Internal Corporate Governance Controls and Its Impact on Business Ethics

Abstract: Purpose of this thesis is to describe internal corporate governance controls that businesses use to control and direct the companies’ operations and how these controls impact companies’ business ethics. Author posed three research questions: What internal corporate governance controls are used at different levels in research companies?; How can we determine whether companies, given their characteristics, have more elaborate internal control systems?; and How do research companies communicate internal corporate governance controls to their involved parties in order to maintain a high level of business ethics?. To answer these questions, authors examined four companies in Vietnam and the Czech Republic with a qualitative approach and used cross case study comparison to collect data, process, analyse, and draw conclusions. The thesis is designed based on the research methods for business student by Saunders (2007, 2010) and case study research design and method by Robert K. Yin (2008) with an aim to access the research companies’ internal corporate governance controls and its impact on companies’ business ethics. Semi-structured interviews have been used in combination with companies’ internal documents and archival records to verify and ensure credibility and reliability of the data. The thesis finds that the existence of internal corporate governance controls (ICGC) has certain impact on business ethics (BE). Analysis reveals that research companies in both countries use several levels of ICGC; however ethical “tone from the top” is the determinant factor that makes ICGC impact positively on BE. Furthermore, ICGC in research companies in both countries are built on law-compliance basis, while taking into consideration corporate governance codes and company influence factors, such as personal traits, organizational traits, and national cultures. Two-way communication of ICGC, core values, and leaders’ commitments will impact BE positively. Therefore, following recommendations are made, based on the thesis empirical findings. Companies can install supporting mechanisms such as nomination committee or remuneration committee in the board, in parallel with existing personnel controls, so that the right personnel, “ethical leaders and managers” can be recruited. Companies are also recommended to consider influence factors thoroughly in building their ICGC as well as set up a two-way communication system to disseminate ICGC, core values, commitments, and BE among staff. Due to the law-compliance oriented attitude in approaching ICGC and BE of companies in both countries, legislators are furthermore encouraged to build in and emphasize BE in their legislative systems to enforce ethical behaviour change process. Authors recommend further research on how business ethics controls could be integrated into ICGC framework and implemented substantially and realistically. A further research about the nature of time lag involved in ICGC and BE approaches by leaders and society would help bring a full picture of the current situation.