Corporate Governance and Ethical Issues Study Notes

Corporate Governance and Ethical Issues

Corporate Governance

  • The core of corporate governance lies in the internalized values embraced by an organization and its top management, not merely external conduct.

Business Ethics

  • Business ethics involves applying general ethical ideals to business, encompassing moral principles, standards, and codes of conduct that businessmen are expected to adhere to in their interactions.
  • Good corporate governance entails treating all stakeholders (creditors, customers, employees, society, governments, and competitors) fairly, not just shareholders.

Corporate and Fraudulent Behavior

1. Insider Dealing
  • A company's future prospects and profitability are reflected in its share value.
  • Typically, this information is available to a prospective purchaser only after it has been made public.
  • If a prospective purchaser gains access to such information before it is made public, they could predict price movements and profit from it.
  • This is known as 'insider dealing,' a criminal offense that undermines the integrity of the stock market.
2. Market Abuse
  • There are seven types of market abuse:
    • Insider Dealing
    • Improper Disclosure: An insider improperly discloses inside information to another person.
    • Misuse of Information: Behavior based on information not generally available but would affect an investor’s decision about the terms on which to deal.
    • Manipulating Transactions: Trading or placing orders to trade that give a false or misleading impression of the supply of, or demand for, one or more investments, raising the price of the investments to an abnormal or artificial level.
    • Manipulating Devices: Trading or placing orders to trade using false devices or any other form of deception.
    • Dissemination: Giving out information that conveys a false or misleading impression about an investment or the issuer of an investment, where the person doing this knows the information to be false or misleading.
    • Distortion and misleading behavior: Behavior that gives a false or misleading impression of either the supply of, or demand for an investment, or behavior which otherwise distorts the market in an investment.
3. Money Laundering
  • Money laundering is a process by which the proceeds of a crime are converted into assets that appear to have a legal rather than an illegal source.
  • The goal is to disguise the source of the property, allowing the holder to enjoy it without suspicion.
  • There are three phases of money laundering:
    • Placement: Initial disposal of the proceeds of criminal activity into an apparently legitimate business activity or property.
    • Layering: Transfer of money from business to business, or place to place, in order to conceal its initial source.
    • Integration: Culmination of the previous procedures through which the money takes on the appearance of coming from a legitimate source.
4. Fraudulent Trading
  • Occurs when a company’s business is carried on with the intention to defraud creditors or for any fraudulent purpose.
5. Wrongful Trading
  • Occurs when, on a winding up, it appears to the court that the company has gone into insolvent liquidation, and before the start of winding up, the director knew or ought to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation.
6. Bribery
  • Bribery is an act implying money or a gift given to alter the behavior of the recipient.
  • It involves offering, giving, receiving, or soliciting any item of value to influence the actions of an official or other person in charge of a public or legal duty.

Omani Penal Code 1974 - Criminal Offences

  • Criminal offenses are divided into three main categories:
    • Felonies
    • Misdemeanors
    • Minor offenses
Felonies
  • Envisaged penalties include capital punishment, life sentences, and prison sentences that can span from three years up to fifteen years.
Misdemeanors
  • Punishments consist of prison sentences that may vary from ten days to three years, and fines ranging between ten to five hundred Omani Rials (approximately 26 to $1300 USD).
Minor Offences
  • Punishments include a prison sentence from 24 hours to ten days and fines from one to ten Omani Rial (approximately 2.60 to $26 USD).