INTRODUCTION
In the domain of corporate governance, moral practices are crucial because they impact behaviour, decision-making cycles and organizational culture as a whole. Corporate administration is the framework that directs how companies are run. There are interactions between leadership, the board of directors, shareholders and other stakeholders. Incorporating principled viewpoints into corporate administration is imperative for upholding long-term prosperity, fostering confidence, and upholding a favourable image within the business community. By following ethical standards, companies can increase the motivation of senior managers, management teams and employees to achieve their goals.
BUSINESS ETHICS
Business ethics is temporal, though this field is relatively new, it is not new. Business ethics also referred to as corporate ethics, are relevant to the actions of individuals as well as entire companies, and it encompasses all facets of business conduct. There are normative and descriptive aspects to professional ethics.
A company’s values serve as the foundation for the corporate culture that develops over time. The company starts to follow organizational ethics, but it also can define its own operating culture that is in step with society. These days, the majority of large corporations use social responsibility charters and ethics codes to highlight their commitment to non-economic values. Through laws and regulations, the government directs business behaviour in directions they deem advantageous. Behavior that is not governed by law is governed by subtle ethical rules. Large corporations that have few relationships and show little regard for the communities in which they operate have led to the development of formal ethics regimes more quickly than anticipated.[1]
CORPORATE GOVERNANCE
The strategy, leadership and administration of a corporation are shaped by numerous establishments, regulations, principles and practices that comprise its business governance. It covers the aims of the company’s governance as well as the connections between the many parties involved. An organization that is organized, led and controlled to achieve long-term strategic visions to fulfil shareholders, creditors, employees, clients and suppliers, as well as to adhere to lawful and regulatory demands and meet the needs of the local community and surroundings, is considered to be practising business governance. How markets and other external systems and institutions affect corporate governance, however, is of great interest. Transparency, accountability, fairness, honesty, responsibility, moral leadership, stakeholder engagement, performance orientation, dedication to the company, compliance and legal observance are essential components of sound corporate governance principles.[2]
ROLE OF ETHICS IN CORPORATE LAW
Many public opinion polls indicate that people do not have a great deal of faith in the business sector today. Therefore, it is more important than ever for today’s businesses to establish a clear management system that complies with the ethics of justice, fairness and fairness. By doing this, you can encourage positive attitudes that promote sustainability and long-term business success. It also helps the business gain more trust. Fortunately, many companies now understand the value of ethics in business management and want to become ethical managers by implementing policies that promote responsibility, accountability, transparency and fairness.[3]
Companies use ethically-based corporate strategies to help them stay true to a set of core values and avoid common issues with corporate governance, like fraud, non-compliance, and incompetent management. Companies can see the needs of all stakeholders and develop plans that fairly address the needs of the present and the future by following the guidelines established by a diverse board of directors. To the benefit of internal and external stakeholders, these businesses are increasing levels of trust both internally and externally.
IMPORTANCE OF ETHICS IN CORPORATE CULTURE
- Uplifts morale with honest and virtuous coworkers and a supervisor they can trust are what employees want to work for. Employee morale is raised by cultivating an ethical compliance culture, which strengthens all the components of a successful business environment.[4]
- Boosts productivity as studies reveal that maintaining moral behaviour in the workplace improves effectiveness when the code of conduct is in line with workers’ personal beliefs.
- Reduce bad behaviour with a code of conduct that outlines expectations for moral and ethical behaviour and gives employees the advice they need to behave on the job. It provides a solid foundation for creating an environment that values accountability, transparency, respect and trust.
- Better compliance because the behaviour or action may be legal but is not always moral. It is based on the importance of doing business, because these go hand in hand, companies need to create and maintain a culture of execution. Companies can reduce risk and improve compliance by holding all employees accountable, communicating results and policies, and providing training that reflects the benefits and principles.
CORPORATE ADMINISTRATION ISSUES
- Ethical issues: These relate to the issue of fraud, which is spreading throughout capital economies. To put extreme pressure on the government to create public policy, they organize into cartels, which might occasionally conflict with people’s interests and the interests of society as a whole. To maximize long-term owner value, corporations occasionally turn to unethical ways like bribery, gift-giving to prospective clients and lobbying under the guise of public relations.
- Efficiency issues: These pertain to the management of performance. It is the responsibility of management to guarantee that shareholders receive a fair return on their investment. People typically invest their money through mutual funds, retirement accounts and tax funds in developed nations like India. Even so, since the mutual fund business is still in its infancy, small shareholders continue to be a significant source of funding for businesses.
- Accountability issues: The Corporation’s management is answerable to its different stakeholders. This is a result of the stakeholders’ demand for management transparency in business operations. Since a company’s actions have an impact on its employees, clients and society at large, some accountability issues are related to the social responsibility that a company must bear.
