Ethics, Corporate Governance & Responsible Leadership Assignment Sample

Introduction of Ethics, Corporate Governance & Responsible Leadership Assignment

There are often such decisions undertaken that affect the entirety of the workings of an organisation. The situation worsens to such a condition that an organisation witnesses a crippling fall despite the major success they have achieved in the past. Carillion plc was a successful multinational company in UK and had made a significant impact in the construction industry however certain ethical factors and corporate decisions plays pivotal roles in the downfall of such a big organisation. In this study Assignment sample ethical and corporate governance perspectives will be considered to evaluate the factors that resulted in the downfall of the organisation.

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Organisational failure from an ethical perspective

Carillion plc was a UK-based company that provided services in the multinational construction and facilities management sector. It was the second-largest construction company who was filed for bankruptcy with a debt of almost £7 billion. However, the aggressive approach of bidding and accounting was considered the main reason for the organisational failure of Carillion plc. The concept of an aggressive approach to the account indicates the practice of declaring the revenue and the profit percentage before the money was made by the company and the whole process of the declaration was done on the basis of optimistic forecasts.

There were many reasons which were emerged after the collapse of Carillion plc. However, the most crucial one of them was the failure of the ethical standards or the perspective. The lack of proper implementation of strategic leadership and the system of managing the financial part were the reasons behind the collapse of Carillion. The absence of a proper strategy and required leadership created the whole mess which eventually cost the foundation of the company, the damaged the lives of the taxpayers, the employees and other people dependent on the organisation.
The whole incident of collapsing of this UK-based giant company raised the question about the involvement of the board members and their honesty because the employees were not aware of the debt level. The payments to the shareholders indicate a lack of transparency in the core level of the company’s financial state. At every step, the errors and mismanagement done by the company’s board led to the ultimate collapse of the organisation.

The Carillion was a giant organisation with almost 43000 employees across the world and among them, twenty thousand people were from Britain. The change that they have done in the year 2016 about the pay policy management made the whole process of claiming back the bonus harder, however, this decision was considered highly inappropriate. This situation raised questions about two things, first, about the ethical approach by the company and second, about the information received by the governments about the well about of the company. The Carillion was one of the largest companies which set an example of going insolvent. The collapse of Carillion was described in a joint committee report in the UK parliaments as the story of recklessness and greed in a business model which indicates the instability of the whole organisation. However, there was another reason behind the failure of the giant company, which was its liquidation. It is a process of selling the assets before the formal closure of the company. The company lost its financial strength during the trading process and ran the basics of the administration. The main three reasons which confirm the collapse were the missed red flags, the aggressive approach to handling the accounts and the pension deficit. The drastic fall in the share price between the July of 2017 and January 2018 was alarming for the whole government. However, they have overreached and taken too many risky contracts which were later proved unprofitable. The collapse of the Carillion worked as an ethical awakening among the big firms. There were many things related to the organisation other than the lives of 43000 employees (Jurakulovna and Bahodirovich, 2021). First, many people fear that there will be a lot of disruption because it was such as big supplier in the public sector and there was also speculation about the massive damage to public service. The jobs and lives of thousands of people were hanged in the name of the collapse. The three profit warnings in the last five months of the company were actually warnings and from the value of the contracts, they were down almost £1bn. This condition made the situation difficult to manage the mountain of debt which was more than £900m and the pension deficit was £600m. The condition of the Carillion indicates the proper need for an ethical framework and training in any big firm, which can warn before any kind of financial imbalance. In most cases, it failed in the further development of any kind of ethical culture. However, in every report, the Ethical standards for public service providers were considered crucial, however, the growth of such culture is neither easy nor will come overnight.

Organisational failure from a corporate governance perspective

The main concept of corporate governance was to facilitate the most effective management process who h can deliver and secure long-term success for any organisation or company. It is the system which helps to direct and control any company. The board of directors and the top-level authority are considered responsible for the transparency in the governance of the company (icaew.com, 2022). The collapse of Carillion plc directly indicates the failure in the corporate governance of the company. The system has some major principles base on that one organisation can survive, such as holding to a solid foundation for management, promoting the ethical and responsible approach of decision making and recognising the major risks and taking required actions to manage the whole situation. The directors of Carillion failed to measure and fulfil any of the principles of corporate governance. The company has turned the serious financial issued down to focus on the positive forecast and they ran the company on the basis of that assumption and it is the major draw backs and red flag that were neglected by the directors of the Carillion.

The organisational failure of the organisation is significantly related to corporate governance. The company once used to be the second largest company in UK however it took over the top financial risks during its operation in the Middle East and these contracts proved to be non-profitable. They were faced with a delay in payment that lead to a debt piling of 900 million euros (bbc.com, 2022). It practically crippled the company’s financial structure.

