Ethics, Governance and Risk Management in Organizations

Table of Contents

1. Frontmatter

2. Ethical Issues in Organizations

   1. Frontmatter

   2. How Does Organizational Ethical Climate Affect Interpersonal Deviance? The Role of Moral Disengagement

      Intan Marzita Saidon, Nadzri Ab Ghani

      Abstract

      To understand the relationship between organizational ethical climate and interpersonal deviance in a more comprehensive way, this study examines the mediating role of moral disengagement. Moral disengagement is a construct that explains possible keys to the deactivation of an individual’s self-regulatory system. Once this self-regulatory system is deactivated, an individual will be freed from psychological feelings of discomfort when performing deviant behavior. Data were randomly collected from 669 employees in large electrical and electronic manufacturing companies in Malaysia. Applying two-staged structural equation modeling software (analysis of moment structures or AMOS), results indicate that organizational ethical climate is negatively associated with moral disengagement. In addition, moral disengagement plays a partial mediation role in the relationship between organizational ethical climate and interpersonal deviance. Implications for theory and practice are discussed.

   3. Servant Leader and Ethical Climate: An Integrative Approach to Employee Ethical Behavior

      Norizah Mohd Mustamil, Usama Najam

      Abstract

      Theoretically, an individual’s ethical behavior is very challenging due to the multitude of antecedent factors that influence this behavior. This notion leads to a consensus that employees at a workplace established their own perceptions toward ethical standard based on what they believe, especially when dealing with ethical dilemmas. As a result, the occurrence of numerous wrongdoings is evident and regretful; these employees are unaware of their unethical behaviors. Nevertheless, existing studies have confirmed that leadership style and the workplace environment are the mechanisms to communicate with employees on what are considered as the appropriate workplace conducts. These two factors are the main focus of this chapter. More specifically, this chapter discusses the role of servant leadership style and ethical climate as crucial elements to encourage employee ethical behavior.

   4. The Role of Ethical Reasoning in the Relationship Between Work Experience and Whistle-Blowing Intention

      Nadzri Ab Ghani, Intan Marzita Saidon

      Abstract

      The term ethical reasoning involves the cognitive process of reasoning which in turn leads to moral decision making. The aim of the study is to provide a possible explanation for the inconclusive empirical results of previous whistle-blowing studies. Using the theory of planned behavior and cognitive moral development theory as frameworks, this study examines a potential mediator of ethical reasoning in the relationship between work experience and whistle-blowing intention. Data were collected from 311 supervisors from large manufacturing companies in Malaysia. Applying the Sobel test, the results indicate that ethical reasoning mediates the relationship between work experience and whistle-blowing intention. Implications for theory and practice of the findings are discussed.

3. Governance Issues in Organizations

   1. Frontmatter

   2. The Enhancement of Corporate Governance in Government-Linked Companies

      Khairul Anuar Kamarudin, Wan Adibah Wan Ismail

      Abstract

      This paper analyzes the development of corporate governance in Malaysian government-linked companies. Using a sample of 404 firm-year observations, this study found that corporate governance of these companies improves after the establishment of the Putrajaya Committee on GLC High Performance (PCG) in the year 2006. Specifically, board governance in terms of board independence and board active participation appears to be stronger during the period 2006–2011. Similarly, audit committee also shows improvement in governance in terms of greater independence and higher number of expertise. This study also found that for some companies that have already installed adequate level of governance during the period before the establishment of PCG, no significant changes of governance were found, whereas companies that show weak governance during the period before the establishment of PCG were found to have improved their corporate governance over the years.

   3. Whistleblowing: A Mechanism for Better Governance

      Noor Afza Amran

      Abstract

      This study focusses on the theme of whistleblowing in general and in Malaysian context. The discussion starts with the evolvement of whistleblowing around the world and then followed by the various definitions on whistleblowing. Next, this study elaborates in details on Whistleblowing Protection Act, the practice of the Act in Malaysia and the respond towards the implementation of whistleblowing in Malaysia. Lastly, this study concludes on the Whistleblowing Protection Act and the link with corporate governance.

   4. The Influence of Corporate Governance Mechanisms on Financial Structure Decision

      Zuria Juhari, Corina Joseph

      Abstract

      This study examines the relationship between corporate governance mechanisms and financial structure decision among Malaysian public listed companies for the year ended 2013 using the agency theory. Ordinary Least Square regression is used to examine the influence of corporate governance mechanisms on company’s financial structure decision. The independent variables include board size, directors’ remuneration, CEO duality, tenure of CEO, and institutional ownership. The control variable is represented by firm’s size, whereas the dependent variable is financial structure decision. The results indicate that directors’ remuneration and firm’s size have a positive significant relationship with the financial structure decision. The corporate governance is developed to reduce the agency costs and ensuring the separation of ownership and management to protect the shareholder’s rights. This aligns with corporate finance theories, which suggest that financial structure is one of the elements that contribute to the agency cost, while corporate governance is a tool that can mitigate the agency issues.