REAL-LIFE EXAMPLES
- In 1982, a nationwide recall of Tylenol capsules was prompted after seven fatalities from tempered capsules. Even in the face of large financial losses, Johnson & Johnson’s prompt and open response including the product recall showed how important it is to put customer safety and moral behavior first.[5]
- During the 1990s-2000s, Nike received criticism for the unsatisfactory working conditions and low pay in its foreign factories. Businesses need to guarantee moral behaviour not just in their internal operations but also in all of their international supply chains. Taking social responsibility seriously is essential to corporate governance.[6]
- In 2001, Enron, which was formerly regarded as one of the most inventive businesses, went bankrupt as a result of widespread accounting fraud and unethical financial practices. A large corporation failed due to a lack of ethics, accountability and transparency, which emphasizes the significance of honesty and integrity in financial reporting.[7]
- In 2002, Tyco’s financial collapse was caused by top executives who committed corporate fraud, embezzlement and unauthorized loans. At the top of the leadership hierarchy, unethical behaviour can have dire repercussions. To stop these kinds of power abuses, strong corporate governance practices are required, including independent oversight.[8]
- In 2015, Volkswagen installed software to rig emissions tests, deceiving authorities and customers about the cars’ environmental impact. In addition to damaging the environment, unethical behaviour erodes the confidence of investors, customers and regulators. Maintaining social and environmental obligations is essential to corporate governance.[9]
- In 2016, to reach ambitious sales goals, Wells Fargo employees opened millions of unauthorized customer accounts. The incident made clear how important it is for salespeople to behave ethically, stressing that pursuing quick money by immoral means can have negative effects on one’s reputation and even land one in hot water.[10]
- IBM has a long history of upholding social responsibility, placing a strong emphasis on moral behaviour, inclusiveness and diversity, environmental sustainability and community involvement. Good examples show that incorporating moral principles into corporate governance can result in long-term success and favourable stakeholder relations.
ENVIRONMENTAL AWARENESS
Environmental issues fall under the ethical umbrella of corporate governance. The Earth and our environment are important stakeholders and should be taken into account when developing a treatment plan. Environmental awareness ensures the efficient and effective use of our planet and its limited resources, thus protecting people, animals and plants in the future. An environmental management company must raise and answer questions about how its products and services are purchased, produced, sold, transported, recycled or disposed of. To ensure businesses can be successful in the long term, responsible businesses need to evaluate their operations to determine their impact on the environment, the financial future of their workforce and longevity. They also need to find ways to reduce negative consequences.[11]
CONCLUSION
To sum up, corporate governance’s application of business ethics is a critical component of ethical and sustainable business practices. Businesses that give ethical considerations top priority when making decisions improve society as a whole in addition to their reputation. Incorporating business ethics into corporate governance is crucial for long-term success in the dynamic and interconnected global business environment, as stakeholders’ awareness of ethical standards grows.
Author(s) Name: Manali Pokharna (M.K.E.S. College of Law, University of Mumbai)
Reference(s):
[1]Alexandra Twin, ‘Business Ethics: Definition, Principles, Why They’re Important’ (Investopedia, 17 March 2023) <https://www.investopedia.com/terms/b/business-ethics.asp> accessed 10 December 2023
[2] James Chen, ‘Corporate Governance: Definition, Principles, Models, and Examples’ (Investopedia, 31 October 2023) <https://www.investopedia.com/terms/c/corporategovernance.asp> accessed 10 December 2023
[3] Margaret Steen, ‘The Intersection of Corporate Law and Ethics’ (Markkula Centre for Applied Ethics at Santa Clara University, 9 November 2013) <https://www.scu.edu/ethics/focus-areas/business-ethics/resources/the-intersection-of-corporate-law-and-ethics/> accessed 10 December 2023
[4] Shubhangi Gupta, ‘Relevance of Business Ethics in Corporate Governance’(TaxGuru, 17 March 2023)<https://taxguru.in/corporate-law/relevance-business-ethics-corporate-governance.html> accessed 10 December 2023
[5] ‘Analysis of Case Study: The Johnson & Johnson Tylenol Crisis’ (The University of Oklahoma) <https://www.ou.edu/deptcomm/dodjcc/groups/02C2/Johnson%20&%20Johnson.html> accessed 11 December 2023
[6]Max Nisen,’How Nike Solved Its Sweatshop Problem’ (Business Insider India, 10 May 2013) <https://www.businessinsider.in/how-nike-solved-its-sweatshop-problem/articleshow/21122639.cms> accessed 11 December 2023
[7]Troy Segal, ‘Enron Scandal: The Fall of a Wall Street Darling’(Investopedia) <https://www.investopedia.com/updates/enron-scandal-summary/> accessed 11 December 2023
[8]‘Tyco Corporate Scandal of 2002 (Ethics Case Analysis)’ (Panmore Institute) <https://panmore.com/tyco-corporate-scandal-2002-case-analysis> accessed 11 December 2023
[9] Gwyn Topham, Sean Clarkeet al., ‘The Volkswagen Emissions Scandal Explained’, The Guardian (23 September 2015)
[10] Chris Isidore and Matt Egan,‘Wells Fargo under siege: Drops sales goals tied to bogus account scandal’(CNNMoney, 13 September 2016) <https://money.cnn.com/2016/09/13/news/companies/wells-fargo-scandal-sales-goals/index.html> accessed 11 December 2023
[11] Sanjay Kumar Singh and Sanjaya S. Gaur, ‘Corporate Growth, Sustainability and Business Ethics in Twenty-First Century’ (Journal of Management and Governance Vol. 24, 30 April 2020) <https://link.springer.com/article/10.1007/s10997-020-09512-2> accessed 11 December 2023
