs. aggressive) matter for sustainable development, and sustainability-corporate performance relationship is contingent upon the use of financial resources.

Practical implications

These findings imply that organizations should rethink themselves and be encouraged to evaluate their own progress on the path of sustainability in terms of protection of the environment and the advancement of those communities in which they operate.

Originality/value

This paper develops a classification of global companies’ sustainable development approaches using their investment in R&D and capital expenditures. Furthermore, we also develop classification of companies using their financing capabilities, that is, surplus (deficit) to highlight their impact on the sustainable-corporate performance link.

Purpose

The main purpose of the study is to examine the influence of family directors on the firm performance of public listed companies (PLCs) in Malaysia. This study provides empirical evidence on the agency problems between controlling shareholders and minority interests in the concentrated ownership setting.

Design/methodology/approach

Samples of the study are 112 PLCs in year 2006. Two measures of firm performance are used: return on assets (ROA) and Tobin’s Q. Managerial ownership refers to the percentage shareholdings of executive directors with direct and indirect holdings. It was further categorized into family ownership and non-family ownership.

Findings

In relation to ROA, managerial ownership is found positively significant. The results also show that the positive relationship between managerial ownership is contributed by the managerial-non-family ownership. In relation to Tobin’s Q, the results show a U-shape with turning point at 31.38% for managerial ownership and 28.29% for the managerial-family ownership. The results found significant and positive relationships between managerial ownership and both measures of firm performance which indicates that managerial ownership and family ownership yield greater efficiency.

Research implications

The study highlights the effects of corporate governance on ROA and Tobin’s Q are somewhat different. It provides some evidence on the need to use appropriate measure of firm performance. The significant relationship supports the argument of Chami (1999), Fama and Jensen (1983), and DeAngelo and DeAngelo (1985) and empirical evidence of Lee (2004) that family ownership enhances monitoring activities.

Originality/value

Differentiating the types of managerial ownership into family and non-family categories enriches our knowledge about who actually contributes to the improved performance.

Purpose

This study seeks to explore the importance of CSR for SMEs in Malaysia and uncover the perception of Malaysian SMEs on CSR.

Design/methodology/approach

This research is based on qualitative data derived from semi-structured interviews with ten Malaysian SMEs. The interviews were conducted with the managing directors, managers or owners of the small companies.

Findings

The study examined the understanding of Malaysian SME owners on CSR and elaborated their perceptions about CSR terminology, the nature of CSR activities, motivation for engaging in CSR and promotion of CSR. Overall, despite good feedback on CSR practices among the SMEs, it is clear that there is still confusion about the real meaning of CSR concepts, which suggests that some of the respondents have narrow views of CSR.

Research Limitations/implications

Due to the nature of this study, it is difficult for the findings to be generalized. This study serves only as an exploratory study for other researchers to take up these issues. Future study can further extend the sample and use quantitative methods for better generalization.

Originality/value

This study could be one of the most important stepping stones towards in-depth understanding of Malaysian SMEs’ CSR attitude and behaviour. Understanding the SME’s CSR perception would be a useful platform for further action to be taken in promoting social responsibility among SMEs.

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Purpose

Tax compliance involves complying with the tax rules and regulation, which encompasses the filing, reporting and payment of tax. The two aspects of tax non-compliance are tax evasion and tax avoidance. While the ethicality of tax evasion as an illegal act of reducing tax is clear, the consensus regarding the morality of tax avoidance as a legal act of minimizing tax is mixed. This chapter will discuss the ethical perspective of tax (non)compliance.

Design/methodology/approach

We approach this topic by discussing the two important terms of tax non-compliance namely tax evasion and tax avoidance from the ethical point of view. The tax evasion and tax avoidance were critically evaluated to justify whether it is ethical or not. The tax non-compliance is also associated to the corporate governance which if do effectively help to protect the interest of larger stakeholder.

Findings

In a nutshell, tax non-compliance such as tax avoidance and tax evasion is unethical act and these acts of non-compliance go against the spirit of contemporary corporate governance which sought to protect the interest of the stakeholders.

Research limitations/implications

Tax non-compliance could enhance shareholders wealth (in terms of reduced tax); it affects the distribution of wealth (public benefits financed by tax revenues) among the society at large as another stakeholder affected by such act. Future research may be conduct to investigate this to the larger sample.

