Governance Plan

Establishing a business governance plan is an important step that organizations should consider to ensure value driven decision making are practiced within the corporation. This paper will present the components of business governance plan and the underpinning morals of these components. The political implications associated with the contemporary business governance will also be discussed. In addition, an overview of qualities that promote organizational integrity as well as issues that result from lack of integrity will be presented. Finally, solutions and implementations to reform corporate governance to be more effective will be highlighted.

Recent corporate unethical practices by upper management in certain organizations have attracted widespread attention and resulted in public outcry. According to Donaldson (2003), seven trillion dollars loss in the American corporations in 2003 is attributed to scandals. The majority of which was due to the fact that power was shifted to chief executive officers rather than board of directors. The main contributing factor to major scandals was that directors and executives were mostly driven by higher dollar value in the short-term. This drive toward numbers was further encouraged by bonuses and prizes.

Guay, Doh and Sinclair (2004) indicated that the purpose of corporate governance process is to let the directors of the board hold the chief executive officers accountable for the performance of the organization. When corporate governance is not actively practiced, the system of the organization breaks down which consequently result in ethical lapses. The board of directors represents the interest of the shareholders and, accordingly, they should oversee the performance of the organization. Otherwise, companies' president and chief executive officers may, knowingly or unknowingly, take decisions that are not in the best interest of the shareholders. If this happens, they need to be held accountable by the board of directors. Considering this importance of business governance, its responsibility is to ensure that wealth generated for the stakeholders is accompanied with risk management. This balance requires continuous performance improvement with a simultaneous focus on corporate accountability (Clarke, 2004).

Morals Underpinning Business Governance

The public believes nowadays that many corporate executives have broken the boundaries of trust between them and the public by presenting false information in accounting sheets, misinforming auditors of wrong doings, or favoring themselves with stock-options (Byne et al., 2004). Byne et al. (2004) also claims that the ethical issue didn't get the proper attention it deserves by many directors. Accordingly, the board usually strives for higher performance targets despite the how ethical those targets were achieved. (Byne et al.).

The most serious challenge facing corporate America today is how directors' practice can be fixed to enforce more ethical leadership by chief executive officers. The driving force for CEO's to focus on higher performance on the expense of ethical practices seems to be the improper use of compensation packages given to those CEO's. These compensation packages, whether actual stock ownership or option grants, linked the company stock price to their personal wealth. Accordingly, and unfortunately, the company's stock price becomes the highest priority for upper management (Byne et al., 2004).

Arnott (2004) claims that the U.S. work environment has shifted the definition of ethics from moral to legal. This redefinition has weakened the impact of ethics on work practices. However, would emphasizing moral standards alone change directors' attitudes? Arnott asserts that unethical behaviors would become less prevalent once they are made unprofitable. Arnott suggested that investors should sell their holdings in companies where their upper management is involved in red-flagged activities. The problem is that those investors are most of the time not members in the board and consequently are not aware of these wrong doings.

Political Implications and Business Governance

Caza, Barker and Cameron (2004) indicated that ethical standards are becoming increasingly important in today's work environment because of high profile corporate scandals. In addition, investors as well as the public have more doubt than ever before in the integrity of company leaders because of these scandals. Accordingly, as indicated by Wood (2002), as cited in Caza et al. (2004), shareholders are increasingly demanding more accountability and transparency from companies' CEOs. In today's business environment, leaders of corporations are self-directed and can independently pursue their own profitability goals. However, they are vulnerable for intervention by other shareholders as they pursue their financial interests. (Rodgers & Gago, 2003). Therefore, management's extreme liberty may result in more executive stock options and, hence, increase the temptation to commit fraud.

Executive compensation has traditionally been based on monetary returns, and corporations need incentive systems to motivate decisions that maximize corporate performance (Caza et al., 2004). Constraints of the maximization of stock price and corporate profit have influenced board directors. However, as contested by Caza et al., the end goal of shareholders' profit maximization should be consistent with moral freedom. Caza et al further indicated that some executives' are more tempted to manipulate accounting information as long as their compensation depends on it.

Donaldson (2003) highlighted that in the past few decades, the chief executive position gained more power than merely a manager. Their objective has shifted from ethically increasing their corporation performance and establishing a stronger foundation for their companies to focus on personal gains and increased prosperity. They became more driven by numbers than sound reputation. This number driven performance measurement of CEO's performance has negatively impacted the corporation actual performance on the long run (Donaldson, 2003).

According to Donaldson (2003), this ethical problem is not only limited to leaders of corporation. Even gatekeepers within the corporations have been affected and became part of the problem. The numbers driven markets that have increased in recent decades have also influenced many people to be part of the game because the gaining have been irresistible regardless of how ethical that gain is. Fortunately, professional accounting firms, as well as legal and financial advisers have suggested "value added" services to improve the situation and drive corporation toward more ethical standards