ETHICS AND CORPORATE GOVERNANCE TOWARDS SUSTAINABLE MANAGEMENT. for. Dozen Tamu Program Faculty of Economics Syiah Kuala University, Bandar Acheh

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1 ETHICS AND CORPORATE GOVERNANCE TOWARDS SUSTAINABLE MANAGEMENT for Dozen Tamu Program Faculty of Economics Syiah Kuala University, Bandar Acheh 8 March, 2013 Ishak Bin Ismail School of Mangement, USM & Hasnah Haji Haron Graduate School of Business, USM 1 1

2 Martin Luther King, Jr. The Ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.

3 What is Sustainability? Sustainability development is meeting the needs of the present without compromising the ability of future generations to meet their own needs (The Brundtlant Report 1987)

4 Section 1 Ethics & Good Leadership 4

5 Introduction Good corporate governance, proper accountability, transparency and business ethics are the hall marks of respected business. There is a significant body of evidence to show that those businesses with high ethical codes of practice and a commitment to enhancing integrity are not only profitable but more likely to succeed in our commercially competitive world 5

6 Some Samples of Ethical Cases 1. A Story of Father & Son A Supermarket Experience 2. Case of Era Fm, Malaysia 3. Case of Putra Jaya & KLIA International Airport 4. Case of MK Land Development 5. Sirah Khalifah Omar Al-Hattab 6

7 What is Ethics? Simply stated, ethics refers to standards of behavior that tell how human beings ought to act in many situations; An Act Between the Right & The Wrong & From the Islamic Perspective; You are the best of peoples, evolved for mankind, enjoining what is right, forbidding what is wrong, and believing in Allah (Qur an 3:110) 7 7

8 Why is this so? 1. Corporate images and branding values are enhanced. 2. Customers value companies with strong ethical values and deprecate those who have behave corruptly. 3. Companies who have good corporate practices set positive examples. 4. Investors are more likely to invest in countries and companies with strong ethical standards. 5. High ethical standards improve the quality of life. 8

9 DEFINITION OF ETHICS 9

10 Definition of Ethics: Ethics is a system of moral principles by which human actions and proposals may be judged as good or bad or right or wrong Muslim Ethics is based on akhlaq, i.e one s personality reflected in an individual s behavior towards God and other human beings 10 10

11 Akhlaq = Khayr (Goodness) 1. Righteousness 2. Equity 3. Equilibrium & Justice 4. Truth & Right 5. Known & Approve 6. Piety Ethics Is Not A Number Game 11 11

12 Amanah Leadership in Islam is a trust (amanah). It represents a psychological contract between a leader and his followers that he will try his best to guide them, to protect them and to treat them fairly with justice. Hence, the focus of leadership in Islam is doing good

13 Concept of Tawhid The political, economic, social, and religious aspects of man s life form a homogeneous whole, which is consistent from within, as well as integrated with the vast universe without. This is the vertical dimensions of Islam 13 13

14 Implication of the Tauhid Concept Sincerity in business dealings. Conscious of responsibility towards customers, community and environment. Geniality towards fellow humans. Moderations in business dealings. Fair treatment of customers. Zeal in business-building

15 WHAT IT REQUIRES TO BE A GOOD LEADER 15

16 Definition of Leadership? Leadership is an influence relationship among leaders and followers who intend real changes and outcomes that reflect their shared purposes. (Richard L. Daft) 16

17 Definition of Leadership? You are the best of peoples, evolved for mankind, enjoining what is right, forbidding what is wrong, and believing in Allah. (Qur an 3:110) 17

18 Is Islamic Leadership Any Different? Secular leadership s target is self-establishment. Islamic leadership s target is Jannatul Fidaus (Highest position in paradise). Secular leaderships work for respect of people. Islamic leadership works for the pleasure of Allah. 18

19 KNOWLEDGE - THE KEY TO EFFECTIVE LEADERSHIP PROPHET MUHAMAD SAW: Whoever wants to inherit the here-now world, let him go and get knowledge for it. Whoever wants to inherit the hereafter (Akhirah), let him go and get knowledge. And whoever want both the world and hereafter and get knowledge for it 19

20 Primary Asset of an Ideal Worker 1. Ilmu (Knowledge) : Al Quran, al-hadith, Islamic Literature. 2. Iman (Faith): Taqwa (conciousness of Allah) 3. A mal (Deeds) : humility, night prayers, remembrance of Allah, infaaq (spending in the way of allh)