The demise of this industry giant raise questions from the stakeholders and the employee and most importantly the public about the capability of the decision-making of the directors (sites.duke, 2022). Eleven the question was raised about the whole package of remuneration for the directors and the growth in the paying of dividends. The team IoD means the institute of Directors questioned the experience and the capability of the directors of Carillion, who failed to provide proper oversight about the actual condition of the organisation. They point out some of the major signs which were alarming such as the clawback for the bonus and the relaxation of the condition. It created a very bad reputation for the top managers and their intention to gain benefits in spite of the collapse when they were responsible for the whole condition (Kovermann and Velte, 2019). The whole decision-making was governed by the directors who were individually involved in the process and because of that it raised many questions, which should be answered only by them. The directors of the company were failed to measure all the risk factors and it eventually results the collapse of the big giant.

The financial decision that they had taken about executive remuneration, the payments of dividends and the corporate strategies for the broader perspective were the most ill-judged decision and were not considered good practice. In every decision, it was clear that all tier decision was misjudged and was not aligned with the prospects and the predicaments of the company (theguardian.com, 2022). It was believed that the company Carillion plc collapsed because of the biggest governance failure at the company which could be the result of a flawed leadership structure. It became one of the most iconic symbols of the failed corporate structure. It eventually results in poor form of negotiation in the contracts and eternal consultants and the factors. The corporate governance of Carillion had a major lack of accountability and professionalism. The employees were the base structure of the firm however they were not the ones to blame, in that case, the responsibility went on to the senior executive team and the board who had misjudged the whole situation and as a result, failed to assess the major risks.

The poor quality of corporate governance and excessive executive pay were the major causes behind the collapse of the firm. The major flow was hidden in the development and management of an effective board. The result of a rotten corporate culture and the imbalance in the corporate conducted in demolish of the big giant. It also indicated the importance of corporate governance and the responsibility of the boards of any firm to state the strategic aims and provide proper leadership (newcivilengineer.com, 2022). It also set a proper value and for the company and indicates a daily based operational management running through the company. The proper impact of good governance can reflect a wider sector for the organisation. However, this system in the UK is built and developed to deal with the major issue arising in the giant firms (rwkgoodman.com, 2022). It is the system which helps any company to direct and control the path for the long run. In the case of Carillion, it seemed like the directors had little idea about the realistic view of Carillion’s future and prospects. It is believed that the board of directors of any organisation shoulder be aware of the duty and the responsibility, and this is where Carillion’s directors failed.

Concepts and theories of Corporate Governance

There are certain factors that have impacted the overall governance of the organisation like the corporate decisions and the ethical aspects. Corporate governance plays the role of the pillar when it comes to formulation structure that aids in the working and functioning of an organisation. The aspect of corporate governance is referred to the system through which a company is directed and regulated to specific directions and the board of directors is responsible for taking the necessary discussions for the governance of an organisation. Such a case took place for Carillion plc once used to be a business giant in the UK but faced major financial backlash due to the decision taken at the board level regarding the global contracts in the middle eastern region (Conway and Mor, 2018). The resource dependency theory of the forms focuses on the role of the board members and their associated decision regarding the allocation and access of resources required by the form while conducting business. This aspect of the work process can be utilised by companies to promote the effective utilisation of human, technical and financial resources of the organisation while conducting business in the overseas region (Jiang et al. 2022). This is critical in resolving unnecessary risks associated that would impact the overall profit-debt ratio of the organisation. The provision of resources enhances the overall organisation’s performance and functioning. In effect of this theoretical model, the directors can be classified into four distinct sections. The insiders are thrones that influence the overall internal structure and working of the organisation. Secondly, the business experts are the ones that take critical decisions in association with the business policies (Govindan et al. 2021). Thirdly, support specialists are those who look after the resource management of the organisation to provide the necessary support to the organisation through the highs and lows of the organisation. The community influential are the ones that impact the organisation’s image and presence. All these internal factors are necessary to be taken into consideration to evaluate the course of decision-making at the board level. Carillion plc is still a major supplier to the public sector which raises concerns of disruption in the market.

