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IT Enterprises: Governance and Business Ethics

List of Figures

  1. Figure 1: Corporate performance of IT firms
  2. Figure 2: Business ethics indicators

List of Used Acronyms

  1. SOX – Sarbanes-Oxley Act
  2. CSR – Corporate Social Responsibility
  3. DJSI – Dow Jones Sustainability Index

Definitions

  • Corporate governance – describes a firm’s organizational structure that spells out the roles of the directors, the management, and investors.
  • Corporate social responsibility – refers to a company’s obligations to its stakeholders and the environment.
  • Business ethics – are the ethical norms and principles that guide corporate culture.
  • Corporate sustainability – refers to the long-term social and economic value obtained when a firm adopts corporate governance principles.

Introduction and History

Globally, business entities, including IT firms, are under pressure to embrace the principles of good corporate governance in their management practices. A clear corporate governance policy outlines the rights and roles of the management, business partners, board, and shareholders and provides a framework for decision-making (McLaren 112). Its aim is to entrench transparency and accountability in a company’s business practices. On the other hand, business ethics encompass the moral norms and good governance principles that govern the behavior of firms operating in a given industry or market.

Historically, the concept of corporate governance emerged in the 1970s with the enactment of the Foreign Corrupt Practices Act in the US. This legislation provided guidelines on how companies should conduct internal control (McLaren 117). In the UK, the provisions of the 1992 ‘Code of Best Practice’ outlined the roles and responsibilities of board members and the management.

More recently, the 2002 Sarbanes-Oxley (SOX) Act in the US and the UK Stewardship Code of 2010 spell out the principles of corporate governance and independent auditing. On the other hand, business ethics evolved from ethical theories, including deontological ethics, utilitarianism, and relativism, among others. This paper examines corporate governance principles, and ethics that guide business practices in the IT/IS industry.

Key Components of the Topic

Business ethics encompass three aspects: corporate governance, CSR, and sustainability. Corporate governance principles specify how a firm manages its internal and external relations while CSR describes a firm’s obligations to the community and the environment as the key stakeholders. Corporate sustainability also falls under business ethics. It describes the social and economic value attained by when a firm aligns its business strategy with stakeholder expectations (McLaren 109). The three concepts of business ethics cover the obligations of an IT enterprise to parties affected by its operations. The key stakeholders include customers, suppliers, workers, shareholders, and the community.

Market Analysis

The management priorities of IT/IS firms vary widely with respect to corporate governance, CSR involvement, environmental policy, and business ethics. A cross-industry analysis reveals that the IT industry leads in terms of corporate governance and ethical conduct. A survey by GlobeScan, Inc. (2003), which sampled clients from G20 nations, ranked IT firms above food, biotechnology, and pharmaceutical companies (figure 1). IT firms, such as HP, often align their business practices with the Electronic Industry Code of Conduct, which requires companies to implement laws that support workplace dignity and safety, environmental responsibility, and good corporate governance.

The firms also require their suppliers to adhere to the provisions of this code and uphold good ethical standards with regard to labor relations and environmental and occupational safety. The general labor standards include the non-recruitment of child workers, good compensation, non-discrimination, and appropriate work hours (MacGillivray, Sabapathy, and Zadek 43). Most IT firms also engage in environmental reporting and pollution prevention to improve their public image and reputation.

 IT industry’s performance in corporate governance and CSR
Figure 1: IT industry’s performance in corporate governance and CSR (GlobeScan, Inc.)

Main Providers

The main players in the global IT industry include HP, Cisco Systems, Philips, and Siemens, among others. The performance indicators of these firms with regard to their business ethics are shown in figure 2 below.

Figure 2: Business ethics and corporate governance in major technology companies (GlobeScan, Inc. 16)

HP Cisco Systems Philips Electronics Siemens
Availability of a clear code of conduct
Availability of conflict of interest policies
Corporate compliance
Availability of whistleblowing mechanisms X
CSR report availability X
Commitment to CSR activities X

Systems Comparison, Evaluation, and Statistics

Siemens, a technology firm based in Germany, offers information and communications solutions to many clients globally. The firm has a clear code of conduct and policy on corporate governance. It also invests in CSR, and thus, it is ranked highly in the Dow Jones Sustainability Index (DJSI). However, Siemens lacks a whistleblowing mechanism to allow employees to report unethical conduct or practices perpetuated by the management.