Social implications

Firms should avoid engaging in non-compliance activities such as engaging in tax evasion and aggressive tax avoidance as part of its social obligation to the society in line with the spirit espoused in the contemporary corporate governance.

Originality/value

This paper argues that tax non-compliance is unethical and highlights the importance of having efficient corporate governance for larger stakeholder’s interest.

Purpose

The number of Shari’ah Compliant companies is tremendously increasing year by year in Malaysia. In an attempt to win the trust and confidence of its Muslim investors and stakeholders, the Shari’ah Compliant companies must portray their sincerity and earnestness in complying with Islamic values which may have implications on winning the trust of Muslim investors largely from oil-rich Arab Gulf Region which have flush of funds currently. Thus, the purpose of the study is to gauge the extent of the corporate ethical identity (CEI) that is being incorporated by the Shari’ah Compliant companies in Malaysia.

Design/methodology/approach

This study used the content analysis to develop CEI by adding all the items covering the four themes, which were underlying philosophy and values, interest-free and Islamically acceptable activities, developmental and social goals and environment theme. This CEI index was developed by using the dichotomous, which the score of ‘1’, if the company disclose the items and ‘0’, if it is not. The process will add all the scores and equally weighted.

Findings

The study showed that the level of communicated ethical identity disclosed in annual reports of Shari’ah Compliant companies for the year ended 2008 is relatively low with average of 23.66%. Overall, the findings of the study showed that the Shari’ah Compliant companies revealed more communicated ethical identity on Theme 1 (underlying philosophy and values) in the annual reports for the year ended 2008. In addition, in the year 2008, the findings showed that the dimension of developmental and social goals has the most influence towards the ethical identity index of Shari’ah Compliant companies.

Research limitations/implications

The source of data in this study is limited to companies’ annual report. In other words, the extent of communicated ethical identity index is constructed limited to company’s annual report. The study has shown that annual reports is not the only means or medium of disclosure. Hence, studying other forms of disclosure on communicated ethical identity could possibly complement and add value to any investigation on the nature and extent of communicated ethical identity through annual reports in the future.

Practical implications

The study is expected to alert the Securities Commission with regard to the definition of Shari’ah Compliant companies which should not just include ‘good public perception and image company’ but also the extent of the application of Islamic values in the conduct of their businesses.

Originality/value

The study provides a new benchmark of an ideal Islamic communicated CEI index based on Shari’ah principles and also past literatures. The study developed a checklist from preliminary checklist with 88 items based on Berrone, Surroca, and Tribo (2005), Haniffa and Hudaib (2007) and Roshima, Yuserrie and Hasnah (2009). In order to develop the checklist, the researchers also look on the definition of Islamic ethics defined by Khan (2009).

Purpose

This chapter adopts Porter’s ‘audit trinity’ approach comprising internal audit, external audit and audit committee to discuss the role auditing can play in the management of corporate fraud.

Design/methodology/approach

The chapter maps the historical background of and the developments in external audit as an assurance service, the internal audit function and the audit committee. Based on this, it explains the nature, types and possible causes of corporate fraud within the context of business risk with a view to establishing how auditing can help in managing such frauds.

Findings

The chapter highlights the relationships that should exist between the three audit types in order to support a sound internal control system as a tool for preventing and detecting corporate fraud.

Research limitations/implications

The chapter identifies cost, opportunity, connivance and managerial override as factors that could limit the ability of auditing to manage corporate fraud. It also suggests ways of addressing these limitations.

Practical implications

As the current upward trend in IT adoption for corporate operations continue to open new sets of corporate fraud windows, this chapter examines how an entity’s internal controls can be used to prevent and detect these growing fraud schemes.

Originality/value

The chapter’s unique strength is its adoption of a holistic approach to auditing to suggest ways of managing corporate fraud – a novelty in the corporate fraud literature. It is hoped that future research in the area will bring empirical insights to the issues raised and perspectives covered in the chapter.

Purpose

This chapter investigates the short-run and long-run economic implications of the shareholder activism in family-controlled firms in Malaysia.

Design/methodology/approach

In order to investigate the impact of MSWG activism on RPT, we collected related party transactions data (sales and purchases) and inter-segment sales from the annual reports of the firms. We use standard event study methodology to calculate abnormal returns for the sample and control firms.

Findings

We do not find significant effect on the share performance in the short-run after MSWG engagement with the targeted firms. However in the long-run, our results show significant improvement in the MSWG targeted family-controlled firms’ performance compared to non-targeted family firms. We also examine the changes in the level of related party transactions. We do not find significant changes in the level of such sales and purchase transactions except for inter-segment sales.

