After the accounting debacles of Enron and WorldCom, the credibility of large companies hit rock bottom. In a bid to restore confidence, the US authorities now require chief executives and chief financial officers of large listed companies to swear to the truth of their financial statements. The chief executive officer (CEO) and chief financial officer may be charged with civil and criminal offences if any of their financial statements are found to be false.
If only the problem were confined to the US, but it is not. The same kind of problem has arisen in Korea, where recent accounting fraud in venture companies listed on the Korea Securities Dealers Automated Quotations index (Kosdaq), the Korean equivalent of the US Nasdaq, caused the index to plunge to a mere 53 on 19 September 2002 from ahigh of 279 on 15 December 1999. The CEOs of 810 companies listed on the Kosdaq have made voluntary pledges to ensure accurate accounting. Although these pledges are not legally binding, the list of participating companies will be publicly announced and a company’s image risks being severely damaged if it fails to uphold its promise.
Such events bring home the fact that as globalisation proceeds at a fast pace, companies in different countries are being scrutinised in relation to the same set of principles and guidelines. To survive, it no longer matters whether a company is an international or a domestic player. It still has to comply with what are internationally accepted as the “right” principles of corporate ethics and governance.
Companies are being made to act as responsible citizens of this global society, and they could be severely sanctioned, not just by the market but by legislators, should they be seen to fall short of their duty of making a good and honest profit for shareholders and keeping clear, accurate and open accounts to prove it.
How can we promote ethical and responsible business practices and thus help make financially successful companies in the process? And how should the concepts of corporate ethics and social responsibility in the 21st century knowledge society differ from those of the industrial era of the 20th century?
In order to implement corporate citizenship globally, it is essential to stick to one global standard, especially in the field of management practices. By this, I mean that one should not fool oneself by practising double standards. In Korea, an international globally renowned brokerage firm was recently sanctioned by the authorities for leaking an internal report on Samsung Electronics to its customers prior to publication. This “accident” could have been avoided if the company had adhered to the core operating principles that it abides by in other markets. These brokers may try to defend themselves by arguing that this is a common practice among some Korean analysts, but it is this sort of act that may hinder the development of a global standard of corporate citizenship. It also gives ammunition to the anti-globalisation activists.
Some corporate leaders of multinational companies based in developing countries may argue that they would be unable to compete with domestic firms if they had to follow the strict code of ethics set by their headquarters. Clauses strictly prohibiting kick-backs, bribery or undue profits from abusing insider information make it difficult for their business to survive, they say. However, one can cite several model practices from all over the world that demonstrate the execution of global management standards. Johnson & Johnson is a pharmaceutical company that now runs immensely successful operations in Korea while following to the letter the severe code of ethics imposed by its US headquarters. Johnson & Johnson’s management have steered clear of untoward practices and still manage to run a successful business.
Codes of ethics or corporate citizenship must be observed wherever a firm does business anywhere in the world. Corporate governance is a key element of this equation, and may help us to more quickly reach the goal of global corporate citizenship, where we can be sure that all companies operate to the same standards wherever they are doing business.
A jubilee of human knowledge
The theme of the third World Knowledge Forum (WKF) was “Knowledge in a World of Risk: A Compass towards New Prosperity”.
“We like to define the World Knowledge Forum as a ‘jubilee of human knowledge’,” says the WKF website (www.WKForum.org). “Evolution,” it says, “refers to steady, predictable change. Revolution – like a rugby ball in which we cannot predict the direction of the next bounce – is all about disruption, discontinuity, instability, and unpredictable change. Could this be deemed as a threat? Or opportunity?”
The World Knowledge Forum takes place in Seoul, Korea on 15-18 October. This year’s speakers include OECD secretary-general, Donald Johnston; World Bank Human Development Network managing director, Mamphela Ramphele; and 2001 Nobel economics laureate, Joseph Stiglitz.
Governance issues figured highly on this year’s agenda, in particular at the OECD’s plenary session on “Sustainable Globalisation: Politics, Money and Trends”. Bill Witherell, director of the OECD Directorate for Financial Fiscal and Enterprise Affairs, and William Davie of Schlumberger, were among the speakers.
©OECD Observer No. 234, October 2002