Nonetheless, Siemens has adopted corporate social responsibility as part of its core business ethics (GlobeScan, Inc. 8). On its part, Philips Electronics has a clear ethics program for its employees. The firm issues regular sustainability reports and requires its 50,000 suppliers to adhere to its code of ethics. It ranks top in the DJSI rankings due to its commitment towards corporate sustainability and favorable labor policies. Philips also scores 100% in environmental policy and 95% in service quality (GlobeScan, Inc. 15).

Cisco Systems, Inc., is a global leader in internet technologies with branches located in over 70 countries. The firm is rated highly in terms of business ethics. It has a global CSR strategy that guides its activities in the market. However, the firm’s ranking on DJSI is low because it shows less commitment to social and environmental activities (GlobeScan, Inc. 11). In contrast, HP, which is a leading provider of PCs globally, has good ethical standards. HP’s ‘Standards of Business Conduct’ detail its corporate governance, supplier relations, and whistleblowing policies. Its executives are trained in business to cultivate an ethical corporate culture (GlobeScan, Inc. 18). HP also communicates its social and environmental plans through its Global Citizenship Report, where it outlines its CSR priorities.

Pros and Cons of Business Ethics

In recent years, IT corporations have placed great emphasis on business ethics and corporate governance. Ethical standards and CSR are the key indicators of corporate performance that investors look for when making investment decisions. A strong commitment to ethical conduct and CSR increases investor confidence resulting in a rise in shareholder value (MacGillivray, Sabapathy, and Zadek 46). Potential investors usually consider business ethics when making investment decisions because such codes imply that the firm is accountable and thus, less vulnerable to corporate scandals. However, the implementation of such codes is often costly and infeasible in the short-term.

Strengths and Weaknesses

A major strength of business ethics in the IT industry relates to its impact on corporate performance. Business ethics facilitate quality decision-making and financial management that translate into high profitability. Business ethics also increase investor confidence due to improved transparency in a firm. Nevertheless, corporate governance has no clear performance indicators, which makes it a weak measure of business success.

UAE vs. International Level

The UAE’s IT industry is not as developed as that in European countries and the US. Small IT firms dominate the UAE market, which grew at a rate of 17% in 2011 compared to the global rate of 6% (Glover Para. 6). Outsourcing is one of the reasons behind the rapid growth. This indicates that corporate governance and ethics in the UAE’s IT industry are good. Nevertheless, business ethics are not aligned with business objectives.

Ethics and governance practices vary widely among global and UAE technology firms. In the US, the SOX act guides business ethics in the management of American IT firms such as HP and Cisco. On the other hand, European companies place greater emphasis on CSR than American ones (Glover). An analysis of top IT firms (figure 2) shows that most companies have clear ethics codes, elaborate conflict of interest resolution mechanisms, whistle-blowing procedures, and CSR programs.

Trends and Future Perspectives

Investors often consider corporate governance when making investment choices. As such, firms in the IT industry are likely to invest more in social and environmental management. In addition, legislation such as the SOX and the Stewardship Code promises to compel firms to embrace good corporate governance. In the near future, more companies will turn to CSR to address issues affecting their stakeholders. Stakeholders are increasingly becoming aware of how a company’s activities affect them. In this regard, a strong commitment towards CSR can improve a firm’s public image and reputation. A good reputation means the company practices good business ethics.

Recommendations and Conclusion

It is evident that business ethics and corporate governance are essential in the modern business environment. Good corporate governance increases investor trust and consumer confidence, which translates into improved leadership performance and profitability. For small IT corporations in the UAE, it is recommended that they employ the media to create awareness of their practices and CSR policies. In addition, legislation on independent auditing and prudent accounting can help entrench good business ethics in the firms and raise investor confidence. The enforcement of such legislation should involve an independent entity to avoid challenges related to conflict of interest.

Works Cited

GlobeScan, Inc. Corporate Social Responsibility Monitor 2003. Toronto: GlobeScan, 2003. Print.

Glover, Tony. “UAE on the fast track for growth in IT sector.” The National Business 2011. Web.

MacGillivray, Alex, John Sabapathy, and Simon Zadek. Responsible Competitiveness Index 2003: Aligning corporate responsibility and the competitiveness of nations. London, UK: Accountability and The Copenhagen Centre, 2003. Print.

McLaren, Duncan. Corporate Engagement by ‘Socially Responsible’ Investors: a practical paradigm for stakeholder governance? London: Ashridge, 2002. Print.