Research limitations/implications

We argue that market is not strong form efficient because market did not react to the MSWG engagement with the management of these companies. We propose that future research should focus on the investors perception of the MSWG involvement so that a clear picture of its significance can be observable to other firms in the market.

Practical implications

Even though the activism practices are still less aggressive in Malaysia than those found in the developed countries such as the United Kingdom and the United States, however our results show that shareholder activism led by MSWG have impact on the family-owned firms performance in the long-run.

Originality/value

We argue that it is the first study to examine MSWG engagements with the family-controlled firms in Malaysia.

Purpose

The modern social and political order is characterised by a range of disparate moralities which lead to a plethora of interpretations and competing perspectives as to what ought to be the appropriate ethical template for corporate social responsibility. The possibility of uniting these disparate threads into a unified whole is explored by addressing the complex philosophies of Immanuel Kant and his alleged successor, Hans Kelsen; paying particular attention to their contrasting views of the proper foundations of public consensus towards establishing an idealised moral community of corporate actors.

Design/methodology/approach

The research is library-based and suggests that philosophy (in this instance, Kant’s moral philosophy and Kelsen’s general theory of law and state, for example) is able to offer an alternative rational and morally grounded ethics of law and governance; pertinent to the effective governance of corporate behaviour and moral management practices.

Findings

Central concepts, characteristic of both the Kantian and Kelsenian philosophical methodologies, have the capacity to act as a positive influence on the development of effective CSR mechanisms for assuring greater accountability. In addition, it is suggested that by prescribing ethically appropriate corporate behaviour as a first consideration, such philosophical frameworks are capable of providing a powerful disincentive against corporate crime.

Originality/value

The paper is interdisciplinary and (in an era of mistrust, global financial impropriety and other corporate misdemeanours) explores the utility of a philosophical approach towards articulating the conditions for imposing a moral duty incumbent upon all corporate actors in addressing the practical and conceptual needs of their shareholders and wider society.

Purpose

It is generally considered that the old myths were a way of explaining the origins of the world and of humanity. They also played a vital role in uniting a society. Indeed the idea of the epic story is one which permeates history to such an extent that it can be considered to be omnipresent.

Design/methodology/approach

It is argued that this cohesive role remains crucial today and so myths remain relevant to us today. The design of the chapter is to show this relevance in business behaviour. This is explored through a consideration of corporate reporting.

Findings

It is demonstrated that these myths continue to be reinvented in modern form. For individuals these myths provide a source of strength and a sense of roots and values; they offer a mirror to reveal the source of our anxieties and the means by which they might be resolved.

Research limitations/implications

In this chapter therefore the modern myths of the hero are explored in the context of managerial behaviour in organisations. In order to explore this there is a need first to consider the psychoanalysis of managerial behaviour before considering the mythic dimension of such reporting.

Practical and social implications

This paper demonstrates that organisational stories have a vitally important role in organisational cohesion and development.

Originality/value

The psychoanalytic approach provides an understanding which is not available through other methodologies.

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Purpose

Cyrus the Great produced the first human rights declaration. Now two millennia later we have a lesser one, adapted through compromise. This leads to people suggesting that the world would be better if we were better people.

Design/methodology/approach

Game theorists have already given a disappointing answer to concern: The world would not be a better place if we were all better people! This chapter examines this answer in the context of business behaviour and ethics.

Findings

Ethical discussions show that the pursuit of maximum welfare can be considered to provide the basis for the capitalist systems and its reliance upon the market and individual endeavour.

Research limitations/implications

The research is at a theoretical level and based upon games theory; it can therefore be extended.

Practical implications

It is our argument that ethics cannot be removed from any analysis of behaviour without disastrous consequences and this is a flaw with the game. And consequently a flaw with societal behaviour which has been so legitimated: both need changing. This requires a new form of analysis within games theory predicated in a new definition of utility.

Originality/value

This develops our understanding of ethical behaviour within organisations through a novel mode of analysis.

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Index

Pages 271-275
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DOI
10.1108/S2043-052320146
Publication date
2014-07-18
Book series
Developments in Corporate Governance and Responsibility
Editors
Series copyright holder
Emerald Publishing Limited
ISBN
978-1-78350-674-3
eISBN
978-1-78350-674-3
Book series ISSN
2043-0523