21 Assets to improve qualities of an Ideal Worker 1. Sabr (Patience) 2. Hikmah (Wisdom) 3. Tawakkul (Reliance on Allah) 4. Bai yah (Allegiance) 5. Ihtisab (Accountability) 21 21

22 MORALITY AND LEADERSHIP 22

23 Almarhum Pak Hamka (Indonesia) In the 1960 s, while we are now able to create cities and modern concrete jungle; yet at the same time the soul of its inhabitants appear to be empty and benefit of meaning 23

24 By the soul, and the proportion and the order given to it. And its enlightenment as its wickedness and its piety. Successful is the one who keeps it pure and ruined is the one who corrupts it. Qur an, 91 :

25 Arab poet Ahmad Shauqi Bey puts it: Nations survives as long as their morality is alive. When their morality is gone, they too perish

26 Basis For Good Governance : - Ethics & Integrity 26 26

27 Integrity is a quality of excellence that manifested in a holistic and integral manner in individuals and organizations. Integrity is based on ethics and noble values and their concrete manifestation in their daily lives

28 Integrity of Individual The harmony between what an individual says and does. His or her actions are in accordance with moral and ethical principles as well regulations and do not go against public interest. They also reflect promptness, correctness and quality

29 Integrity of Organizations The integrity of an organization is reflected in the formulation and implementation of its code of ethics, clients charter, and system or work procedures, as well as compliance with best practices. The organization s code of ethics is constantly reiterated, internalized and upheld by members of the organization until it becomes second nature, and ultimately transform into the culture for the organization as a whole

30 Integrity of Public Officials For holders of public office, integrity means carrying out the trust and responsibilities bestowed upon them in line with public interest. They are not allowed to misuse their power for their self-interest, or for the interest of their family or relatives. Should a conflict of interest occurs, public interest overrides personal interest. Holders of public office must be transparent, sincere and accountable

31 THE MALAYSIAN SCENARIO 31 31

32 Prime Minister of Malaysia Dato Seri Abdullah Ahmad Badawi (2006) My decision to pursue good governance and anti-corruption is thus strongly linked to the need to maintain Malaysia s economic competitiveness in the face of increasing global pressure. Countries that offer stable, efficient and costeffective business environment are naturally favored as investment destinations. Along the same line, a country that has a high risk level of corruption, whether perceived or real, runs the risk of losing current and future investments

33 As a developing country, Malaysia has achieved successes in many fields. It now aims to become a fully developed nation in its own mould by In order to become a successful nation and to further strengthen its achievements towards excellence, glory and distinction. Malaysia must effectively manage its successes

34 At the same time, the people s awareness and concern for ethics and integrity and their demand for the elimination of corruption, abuse of power and incompetence has increased. They demand that integrity must not be compromised while concerted efforts must be undertaken to enhance the integrity of the government, private sector, political parties, media, trade unions, NGOs, youth, students and the general public

35 Instruments of Good Delivery System Concepts (Since 1980 s) 1. Clean, Efficient & Trustworthy 2. Integration of Islamic Values 3. Excellent Work Culture 4. Code of Work Ethics 5. Client s Charter 6. ISO

36 Government Best Practices Core Values 1. Honesty 2. Trustworthiness 3. Wisdom 4. Fairness 5. Transparency 6. Gratitude 36 36

37 How to Inculcate Good Governance? 37 37

38 1. Give directions and guidance to various sectors so that they will work closely together to build a united, harmonious, moral and ethical society, 2. Raising awareness, commitment, and cooperation among all sectors in their efforts at enhancing integrity so that integrity becomes a way of life. continue 38 38

39 3 Encouraging a sense of accountability among members of the community and to promote the development of civil society that respects and upholds the principles of integrity. 4. Contributing towards strengthening the moral foundations of the community and the country, and improving the well-being of the community. 5. Raising the competitiveness and resilience of meeting the challenges of globalization

40 Implementation of Strategy 1. Consensus building & commitment. 2. Communication. 3. Promotion & Training. 4. Consultancy. 5. Follow up & follow through. 6. Recognition & awards

