The importance of ethical decision making
Ethical decision making involves acting in a morally correct and socially responsible way. The law is based on ethical principles. However, the law is only ethically relevant to the period in time which it was made. This means that the law will never be able to account for every course of action and that the responsibility lies with the decision makers to ensure they act in an ethical manner. White collar crime in Australia has resulted in the collapse of HIH Insurance and One-Tel. These tragic events have exposed the importance of ethical decision making.
Australia’s corporate ethical scandals
In the criminal justice system, we classify crime into two different elements. The first is actus reus – a wrongful act. The second is mens rea – the guilty party knowing their actions are wrong. In the case of HIH, both elements were present. The standard of proof for white collar crime is beyond reasonable doubt.
The collapse of HIH Insurance Ltd in 2001 is a prime example of the consequences of unethical behaviour. The collapse was a result of a number of immoral business decisions made by management. The company managed to hide severe financial difficulties from investors by commencing a series of takeovers, such as that of FAI Insurance. Unethical accounting practices were employed to cover up the reality of the company’s financial situation. On 20th June 2000, the intangible asset of “goodwill” represented $405 million of the company’s assets . The Australian Securities and Investments Commission (ASIC) claimed that the executives “breached their duties by showing a lack of good faith, care and diligence for HIH’s assets.” One HIH director, Rodney Adler, was found guilty on four counts and was sentenced to 4½ years in jail. The court held that he was “being intentionally dishonest and failing to discharge his duties as a director of HIH in good faith and in the best interests of HIH, contrary to section 184(1)(b) of the Corporations Act.”
The HIH collapse resulted in significant losses to shareholders and creditors, including a large number of insurance claimants whose claims could not be met. The repercussions of the collapse will “echo through the economy and community for years to come.”
Another example of the repercussions of unethical behaviour is that of the corporation One-Tel. The company failed to release important information regarding the corporation’s activities and success to its investors, including its partners James Packer and Lachlan Murdoch. Their failure to communicate reliable information resulted in the liquidation of the company in 2001. On 4 July 2005, ASIC announced that it had commenced civil proceedings against Steve Vizard (CEO) for insider trading. ASIC was successful in preventing Vizard from managing a corporation for ten years. Vizard was also ordered to pay $390 000 in pecuniary penalties.
One-Tel’s collapse affected not only its employers, employees and shareholders but the entire telecommunications industry as well as the wider community. Theoretical framework of ethical responsibility
The client must understand the context of their business environment in order to determine the most ethical course of action. This involves understanding the legal implications surrounding business partnerships, as well as the various laws regarding property development in NSW. The client can then relate the theoretical framework to their business context in order to achieve the most ethical result.
A partnership is defined as “the relationship which exists between persons carrying on a business in common with a view to making profit”. Partnerships may be formed either orally or in writing; it is generally advised, however, that the client produce a written agreement in order to establish certainty of terms and minimise the potential of future problems arising. The written agreement should include details of partners...
References: - Andy Gibson and Douglas Fraser, Business Law (3rd Edition 2007)
- Mark Westfield, HIH: The Inside Story of Australia 's Biggest Corporate Collapse (2003)
- Miles Keeping and David Shiers, Sustainable Property Development (2003)
- Schermerhorn, Campling, Poole and Wiesner, Management – an Asia-Pacific Perspective (2004)
- Shirley Quo, Flaws in ASIC’s decision on Vizard (July 12 2005), The Age as at September 14 2008.
- HIH Insurance Limited (HIH) (1998), deListed as at 14 September 2008
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