Southern New Hampshire University

The Christos and Mary Papoutsy Distinguished Chair in Ethics Presents:

Restoring Public Trust

Corporate Governance

November 8, 2006

Effective Corporate Governance Means Effective Checks and Balances

By Christos Papoutsy

Recently there was a conversation with Adam and Eve and God. Adam blamed Eve. Eve Blamed the serpent. I believe they were both wrong. It was Greed. Some people will do anything for money. Greed is very strong, powerful and tempting.

And this evening we are here to talk about the effect greed has on Ethics and what is being done to control or reduce the corruption that we are constantly confronted with.

The most significant temptation for corruption I believe is rooted in the global stock markets. As of February 2006 there was 2800 public corporations listed on the New York Stock Exchange (NYSE).

Today’s NYSE market value is approximately 70 percent above its book value of 5 to 6 trillion dollars. This disparity between the market value and book value is both significant and alarming.

The stock market operates within an environment demanding of many of its CEO’s and CFO’s to increase sales and profits at any cost and to keep intact the upward trend of “the corporate track records,” to support the prices of their stocks.

Congress adopted the Sarbanes-Oxley Act of 2002, a new law that affects every aspect of corporate governance.

The SEC now requires, all CEO’s and CFO’s to certify legally that their financial statements and reports are accurate and not misleading, these corporate officers can now be criminally charged if their numbers turn out to be bogus. “This is a legal check and balance regulation.” This law is a significant step in restoring and maintaining public trust. -Question, Can morality be mandated?

How practical are these guidelines? How can these regulations be converted to daily business practices? One solution is to adopt a common-sense approach advocated by me, a former successful CEO.

The Commonsense Approach Consists of:

Three Basic Business Principles,

Business procedures and practices that contribute to the basics of becoming and sustaining an ethical socially responsible business are as follows:

1. Institutionalization: (No one likes sharing control)

However, by sharing control, there is a better chance of transparency, real oversight, and accountability. Institutionalization means establishing a professional board of directors, instead of a rubber-stamp board. And most important of all, for a professional board, “Disagreement should be considered a virtue – not a vice.” Quoting Paul Brountas in his book, “Boardroom Excellence”.

There is an old saying in the business community that if you let someone steal from you because of shoddy controls and procedures, then you are almost as guilty as the thief. (Let’s lock it up)

2. Solid Business Practices

Corporations must have solid business practices embedded into its entire operations, including a mission statement, code of ethics, strategy, business plan and effective leaders that are ethical. “An ounce of effective checks and balances can equal a pound of ethical operations.

Here are a few examples:

A. The devil is in the details

▪Accountability and oversight of purchasing departments. Eliminate and/or reduce bribery and corruption and contributes a healthy and ethical environment for all employees and respect from the community.

▪Proper training and management of sales personnel.=Full Disclosure

▪Transparency of inventory=Reduce or eliminate cooking the books through inventory manipulation. All inventory cannot be good. Inventories are easy to manipulate to support track records and/or to defer taxes.

▪Implementation of Quality Control Systems; quality products, satisfied customers – Temptation to by-pass quality control to meet shipping goals in support of the track record.

▪Auditor Independence – Re: Sarbanes-Oxley

3. A Company of Citizens

A CSR business must cultivate “a company of citizens” where all employees are welcomed into the corporation as morally competent agents, seen as specially qualified for intelligent work, rather than as mere units of labor.

Only a system with checks and balances will effectively encourage and enforce corporate responsibility.

A Simple Test – The Four Simple Questions

In every business ethical dilemmas arise that don’t seem to fall within any categories or guidelines established by law or traditional practices. How can decision-makers resolve these issues? I recommend utilizing The Ethical Framework Test, this series of four simple questions developed to assist business professionals and leaders in areas not clearly covered by legal statures and standard practices. These four questions in combination with the basic principles and procedures I have outlined, offer an ethical framework for business operations.

The Four Simple Questions Are:

1. Who are all the people affected by the business decision, considering the full scope of all stakeholders?

2. Does this decision cause harm or injury to any of those affected and are there reasonable actions you can do to mitigate it?

3. Is my behavior deceptive? Would I regard it that way if I were in the other party’s position?

4. Are there any disguised conflicts between myself, the shareholders and those affected by the business decision?

In general, if you can answer “yes” to questions 2, 3, and 4 -then the recommended course of action is clear. You should refrain from carrying out the action under consideration.

To summarize, the components which contribute to a CSR business are: institutionalization, solid business practices, and a company of citizens.

The successful road for any business is not a romantic, flower-strewn path with an expansive vista, nor is it easily navigable. The successful company must navigate down the narrow and winding lane of business ethics with its many procedures and laws, avoiding the potholes of sloppy and ineffective business practices, and the soft-shoulders of greed and unethical behavior.

The challenge of moral capitalism for all businesses is to tip the weight of wealth creation toward humanity’s more noble possibilities in society.

Moral capitalism is possible. Moral capitalism and social justice are the dividends yielded by ethical corporations.

Only by forming close working partnerships with the business community and institutions like SNHU will we be able to ensure the health, dignity and freedom, and creativity of our society. An those are worthy and noble goals.

Thank you and good evening.

or more information about Mr. Papoutsy, or to read other articles on corporate social responsibility or on the topics of the Horatio Alger Lecture Series, log onto the Business Arena section of the Hellenic Communication Service website at, or visit the webpages of the Christos and Mary Papoutsy Distinguished Chair in Business Ethics at Southern New Hampshire University at Mr. Papoutsy welcomes comments and may be reached via email at

HCS readers are invited to view other articles about SNHU or business ethics at our extensive, permanent archives under the Business Ethics section at the URL or the Christos and Mary Papoutsy Distinguished Chair in Business Ethics at Southern New Hampshire University at

The purpose of the distinguished chair in ethics is to promote and enhance students and community members awareness of ethics in personal and professional settings through teaching, community lectures and conferences. These events will foster understanding and assist in the application of lessons taught by current and classical ethicists to 21st-century settings.The chair serves as the cornerstone for an integrated university program in business ethics that encompasses the undergraduate and graduate levels. For more information about these events or about the ethics chair, contact Jane Yerrington at SNHU (603-668-2211 x2488) or visit the webpages of the ethics chair at

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