41 National Integrity Plan ( ) Malaysia s Approach 41 41

42 Immediate Tasks of NIP 1. Effectively reduce corruption, malpractices and abuse of power. 2. Increase efficiency of the public service delivery system and overcome inefficiency. 3. Enhance corporate governance and business ethics. 4. Strengthen the family institutions 5. Improve the quality of life and the societal well-being

43 Objectives of NIP 1. Giving direction and guidance to various sectors so that they will work together to build a united, harmonious, moral and ethics society, 2. Raising awareness, commitment and cooperation among all sectors in their efforts at enhancing integrity so that integrity becomes a way of life and practiced in all fields, 3. Encouraging a sense of accountability among members of the community and to promote the development of civil society that respects and upholds the principles of integrity

44 Objectives of NIP2 1. Contributing towards strengthening the moral foundations of the community and country, and improving the wellbeing of the community. 2. Raising the competitiveness and resilience of Malaysian in meeting the challenges of the 21 st. Century, especially the challenge of globalization

45 IIM INDICES 1. Malaysian Corruption Index 2. Malaysian Index of Public Service Delivery 3. Malaysian Index of Corporate Governance 4. Malaysian Index of family and community cohesiveness. 5. Malaysian Index of Courtesy 6. Malaysian Index of Quality of Life and Societal Well-Being. 7. Malaysian Index of Integrity

46 Strategies for Implementing NIP 1. Integrity Agenda for family. 2. Integrity Agenda for the community. 3. Integrity Agenda for a Civil Society 4. Integrity Agenda for Socio-Cultural Institution 5. Integrity Agenda for the Religious Institution. 6. Integrity Agenda for the Economic Institution 7. Integrity Agenda for the Political Institution 8. Integrity Agenda for the Administrative Institution

47 Key Success Factors 1. Leadership by Examples 2. Sound Policies & Clear targets 3. Continuous Education. 4. Effective Communication 5. Conducive Cultural Environment 6. Cooperation between politics and administrative machinery 7. Effective Legal framework & Independent Judiciary. 8. Adequacy & Efficacy of Resources. 9. Readiness of Individual to change

48 Islamic Hadhari Approach 48 48

49 It is an approach that emphasizes the development, consistent with the tenets of Islam and focuses on enhancing the quality of life. It aims this via the mastery of knowledge and the development of the individual and the nation; the implementation of a dynamic economic, trading and financial systems; an integrated and balanced development that creates a knowledgeable and pious people who hold to noble values and are honest, trustworthy and prepared to take global challenges

50 It is an approach that emphasizes the development, consistent with the tenets of Islam and focuses on enhancing the quality of life. It aims this via the mastery of knowledge and the development of the individual and the nation; the implementation of a dynamic economic, trading and financial systems; an integrated and balanced development that creates a knowledgeable and pious people who hold to noble values and are honest, trustworthy and prepared to take global challenges

51 Six Major Ethical Systems Relativism Ethical decisions are made on the basis of self-interest and needs. Utilitarianism Ethical decisions are made on the basis of the outcome resulting from these decisions. An action is ethical if it results in the greatest benefit for the largest number of people. Universalism Ethical decisions stress the intention of the decision. Everyone under similar circumstances should reach similar decisions. Rights Ethical decisions stress a single value; liberty, and are based on individual rights. Distributive Justice (Fairness & Equity) External law 51 51

52 Concept of Distributive Justice 1. To each an equal right. 2. To each according to the individual needs. 3. To each according to individual effort, 4. To each according to social contribution. 5. To each according to merit

53 Local Javanese Principles Good Ethics is A Sum of: Beras (Rice food as basic needs) Keras (Effort rules & regulations) Waras (Mind religion, values & discipline) 53 53

54 Datuk Dr. Abdul Samad Alias, Immediate-Past President of The Malaysia Institute of Accountants (Accountancy, 2006) Integrity is really a matter of who you are when no one is around 54 54

55 Towards a better world where there is both accountability and justice and where there is peace and humanity Start with yourself Start today Care & dare 55 55

56 Summary INTEGRITY is like a mighty tree that stands out in the forest. Its roots are deep, supporting a tall and hardy trunk, and its top is a crown of branches and green leaves. It blooms with large clusters of fruits of fruit in brilliant colors, ripe and ready to scatter its seeds. Birds and other animals find comfort perching on its secure branches