Business Ethics as Risk Management Essay Example

company's external stakeholders, including consumers and the general public. These breaches present significant risks to the business. We have chosen four indicators to evaluate these risks: avoiding unfair business practices, safeguarding consumer privacy, ensuring community safety and well-being, and conducting responsible marketing and promotion. It is important to note that these indicators are not exhaustive but serve as measurable risks. In the subsequent discussion, we will examine risk management aspects associated with these indicators. For example, unfair business practices such as price-fixing, bid rigging, and market collusion may lead to fines of $10 million under the Trade Practices Act (TPA).

The penalties for violations of this Act may be significantly increased under proposed amendments currently being considered by Parliament. These higher penalties could amount to three times the revenue generated from collusive practices or 10% of annual turnover if that cannot be determined. Additionally, there are laws in place to enforce the OECD's Anti-Bribery Convention, which criminalizes bribery of foreign public officials. Companies found guilty of this offense may be fined up to $330,000 and responsible executives could face sentences of up to 10 years in prison. Similar consequences apply to bribery involving an Australian official and can also result in negative publicity effects. The security of consumer privacy is crucial as customers expect their information to be protected. Failure to fulfill this responsibility may cause customers to switch to competitors. Therefore, effectively managing risks related to potential privacy breaches is essential for companies.

It is essential for companies in all industries to have strong systems, checks, and protocols in place to protect customer privacy. Regardless of the specific industry, companies have access to different types of

customer information including personal data and usage habits. Telecom companies may face penalties for privacy breaches, while businesses that handle health records are subject to separate regulations and fines if they violate consumer privacy.

Ensuring community safety and welfare is of utmost importance due to the severe consequences of ethical violations that harm or have the potential to harm consumers. These infractions not only lead to financial penalties but also pose a significant threat to a company's reputation within its industry. To illustrate, let's consider the scenario where a drug company falsely represents its product - although they may receive minor fines compared to their profits, the damage caused to their reputation can be immeasurable. Additionally, companies relying on an official license are subjected to stricter regulatory measures. An exemplary case is Pan Pharmaceuticals, which experienced complete devastation in its drug business when news surfaced about its product recall and suspension of its license by the Therapeutic Goods Administration.

The risks outlined in the Pan example are applicable to various businesses that sell products to consumers, including food producers, manufacturers, retailers, and building products companies. The TPA enforces fines of up to $1 million on companies proven guilty of engaging in misleading or deceptive practices. In addition to financial penalties, these advertising campaigns may also be subject to injunctions that halt the campaign and lead to potential uncompensated losses. Moreover, businesses may be required to provide rebates or full refunds as compensation for affected customers. Courts can also order companies to publish corrections through prominent media platforms and cover the expenses of independent compliance audits.

The ACCC has expressed its readiness to initiate legal proceedings against firms that

partake in deceptive or misleading advertising campaigns. Although the monetary repercussions for publicly traded companies may be minimal, the harm to their reputation can be considerable. A regulatory structure for corporations enforces penalties, such as fines and possible incarceration, on directors and executives who violate the regulations. While these fines may not have a substantial financial effect on large listed companies, they could damage their reputation or diminish employee morale. The existence of comprehensive regulation in the four aforementioned sectors indicates widespread concerns within society regarding corporate conduct in those fields.

If companies persist in engaging in unethical behavior, one possible outcome is the increased likelihood of more regulation. It is important to recognize that governments do not enact legislation without external influences. When the public demands action to rectify a perceived or real crisis, this can lead to additional regulatory measures that are costly for businesses and ultimately fail to address the underlying problem. To prevent further regulation, businesses must prioritize prevention. A strong corporate culture and a commitment to ethical business practices are crucial in avoiding the need for additional regulations. These values should be embraced and enforced by the entire company.

Investors are interested in evaluating a company's risk management of poor business ethics due to the potential financial consequences. They seek insight into how companies establish a strong 'business ethics culture' as it serves as a risk management tool, safeguarding investors' capital. However, currently, there is limited information available for investors regarding S/ASX200 companies' handling of unethical practices. As of January 19, 2005, over 160 out of the top 200 companies do not disclose their boards' oversight of business practices compared to competitors.

Investors

have expressed concerns about the lack of a comprehensive strategy in over 80% of the benchmark index to prevent violations of laws, like the Trades Practices Act, that forbid anti-competitive behavior. This is especially concerning due to potential penalties of up to $10 million and proposed new fines. Additionally, there is a lack of transparency regarding how companies ensure compliance with consumer privacy regulations. More than half of the top 200 listed companies do not disclose their internal control mechanisms for preventing and reducing breaches of consumer privacy.

Some companies, particularly those in the telecommunications and health care industry, choose not to disclose their operational information. This lack of transparency poses a risk to consumer privacy.

Moreover, almost 50% of the top 200 companies do not provide information on their training programs for staff and contractors to ensure product safety and protect public health. This is concerning as incidents related to product safety and service integrity can have serious consequences, especially for well-known brands. Many companies are failing to address these risks effectively, which could lead to expensive product recalls or legal action based on product liability.

In addition, just over half of the top 200 companies do not include responsible marketing and advertising practices in their codes of conduct.

Investors lack information about the number of companies that handle various risks, including fines of up to $1.1 million for misleading or deceptive conduct and demands from the community to restrict advertising to children. These risks demonstrate the significance for investors to comprehend how companies ensure responsible and legal marketing. However, it is crucial to note that disclosing policies in these areas does not guarantee effective management of risks

arising from unethical business practices.

Investors are often unaware of an important aspect of risk management for many companies when there is no disclosure. However, for companies that do disclose their trade practices compliance or conflict of interest programs, investors are able to see that the company's directors and management are addressing these risks. Investors are now urging companies to take these steps. The superannuation funds participating in the BT Governance Advisory Service, which collectively invest almost $7 billion in Australian equities, are calling for listed companies to ensure that boards oversee potential risk areas in business ethics practices, that management processes are in place to review and manage such issues across all divisions, and that company codes of conduct provide employees with detailed instructions on how to handle business ethics issues. At minimum, the corporate code of conduct should focus on compliance with the code.

Governance measures are backed by a whistleblowing policy and compliance training for staff and contractors. They publicly disclose their performance on business ethics issues and reveal policies on political donations to demonstrate transparency. The core of investor concerns regarding business ethics stems from the understanding that every company faces distinct risks associated with unethical business practices. Companies operating in industries with limited competitors, for instance, would have a higher vulnerability to potential risks arising from unfair business practices, while those involved in manufacturing, packaging, or selling goods to consumers would face greater risks concerning product safety. Ensuring an ethical approach to business varies depending on the specific company, but it is universally necessary for company boards and management to address potential risks.

And good business ethics is ultimately the most effective way

to manage risk. BT GAS is employed by five superannuation funds - PSS/CSS, the Catholic Superannuation Fund, the Northern Territory Government & Public Authorities Superannuation Scheme, VicSuper, and ESS - to evaluate how S&P/ASX200 companies handle social, environmental, and corporate governance risks. BT GAS also works with these companies to promote improved risk management and transparency. Monash Sustainability Enterprises assists BT in addressing social and environmental concerns as a subsidiary advisor.