Kohlberg’s levels of human moral development

Kohlberg developed a cognitive moral development (CMD) theory to explain the reasoning process behind moral judgements.
The Theory:
-Each level is subdivided into two stages – giving six stages in total.
-Individuals tend to move from Level 1 to Level 3 as they get older
-basis for ethical behavior, has six identifiable developmental constructive stages - each more adequate at responding to moral dilemmas than the last.

Kohlberg’s theory of CMD attempts to show the reasoning processes used by individuals, and how those processes changed as the individual matured from a child to an adult.
In other words, CMD relates to the different levels of reasoning that an individual can apply to ethical issues and problems.

Kohlberg believed...and was able to demonstrate through studies...that people progressed in their moral reasoning (i.e., in their bases for ethical behavior) through a series of stages. He believed that there were six identifiable stages which could be more generally classified into three levels

Kohlberg identified three levels of morale development, with 2 sub-stages within each level – giving six stages in total:-
Level one: The individual is focused on self-interest, external rewards and punishment.
Level two: The individual tends to do what is expected of them by others
Level three: The individual starts to develop autonomous decision making which is based on internal perspectives of right/wrong ethics, etc. rather than based on any external influences.

Level 1 : Pre-conventional
Stage 1:-Obedience and Punishment.
-The earliest stage of moral development is especially common in young children, but adults are capable of expressing this type of reasoning. At this stage, children see rules as fixed and absolute. Obeying the rules is important because it is a means to avoid punishment. I.e unethical decision taken because employee believes either they will be rewarded or the company will not punish them.
Stage 2 :- Instrumental purpose and exchange
-Concrete individual interests. Is aware of others' interests.
-At this stage, children account for individual points of view and judge actions based on how they serve individual needs. In the Heinz dilemma, children argued that the best course of action was whichever best-served Heinz’s needs. Reciprocity is possible, but only if it serves one's own interests. I.e,one employee ‘covers’ for the absence of a colleague – on the understanding that the colleague will cover for them if necessary. Employee therefore only carrying out the action because it benefits them.

Level 2 : Conventional
Stage 3 :Interpersonal accord and conformity
-This stage is focused on living up to social expectations and roles. There is an emphasis on conformity, being "nice," and consideration of how choices influence relationships.
-Lives up to others' expectations in order to be seen to be good and then has self-regard as being good. Actions are defined by what is expected of individuals by their peers and those close to them.
-I.e;an employee justifies using the company telephone and email for personal use because all other employees already do this.
Stage 4 : Social accord and system maintenance
-This stage of moral development, people begin to consider society as a whole when making judgments. The focus is on maintaining law and order by following the rules, doing one’s duty, and respecting authority.
-Fulfils social duties in order to keep the social system going. I.e; a manager raises working conditions of employees above the statutory minimum to the standard expected by pressure groups, consumers and other groups in society.

Level 3 :Post-conventional
Stage 5: Social contract and individual rights
-At this stage, people begin to account for the differing values, opinions, and beliefs of other people. Rules of law are important for maintaining a society, but members of the society should agree upon these standards.
-Upholds relative rules in the interest of impartiality and welfare for all.
-Right and wrong are determined by reference to basic rights, values and contracts of society I.e,a food manufacturer makes full disclosure of the ingredients in its products, although there is no statutory requirement and pressure groups have not requested the information.
Stage 6: Universal ethical principles
-Kolhberg’s final level of moral reasoning is based upon universal ethical principles and abstract reasoning. At this stage, people follow these internalized principles of justice, even if they conflict with laws and rules.
-Follows self-chosen ethical principles, even when they conflict with the laws. I.e, a purchasing manager stops buying products that have been tested on animals as the testing does not respect the animal’s right to be free from suffering.

Criticism of Kohlberg theory of moral stage

• emphasizes justice to the exclusion of other values. As a consequence of this, it may not adequately address the arguments of people who value other moral aspects of actions.

• does moral reasoning necessarily lead to moral behavior? Kohlberg's theory is concerned with moral thinking, but there is a big difference between knowing what we ought to do versus our actual actions.

• it has gender bias – the fieldwork for the theory was drawn from interviews with young American males. Gilligan C. argued that it did not adequately describe the concern of woman.

• does Kohlberg's theory overemphasize Western philosophy? Individualistic cultures emphasize personal rights while collectivistic cultures stress the importance of society and community. Eastern cultures may have different moral outlooks that Kohlberg's theory does not account for.

Others related isssue related to this theory (Not examinable for ACCA P1, but just a background knowledge only oh ya!)
In Europe, a woman was near death from a special kind of cancer.There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to make. He paid $200 for the radium and charged $2,000 for a small dose of the drug.
The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $ 1,000 which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said: "No, I discovered the drug and I'm going to make money from it." So Heinz got desperate and broke into the man's store to steal the drug-for his wife. Should the husband have done that?
Kohlberg was not interested so much in the answer to the question of whether Heinz was wrong or right, but in the reasoning for the participants decision. The responses were then classified into various stages of reasoning.

