Aveneu Park, Starling, Australia

I, problem of information asymmetry, which is

I, Yaling Shi,
affirm that I have neither given, used, received, or witnessed unauthorized or
inappropriate assistance in completing this assignment. I have completed this
work honestly and according to the instructor’s and university’s guidelines. If
I have used or referred to any ideas or words of others (such as articles,
other printed materials, online internet sources, etc.), I have indicated such
and given proper credit to the original sources. Yaling Shi.

1. Identify three ethical or social/ CSR issues facing an industry with
which you are familiar. Using what you have learned in class about managing
intra organizational ethics and corruption issues, and about the nature of
social/CSR issues, evaluate how well or poorly that industry handles those
three issues, and make a recommendation for what it should do about the issues
in the future. ?

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  I
want to identify Corporate social responsibility issues facing banking sector.

The banks’ interest related parties include creditor, investor, companies, employee
and regulators, which is the so-called the stakeholder. These people may have
different expertise and interpretation in financial information supplied by
banks. Therefore, compared to other industries, the components of banks’
stakeholders are complex, which could lead to a significant problem of
information asymmetry in banking sector. It increases the risk of banks to
conceal some financial facts to confuse their clients. The first CSR issue is
focus on solving the problem of information asymmetry, which is the duty of
banks for their stakeholders.  The second
CSR is from the aspect of the confidential customer information in banking
sector. The last CSR issue demonstrate the social responsibly of banking for
the community, like donation, engineering and education. 

 1) The
first CSR I want to illustrate is the bank’s responsibility to ensure its
financial disclosure more accountable and transparent. It is a great way to improve
the trust of public for the banking industry and attract more investment on the
long-term basis. Meanwhile?it is an effective method to reduce the information
asymmetry. After realizing this CSR issues, central banks were dedicating in
enhancing the education of financial literacy and promoting financial education
projects to reduce the information asymmetry. Hong Kong& Shanghai Banking
Corporation Limited(HSBC) did well in this aspect. HSBC provided the financial
literacy courses and scholarship to give education for their clients.

  As
for the recommendation of this corporate social responsibility, internally,
companies should set up explicit ethical codes to ensure the financial
disclosure transparently and accountably. It is the basis duty for the
company’s shareholder to make them fully informed of the financial situation of
the company. On the other hand, in the aspect of the whole ethical environment.

It is essential to release some Acts, like the Sarbanes-Oxley regulations,
which set up the standards to disclose the financial information for the public
companies. However, as for the private companies, there are relatively less
limits for the financial disclosure. It is necessary to establish some similar
rules to maintain the transparency of the private companies. 

 2) In
addition, with the advancement of technology, online transfer and payment give
customers more convenience way to access the banking system, which also arise
more sophisticated method of banking fraud and electronic criminals. It is the
primary duty of banks to diminish these frauds and keep the confidential
customer information. This Corporate social responsibility(CRS) is from the
aspect of the customer of banks.  Banks
are engaged in improving security mechanism and establishing effective
strategies to protect the interest of customers. There are multiple layered
security methods to prevent fraud. First of all, employees in banks are trained
to increase awareness to keep some sensitive information confidential.

Compliance with the privacy date law must be ensure in banking’s routine
operation. Second, the online banking system also have multiple protective
measures. For instance, series steps to verify the users account and automatic
logout to prevent account misappropriation. Additionally, in the article
Banking Protection and Security, it indicates that except the multi-step
identification verification, banks also develop firewalls, which is the
software specifically designed to stop malicious users, viruses, and other
security threats. Secure Sockets Layer (SSL), which is a security technology to
ensure the confidence of customers’ personal information, credit card number,
and also bank account information. On the other hands, banks will send security
alerts to inform customers the abnormal account login or transfer, which are
effective ways to prevent banking fraud.

 3)The
third CSR issues in banking sector is its discretionary responsibility, which
is a voluntary activity of banks. After the financial crisis, banking industry
suffered significant impact. The social expectation for the CRS of banking
sector also have a strategies shift. In the aspect of stakeholders, banks
need connected stakeholders’ interest with its CRS commitment. For employees,
banks have the responsibility to provide a safe and fair work environment,
within which employees from different races get equal opportunity to promote, free
from discrimination. For investors, banks have duty to supply secure financial
instruments to reduce the risk of investment. At the same time, for
shareholders, it is the responsibility of banks to disclose appropriate
financial information to avoid the malicious manipulation. As regards to the
local community, banks should commit on establishing loan policy for low-income
family, making donation to local education program, conducting some volunteer
activities for elderly and mentally-disabled people and ensuring the sustainable
development of environment.

2. Explain why
corruption is hard to eliminate in some industries or business environments.

Illustrate your answer by making reference to at least three of the cases, and
three of the articles, that we have discussed in class. Then explain one way to
overcome the difficulties you mentioned in the first part of your answer.