In this situation, the stakeholder theory is critical. This theory incorporates the accountability of the management body in a broad spectrum and it ponders on the aspect of the managers and their necessity to strengthen their relationship with both the internal as well as external stakeholders. It includes the suppliers of the organisation, employees and business partners (Freeman et al. 2021). An unbiased approach is taken into consideration regarding the interests of the stakeholders. This kind of approach is highly sought after for the progress and benefits of the organisational value for the company. A strong business relationship with the stakeholders is curricula to formulate to derive necessary decisions that are important for the overall structure and function of the organisation. It is evident from the situation of Carillion plc that the financial decision was taken to attain leaps and bounds of success at a global stage however a calculated risk was to be taken that otherwise would not have impacted the overall organisational value at such scale. This company once sued to be at a value of around 1 billion British pounds, currently, the valuation of this company stands at 61 million British pounds (Chapman, 2018). Such rapid downfall in the monetary structure of the organisation is the reflection of overall decisive failure at the board of decision-making process.

Effective utilisation of transaction cost theory in the course of trade practice and contract formation is highly important. This theory states that an organisation with several documented contracts can generate a significant amount of value for the organisation (Cuypers et al. 2021). The utilisation of this aspect in Carillion plc while conducting trade in the Middle Eastern region would have a certain extent of a positive impact on business policy.

Conclusion

A business structure is required to be evaluated with various prospects and scenarios taken into consideration. Otherwise, a fatal failure is inevitable which can be witnessed from the case study of Carillion plc. Multiple risky financial decisions and contracts that did not prove to be profitable in the long run impacted the course of business in the long run and plummeted the organisation to such a massive downfall. This situation was further ignited by multiple other failures in the conduct of business at a global level. It reflects on the aspects of a faulty decision-making process that prevailed at the board level of the organisation. Certain theoretical models are necessary to be taken into consideration regarding governance policies for different measures of work process and functioning at the management level in the organisation to have a sustainable business. Effective calculations are necessary to be taken into consideration while formulating marketing strategies necessary for the sustenance of the organisation. The decision-making process is mostly carried out at the board level and hence it is necessary to consider the financial conditions and the scenario of current trends to formulate business contracts to avoid fatal consequences.

References

Journals

Chapman, D.R., 2018. Ineffective Risk Management and the Collapse of Carillion. PM World Journal, VII.

Conway, L. and Mor, F., 2018. The collapse of Carillion. House of Commons Briefing Paper, (08206), p.18.

Cuypers, I.R., Hennart, J.F., Silverman, B.S. and Ertug, G., 2021. Transaction cost theory: Past progress, current challenges, and suggestions for the future. Academy of Management Annals, 15(1), pp.111-150.

Freeman, R.E., Dmytriyev, S.D. and Phillips, R.A., 2021. Stakeholder theory and the resource-based view of the firm. Journal of Management, 47(7), pp.1757-1770.

Govindan, K., Shaw, M. and Majumdar, A., 2021. Social sustainability tensions in multi-tier supply chain: A systematic literature review towards conceptual framework development. Journal of Cleaner Production, 279, p.123075.

Jiang, H., Luo, Y., Xia, J., Hitt, M. and Shen, J., 2022. Resource dependence theory in international business: Progress and prospects. Global Strategy Journal.

Jurakulovna, J.G. and Bahodirovich, R.U., 2021. Improving the Theoretical Framework of Internal Audit in the Corporate Governance System. Middle European Scientific Bulletin, 19, pp.345-348.

Kovermann, J. and Velte, P., 2019. The impact of corporate governance on corporate tax avoidance—A literature review. Journal of International Accounting, Auditing and Taxation, 36, p.100270.

Websites

bbc.com, 2022, Where did it go wrong for Carillion?, Available at: https://www.bbc.com/news/business-42666275 [Accessed on: 12th November, 2022]

icaew.com, (2022), What is corporate governance?, Available at: https://www.icaew.com/technical/corporate-governance/principles/principles-articles/does-corporate-governance-matter [Accessed on: 12th November, 2022]

newcivilengineer.com, (2022), Carillion collapse was a leadership failure, says Balfour’s Quinn, Available at: https://www.newcivilengineer.com/archive/carillion-collapse-was-a-leadership-failure-says-balfours-quinn-15-03-2018/ [Accessed on: 12th November, 2022]

rwkgoodman.com, (2022), Carillion’s collapse – a corporate governance failure?, Available at: https://www.rwkgoodman.com/info-hub/carillion-collapse-corporate-governance-failure/ [Accessed on: 12th November, 2022]

sites.duke, (2022), Carillion Plc: A Governance Case Study from the UK, Available at: https://sites.duke.edu/thefinregblog/2018/07/18/carillion-plc-a-governance-case-study-from-the-uk/ [Accessed on: 12th November, 2022]

theguardian.com, (2022), Carillion collapse: two years on, 'government has learned nothing', Available at: https://www.theguardian.com/business/2020/jan/15/carillion-collapse-two-years-on-government-has-learned-nothing [Accessed on: 12th November, 2022]