Business Ethics and Corporate Governance-Definitions, Principles and Issues

BUSINESS ETHICS AND CORPORATE GOVERNANCE
DEFINING ETHICS IN BUSINESS

Ethics is the field of philosophy that studies systems, norms, or values that distinguish between what is good and bad or right and wrong. The field of business ethics focuses on examining conduct and policies and promoting appropriate conduct and policies within the context of commercial enterprise, both at the individual and the organizational level.
Business ethics is a form of applied ethics where researchers and professionals use theories and principles to solve ethical problems related to business. Consequently, a central question of business ethics is "How do businesses determine what is appropriate or ethical conduct for any given commercial task?" Business ethics covers all levels of business activity, including the obligations and responsibilities of businesses to customers, employees, other businesses, national and multinational governments, and the environment.
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EVOLUTION OF ETHICS IN BUSINESS

Derived from the views of Protestants John Calvin (1509-1564) and Martin Luther (1483-1546), the Protestant work ethic that was imported from Europe to North America during the 17th, 18th, and early 19th centuries was a set of beliefs that encompassed secular asceticismthe disciplined suppression of gratification in favour of ceaseless work in a worldly calling according to God's will. This work ethic emphasized hard work, self-reliance, frugality, rational planning, and delayed gratification that formed the foundation of modern capitalism and allowed American and European societies to accumulate economic capital. The Protestant work ethic dominated white American society through the 1800s.
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A Search Right & Three Cheers Presentation

This ethic aided in the emergence of an upwardly mobile bourgeois classcomprised of successful farmers, industrialists, and craftsmenthat was preoccupied with social conformity and materialism.
At the same time, a much clearer definition of success and failure developed that was wrapped up in material terms; this definition would play a major role in the societal evolution of the Asian world inclding India somewhere in 1960s.
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This ethic aided in the emergence of an upwardly mobile bourgeois classcomprised of successful farmers, industrialists, and craftsmenthat was preoccupied with social conformity and materialism.
At the same time, a much clearer definition of success and failure developed that was wrapped up in material terms; this definition would play a major role in the societal evolution of the Western world.
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DEFINING CORPORATE GOVERNANCE

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate Governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large.
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Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem.. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders' welfare
2.1.2010

Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem.. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders' welfare
2.1.2010

In A Board Culture of Corporate Governance, business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.
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O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus how policies and processes are implemented and how people are led.
External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture.
To date, too much of corporate governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.

It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.
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Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company. The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty
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PRINCIPLES OF CORPORATE GOVERNANCE 1. Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.
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PRINCIPLES OF CORPORATE GOVERNANCE

2. Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders. 3. Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and nonexecutive directors.
PRINCIPLES OF CORPORATE GOVERNANCE 4. Integrity and Ethical Behaviour:

Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish compliance and ethic programmes to minimize the risk that the firm steps outside of ethical and legal boundaries.
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PRINCIPLES OF CORPORATE GOVERNANCE Disclosure and Transparency:

Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
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PRINCIPLES OF CORPORATE GOVERNANCE

Issues involving corporate governance principles include:
1. Internal controls and internal auditors 2. The independence of the entity's external auditors and the quality of their audits 3. Oversight and management of risk 4. Oversight of the preparation of the entity's financial statements 5. Review of the compensation arrangements for the chief executive officer and other senior executives 6. The resources made available to directors in carrying out their duties 7. The way in which individuals are nominated for positions on the board 8. Dividend policy
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Business Ethics and Corporate Governance-Definitions, Principles and Issues

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BUSINESS ETHICS AND CORPORATE GOVERNANCE

DEFINING ETHICS IN BUSINESS