  Corruption can be treated as a social ethical
issue that was defined as using public power to seek individual interest. There
are many factors that could cause corruption, including political and
bureaucratic, economic, judiciary and cultural. The different economic
performance of countries could be result in variety level of corruption. These
all determines that corruption is a sophisticate phenomenon and hard to
eliminate.

  Bribery is a very common form of corruption,
which might happen either in private sector or public sector. As for the
bribery in private sector, some companies give bribery to their partners in
return for a long-term relationship. According to the case of Kitchen best, Ma
Luk, Operation Director of Kitchen best, regularly paid kickback, entertainment
gift to agents’ personal accounts to build up business relationship. His
behavior was turned a blind eye by the previous CEO Chan Dong-hwa.  In the business with Honghua Appliances,
which is a key customer of Kitchen best, Ma built the contract use the same
method. However, after the strategic shift of Honghua’s management, which
prohibited the practice of kickback. Kitchen began to worry about the business
with Honghua. Henry Chan, the new owner of Kitchen best, given the cultural and
bureaucratic barriers, was hard to change the status quo. In this case, bribery
has become an inevitable part of the business and a way to get a long-term
cooperation. Another case happened in Kitchen best is the bribery from the its
subcontractor (Qinghua Appliance Ltd.) to the internal employee in Kitchen
best. Qinghua Appliance use the low-quality paint to manufacture the water
dispenser shell. In order to hide the truth of the fact. Qinghua bribed the
indenpent tesing agent- Keemark Testing Services to selected the prepared
sample to avoid investigation. Even though Henry Chan received the anonymous
report about this bribery, he stopped pursuing this incident further in the
long-term consideration. He didn’t want to lose the customer. Kitchen Best is
family own enterprise. It has already formed a fixed relationship, which is
called “Guanxi” in Chinese. The business model is also build up with this
foundation. Henry Chan received western education, so he would felt a culture
conflict when handling the daily business routine. It is hard for him to change
this form of bribery inside the Kitchen Best.

  In term of the bribery in public sector,
bribery also a common method to gain governmental contract for some companies.

According to the Siemen case, before investigation into bribery, Siemen built
contracts with illicit bribery total up to $843.5 million. A lot of contracts
signed in some bribe poorly regulated countries, like China, Russia and Middle
east. The huge benefits brought by bribery are the main reasons why this
corruption cannot be eliminated.  

  Political and bureaucratic elements are the
main source of corruption in some developing countries. In the case of Infosys
in India, Infosys found it tremendously hard to run a business in the climate
where corruption is an acceptable phenomenon. Low payment for bureaucrats, lack
of financial competition or lack of incentive for good behaviors all cause
corruption in India. A lot of managers in India just accept this practice,
which is another why to connive and continue corruption. In this situation, in
order to eliminate corruption, Infosys set clear commitment fairness,
transparency and honesty to make it an ethical environment of company.

  Not strict legal supervision also an
important reason why corruption was hard to eliminate. In the case of Siemen,
the German law did not have explicit prohibition to foreign bribery to ensure
business until 1991. Moreover, the bribery expenses were tax-deductible. The
last element I want to mention is from the internal or personal aspects of
corruption. The people involved in corruption always claims that they did the
criminal for the company. In the case of Fighting corruption at Siemens, one
former Siemens managers who was accused with involving in the bribe, he said “I
was not responsible for the briber, I organized the cash. I didn’t really look
at it from an ethical standpoint, we did it for the company.” It was obvious
that this manager was trying to transfer his responsibility to the company that
was not judged by the law.

 As for the recommendation to reduce
corruption, first of all, the most effective method might be set up an explicit
anti-corruption act in the outsider governmental environment. From the aspect
of companies, it is necessary to set up some clear commitments and policies to
ensure transparent and fair ethical standards in daily operation of companies.

In addition to the ethical commitment, companies should also establish some
incentive policies to encourage whistleblowers to report the internal
corruption. However, one important thing is that the security and rights of the
reporters should be maintains. Series of protection measures should be taken to
ensure a comfortable environment to report.    

7. Identify a business leader you know or have read about (but not one
we   discussed in class, such as Murthy
at Infosys), and evaluate how well that person fits the description of an
ethical leader. (If you use someone you know personally, please disguise the
person’s identity.) Also discuss the impact the person’s ethical leadership has
on others. ? 