Sources:
- Wikipedia
- Kohlberg : "Moral stages and moralization: The cognitive-developmental approach".
- Kaplan Publishing.
- Hedl, John, Glazer, Chan,: "Improving the Moral Reasoning of Allied Health Students" (article part)

Board committees -Roles and responsibilities

For this round,i will touch on board committees.As far as I concern, this topics what the examiner are focusing on. Hence, it will be excellent if you able to understand and apply those understanding in the exam. First, There is Remuneration committee, followed by Nomination committee, and finally Risk committee.
Lets start on:
Remuneration Committee
The role of remuneration committee is to have an appropriate reward policy that attracts and motivates directors to achieve the long-term interests of shareholders.In order to be effective, the committee needs both to determine the organisation general policy on the remuneration of executive directors and specific remuneration packages for each directors.
The UK Combined Code requires the committee to be staffed by independent non-executive directors (NED, to ensure directors dont set their own remuneration levels.
Some of the responsibilities of the remuneration committee are:

• Review the framework for the remuneration and terms and conditions of employement of the chairman of the board and of executives directors.
• Monitor the level and structure of the remuneration of senior managers.
• Set detailed remuneration of the executive directors and chairman including compensation payment.
• To ensure that executive directors are fairly rewarded for their contribution on the performance of the company.
  
• Transparency to shareholders that remuneration of the executive directors is set by individuals with no personal interest in the outcome of the committee decisions.

Then,we have the Remuneration packages. Packages will need to attract, retain and motivate directors of sufficient quality and at the same time taking into account shareholders interests.
Typical component in a remuneration packages might be..

• Basic salary - in accordance with the terms of the directors contract of employment, and not related to the performance of the company, but determined by experience of the director.
• Bonus - Directors may be paid by cash bonus for excellent performance.
• Share options - Right to purchase shares at specified exercise price in a specific period time in the future. Share options give directors the incentive to manage the company that share price increase, the share options are believed to allign the manager or directors goals with shareholder, thus at the same time overcomes the agency problems since the directors becomes the owner.However, such share must be approved by shareholders and it should be rewarding but not excessive. In addition, the company should ensure that the shares are not offered at a discount and options should not be excersiable,under three years.
• Pensions - The UK Combined Code states only basic salary should be pensionable. The Code emphasises that the committee consider the pension consequences and associated costs to the company of basic salary increases.
• Other benefit i.e, Benefit in kind - The committee consider the benefit and the cost the company of the complete package. Ideally, the package offered to directors should be an extension applied to employees. The committee should provide benefits that expection with the position of executive directors or would increase their royalty i.e company car, health insurance.

Remuneration Disclosures.
The UK Directors Remuneration Report Regulations 2002 requires:

• Director submit a remuneration report to members at AGM each year,
• Report provide full details of directors remuneration,
• Duration of contrats with directors,
• the report is clear, transparent, and understandable to shareholders

Other disclosures that might be a good practice is notice periods and termination payments of the directors contract and external remuneration consultants employed by the remuneration committee on advicing remuneration should be provided.

Nomination Committee
The main task of the Nomination Committee is to propose candidates for election to the Board of Directors, including the chairman. The Nomination Committee must take into consideration the various rules on independence of the Board in relation to the Company, its senior management and major shareholders, in accordance with the requirements of the Corporate governance codes.
Meetings and Reports:
The Committee will hold regular meetings at least two times each year generally in conjunction with regularly scheduled meetings of the Board of Directors, and such special meetings as the Chair of the Committee or the Chairman of the Board may direct. The Committee will maintain written minutes of its meetings, which minutes will be filed with the minutes of the meetings of the Board of Directors. At each regularly scheduled meeting of the Board of Directors, the Chair of the Committee shall provide the Board of Directors with a report of the Committee’s activities and proceedings.
The main responsibilites and duties of the nomination committee are :

• Formulating, recommending to the Board and overseeing the implementation and administration of the Company's corporate governance structure and framework.
• Review regularly the structure, size of the board and make recommendation to the board.
• Give full consideration to succession planning for directors.
• Reviewing the Company’s Corporate Governance Principles at least annually and recommending changes, as necessary, to the Board.
• Periodically administering and reviewing with the Board an evaluation of the processes and performance of the Board in order to identify areas of concern or potential issues relating to Board and performance effectiveness also to assess and evaluate the overall effectiveness of individual directors.
• Make recommendations to the board concerning the standing for re-appointment of directors.
• To reduce domination in executive selection by the CEO/Chairman.

In carrying out such responsibilities, the Committee shall have the power and authority to retain such consultants, outside counsel and other advisors as the Committee may deem appropriate and shall have the sole authority to approve the fees and other terms of engagement.

Risk Committee
Sadgrove suggests the following functions for the risk committee:

• Develop risk awareness among staff
• Ensure compliance with risk policies
• Control risk in their own department
• Review audit findings and implement controls
• Make risk related recommendation to the board.

The main responsibilities and duties of the risk committees are:

• Advice the full board on risk management
• Emphasise and demostrates benefit of a risk-based approach to internal control
• The Committee will review the work performed by the internal auditors and provide comments on that work to the Audit Committee, as appropriate
• The Committee will review the risk management procedures of the Group and report to the Audit Committee of the Board on the results of their review
• Review the system of internal control under the 5 headings :- - Control environment, Risk assessment, infromation system, Control procedure, Monitoring.
• Providing disclosure on the internal controls in the annual reports and accounts
• The Committee shall recommend to the Audit Committee of the Board the overall risk management strategy of the Group (including the criteria to assess risk) and oversee the implementation and effective operation of that strategy, its policies and procedures.
• If appropriate, review credit risk, liquidity risk and operational risk exposures with regard to full board risk appetite.