   5. The Relationship Between Corporate Governance Mechanisms and Firm’s Performance

      Shahrina Liza Salisi, Corina Joseph

      Abstract

      The Asian financial crisis in 1997 has gained a public attention on the importance of corporate governance. Several reforms have been undertaken, especially in strengthening the boards of director’s composition to ensure the board of director’s function is delivered efficiently. Thus, the Malaysian Code of Corporate Governance (MCCG) codified the best practices that could enhance the corporate performance. Using the agency theory as a theoretical lens, this study examines the relationship between board independence, CEO duality, board size and directors’ remuneration on firm performance, based on two measurements, namely Return on Assets (ROA) and Tobin’s Q following MCCG 2012. The 100 samples of annual reports were randomly selected from the Bursa Malaysia website for the year end 2013. Results from the multiple regression analysis reveal that CEO duality and directors’ remuneration were found to have a significant relationship with firm performance when measured using Tobin’s Q. None of the independent variables have a significant relationship with firm performance using Return on Assets as the proxy for accounting measure. The result reveals that there is a negatively significant relationship between firm size and firm performance. Findings would assist the committee of MCCG2012 and other authorities to reinforce on the corporate governance compliance and good practice.

   6. The Influence of Board Structure on GRI-Based Sustainability Reporting: Evidence from Turkish Listed Companies

      Merve Kılıç, Cemil Kuzey

      Abstract

      The primary objective of this study is to test the link between board structure and Global Reporting Initiative (GRI)-based sustainability reporting. Using a logistic regression model that included a sample of the 64 largest companies listed on Borsa Istanbul (BIST), the Turkish stock exchange, we determined that the board size as well as the existence of a board committee (i.e., corporate social responsibility, environmental or sustainability committee) is significantly and positively related to GRI-based sustainability reporting. However, to our surprise, we also determined that companies with national diverse boards are less likely to publish GRI-based sustainability reports. Further, our findings revealed that board independence and board gender diversity are not significant predictors of GRI reporting. The overall findings of this study imply that the board structure occupies a limited role in determining corporate decisions with respect to sustainability reporting practices. This research contributes to the literature by enhancing our understanding of the association between board structure and sustainability reporting in a developing country, namely Turkey. Further, it contributes to the literature by empirically investigating the relationship between board diversity and GRI-based sustainability reporting, which has been rarely examined in prior research.

   7. The Practices of Corporate Governance and Shariah Governance in Islamic Financial Institutions

      Daing Maruak Sadek, Zakaria Abas, Khilmy Abd Rahim, Azyyati Anuar, Mas Aida Abd Rahim

      Abstract

      Prior studies have shown corporate governance in the banking industry has been discussed primarily in the conventional perspective. However, as numerous as the researches have been, there is still not much literature available that thoroughly studies corporate governance and its theoretical foundation from the views of Islam. As a matter of fact, the challenge is greater compared to conventional finance system due to the additional risks it poses. As such, it is highly recommended for Islamic banks and financial institutions to apply a governance system and strategies that are effective as to encourage the adoption of Islamic corporate governance. An efficient and effective Islamic governance system is of the essence when it comes to corporate governance for IFIs, especially given what had transpired with the financial scandals and failure of several Islamic financial firms, and the possibility of what can happen when Shariah is not complied. For the purpose of Shariah compliancy, Islamic corporate governance needs to include an additional layer of governance in its philosophical foundation. In light of this, IFIs need to apply the relevant institutional arrangements not only to monitor their company’s Shariah adherence, but to their operations as well. Due to the lack of Islamic literature when it comes to Islamic corporate governance, IFIs have taken matters into their hand by introducing into their corporate governance structure the Shariah governance system, making it unique compared to any conventional methods. In the light of this, this chapter will attempt to shed light on the basics of corporate governance system and Shariah governance system in Islamic financial institutions (IFIs).

4. Risk Management Issues in Organizations

   1. Frontmatter

   2. Japanese Food Company Supply Chain in Malaysia: Its Structure and Risk Management Strategies

      Rafisah Mat Radzi, Intan Marzita Saidon, Nadzri Ab Ghani

      Abstract

      The complexities of the food supply chain impose enormous challenges on the processors and indeed the whole food processing industry. In fact, the vulnerability of food supply chain is greater compared to other industries due to the perishable nature of food products. Since Malaysia has experienced a persistent food trade imbalance as the demand for food items has risen faster than their supply, the improvements in the supply chain are important. Therefore, in helping Malaysia to become more self-sufficient in its food requirements, this chapter will explore the food supply chain’s structure as implemented by Japanese food companies in Malaysia, considering Japan can be described as a supply chain superpower. Further, the major risks that Japanese food companies experience in Malaysia, particularly in terms of the strategies employed to cope with the risks, are identified. By employing a qualitative approach, twenty semi-structured interviews with supply chain managers working with Japanese food and beverage companies operating in Malaysia were conducted. This chapter will provide background information which may help to design appropriate supply chain strategies that can be embraced for circumstances suitable for overcoming the current challenges prevailing in Malaysia and other emerging market economies.

   3. A New Dawn of Mobile Payments: Infrastructure, Challenges, Risks and Mitigating Factors

      Manroshan Singh Bhatt, Muhammad Arief Siddiq Md Daud, Reza Aminosharei, Kim Mun Wong

      Abstract

      In recent years, the number of transactions performed through mobile payment has skyrocketed in China and a technology that was once considered unsafe and unreliable has become a necessity in China today. This mode of payment has become so dominant among the Chinese that many stores in neighbouring countries have adopted it in order to satisfy the needs of Chinese tourists visiting their countries. This paper analyses the factors which caused the surge in popularity of mobile payment in China and explains how businesses in other countries can follow China’s footsteps and benefit from this technology. This paper also briefly describes some of the challenges that businesses and other enterprises could face in implementing mobile payment and further demonstrates the risks companies will be exposed to upon adopting this means of payment. The paper concludes with viable recommendations in managing and mitigating these risks.