  Ethical
leadership was defined as the ethical appropriate actions that could positively
impact the company and even the whole public good. James Burke, the chief
executive officer in Johnson &Johnson during 1976-1989, was credited with
his reasonable handling of the Tylenol Crisis in 1982. His ethical leadership
build the brand trust of J&J because of his action to put the social
responsibly above the financial profits of company. In addition, his another
defining ethical action is to increase the awareness of moral and ethical
behaviors as regards to the public welfare. (R. Czerniawski and M. Maloney, 2012)

  As for the
Tylenol Crisis, the pain reliever drug –Tylenol, the wholly owned subsidiary of
J&J, was covering more than 35 percent of the pain reliever market. On the
end of September in 1982, several people in Arlington Heights and Elk Grove
Village in Chicago died because of the chemical ingredient called cyanide-laced
in Tylenol. James immediately recalled all Tylenol capsules from the United
States instead of just removing the affected area–Chicago or the state of
Illinois. The financial loss caused by this recall was over 100 million
dollars. James also informed the FBI and FDA to remove 31million Tylenol that
are already in the American stores.  The
first thing James took into consideration was the painful of those poisoned
families even though he knew that this recall means huge financial burden for
the J&J.  James stated that his
belief required him to take this responsibility to the public health. To ensure
the transparency of the incident handling, James allowed the media to
participate in company meeting that deal with the situation management. After
the event, a management proposal to restore public confidence in the safety of
the drug in the form of advertising was rejected by James. He subsequently
introduced the Tamper Resistant Package for Tylenol product to preserve the
public customer trust to product safety. The measure to resistant tamper the
package include “1) glued flaps to the outer cardboard box housing the
container; 2) a red seal over the container cap; and 3) once the cap was
screwed-off, an aluminum seal over the top of the container.” (R. Czerniawski and M. Maloney, 2012)

 Furthermore, James
decided to absorb the additional packaging cost for the customer to follow his
ethical belief. (R. Czerniawski
and M. Maloney, 2012). After the death cause
by Tylenol, the market shares of J&J dropped low to 7%. People though there
is no way to restore public trust for the Tylenol. However, After the Bruke’s
reasonable saving of the brand, the Tylenol market value in the pain reliever
industry was recovered to 35% at end of the year. 

After retirement from J&J, James was
hired as the chairman of a Drug-Free American. Because of his work in dealing
with the Tylenol crisis and Drug-Free American, James Burke was award with the
presidential Medal of Freedom, which is the recognition for his ethical
leadership in the Tylenol case. (Rubin et al 2010: 216-17 )

  Additionally,
James enhancing the ethical standards of J&J because he believed that it
the spirits of the company and the guideline for employees. Before James
elevation of the company’s Credo (written guide for the company and employee’s
action), company’s ethical standards to the public good and society were lack
of execution. James challenged this situation and held conference to pass the
new ethical standards– “Our Credo”. The Credo became the new ethical direction
to the people in J&J, which also influence the further generation of J&J
company. (Rubin et al 2010: 216-17 )

  James
ethical leadership was a prototype for other companies in the dilemma of making
a choice between the public welfare and the companies owe interest. Brown and
Trevino (2013) believe that “executive ethical leaders were frequently
described as models of ethical conduct, Further, when top managers are
personally committed to ethics, their organizations’ ethics programs are more
comprehensive, have stronger aspirational orientations”. James always do the
things that is morally and ethically correct, which can be reflected from his
actions taken to deal with the Tylenol Crisis. He took the corporate social
responsibility in the first place. His crisis management also demonstrate the
ethical level of transparency, accountability and honesty. Meanwhile, James set
the company’s Credo as the moral guideline for everyone to commit, which also
demonstrate the importance of the company’s ethical climate and culture. In
conclusion, James Burke was undoubtedly set an excellent example in the ethical
leadership in the history of J&J.

 

 

 

 

 

 

Reference:

Dr Helen Wong,
DBA, CPA, FCCA, CPA (Canada). Corporate
Social Responsibility Practices in Banking Industry. Retrieved from: http://www.macrothink.org/journal/index.php/jmr/article/view/7894

 

Banking Protection and Security. Retrieved from:

https://www.nationwide.com/customer-banking-protection-security.jsp

 C. Lentner, K.

Szegedi, T. Tatay. Corporate Social Responsibility in the Banking Sector. Retrieved from:

https://ideas.repec.org/a/pfq/journl/v60y2015i1p95-103.html

Infosys in India: Building a software giant in a corrupt
environment (HBSP)?

Kitchen Best: Ethics when doing cross-boundary business
in southern China (HBSP)

Fighting corruption at Siemens (HBSP multi-media case)

R. Czerniawski and M. Maloney, 2012. The Leadership values and practices of Jim Burke. Retrieved from: http://www.bdn-intl.com/LeadershipValuesJimBurke.php

Ethical Leadership>Unethical Leadership. Retrieved from:

Ethical Leadership > Unethical Leadership

Brown, M., & Trevino, L. (2013). Do role models matter? An investigation of modeling as antecedent of
perceived ethical leadership. Journal of Business Ethics, (122), 587-598-587-598.

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