Studies show that corporate governance is derived from ethical practices. The relationship between business ethics and corporate governance has been heavily studied indicating significant associations. In this post, we will discuss the role of ethics in corporate governance and the relationship between business ethics and corporate governance.
Ethics is the part of philosophy focused on morality and the way in which moral principles are applied to everyday life. Ethics has to do with basic questions like what is fair. What is the right thing to do in this situation? Ethics covers an active process of applying values that may range from religious principles to customs and traditions.
Business ethics focuses on what constitutes right or wrong behaviour in the business world. Many corporate business executives have a responsibility to their shareholders and employees to make decisions that will help their business make a profit. While doing so, business people also have a duty to the public and themselves to maintain ethical principles.
Corporate governance is the system under which companies are directed and controlled. Boards of directors are responsible for the governance of their organization. The shareholder's role in governance is to appoint the directors and the auditors and to satisfy themselves that a proper governance structure is in place.
The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.
Every company, as their progress has many stakeholders such as employees, vendors, shareholders, customers, community and more. For survival and development, organizations have to rely upon good terms with all these stockholders. So companies need to return good favour to every stakeholder; great returns for shareholders, jobs for employees, reliable products for consumers, responsible relations with the community and a clean environment.
Business ethics is basically the implementation of general ethical principles to business dilemmas and brings a broader range of problems and concerns than law because everything that is legal might not be ethical. Ethics means the knowledge and awareness of what is right or wrong, and then following the right path but, the right path is not nearly as simple.
The purposes of business ethics include to provide people with the tools by which they can deal with moral complexity in business, business decisions have ethical components- ethical implications should be weighed before acting.
While ethics provides moral guidelines, organizations must apply these guidelines in making decisions. Ethics that applies to business means business ethics is not a separate theory of ethics; instead, it is an application of ethics to business situations.
Good Corporate Governance is key to empower profits and reputation. It represents the relations among stakeholders used to determine and control the strategic direction and performance of companies. Accountability is a major element and needs for corporate governance, fortifying the latter in the way that it offers a transparent template for governing critical decisions, activities, and procedures.
Corporate Governance generally focuses on two major questions 1. Who benefits from corporate decisions/senior management actions? 2. Who should benefit from senior management action or corporate decisions? There are numerous reasons why organizations should act ethically. Since behaviour varies as per the values priorities, a mutual effort at all levels to deal with corporate ethics start with a clear understanding of core values, both organizationally as well as individually.
Good corporate governance starts with the own internal practices and policies of the company. Although the issues regarding corporate governance are common across companies, each organization needs unique governance principles. It also ensures that long term strategic objectives and plans are well set up and the proper management structure is in place. The corporate governance actually presents the moral framework, the ethical frameworks and the value framework under which decisions are taken in an organization.
That's it on the relationship between business ethics and corporate governance. Hopefully, you found this post helpful and understand the concept of business ethic and corporate governance well.
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