Corporate Governance and Business Ethics

Posted: November 1st, 2019

Corporate Governance and Business Ethics
A relationship exists between corporate governance and business ethics in organizational operations. Corporate governance refers to a set of systems, processes as well as principles by which organizations are governed. Corporate governance provides guidelines on direction and control of a company in order to achieve goals and objectives (Koehn, 2002, 233). This works towards achieving value of a company and is advantageous to stakeholders over a long-term period. Corporate governance is associated with principles of conducting business with much integrity and fairness, remaining transparent considering every transaction, disclosures and decisions in an organization. It also involves complying with all laws stipulated in a constitution, accountability, responsibility to stakeholders and conducting business in ethical manner (Sophie, & Richard, 2007, 550).
Business ethics refer to a critical, structured determination of the way people and institutions are required to behave in business world. They refer to a set of company codes of principles that can be in written or unwritten form by which companies evaluate their actions along with business-related decisions (Anand, & Rosen, 2008, 97). Most importantly, business ethics are structured by a company’s practices and culture. They define propensity to determine difference of wrong and right and a resiliency to do right. Business ethics can be implemented through different approaches such stakeholder and shareholder approach. Shareholder approach of ethics implementation holds that decisions are made whenever people in an organization keep interests of owners in mind. Stakeholder approach holds premium on the corporate social responsibility. Companies arrive at business ethics out of different factors such as culture, presence of formal professional codes of ethics, internal system of recognition and recruitment of resources (Borgerson, & Schroeder, 2008, 102).
Relationship of Corporate Governance and Business Ethics
Similarly, corporate governance and business ethics have a strong correlation. The relationship between the two emerges from organization’s owners or executives that create governance and determine ethical principles to be followed by employees. Mission statements define the relationship between the two. Mission statement clearly defines an organization’s planned standards of excellence in a business environment. Mission statement can focus on social aspects of operations instead of profit motives to compensate shareholders. Business ethics and corporate governance guide an organization in achieving goals and objectives (Kingsolver, 2008, 270). Business ethics represent values and characteristics followed by an organization in conducting business. Similarly, corporate governance represents an internal framework designed by a company to govern as well as protect investments into the company. In this case, business ethics and corporate governance guide the way activities are undertaken in an organization. The corporate involved in governance of a company are the same people that engage in stipulation of business ethics. Therefore, in the process of governance, managers apply business ethics. This explains a clear relationship between the two concepts. Moreover, corporate governance systems should have independent team of directors that follow business ethics in terms of international practices, internal control systems, committed management team and dissemination of information towards stakeholders (Reyes, José, & Silvia, 2009, 330).
Relationship with Organizations
In relationship to organizations, both corporate governance and business ethics play great roles. Business ethics offers people in organization tools of dealing with the moral complexities in business. They help in defining the appropriate behavior in an organization, establishment of organizational values and nurturing of individual responsibilities in organizations. Business ethics also play a role of providing leadership and oversight, developing accountability and relating to consequences in organizations. Business ethics assist organizations to meet stakeholders’ expectations, prevent harm to public, build trust with stakeholders, and protect employees as well as create an effective environment where workers act in various ways consistent with values of an organization. Most importantly, corporate governance relates to organizations in various aspects (Luis, et.al, 2009, 194). Corporate governance involves application of management practices in organizations, compliance with law and adherence to ethical standards to ensure effective management as well as distribution of wealth in organizations. Good corporate governance is vital in organizations since it ensures rights and equitable handling of shareholders. Corporate governance enables organizations to ensure that long-term strategic goals and plans are implemented and that proper management is in place. It also enhances adherence to ethical principles and standards through ensuring corporate fairness, accountability and transparency. Organizations that wish to thrive over the long-term should adopt sound corporate governance and business ethics. This suggests that organizations that enhance social responsibility are more likely to gain ultimate success than those ultimately driven by a profit motive. Good corporate governance ensures constant growing profits in organizations along with a growing reputation to the public. It ensures good relationship with stakeholders hence determining control of strategic direction and organizational performance (Mcdaniel, 2011, 250). Therefore, both corporate governance and business ethics are responsible for levels of organizational performance.

Advantages and Challenges
Corporate governance comes with various advantages. Research Paper Writing Service: Professional Help in Research Projects for Students – One of the advantages of corporate governance is improved reputation since more stakeholders will be willing to work with an organization that publicizes its corporate governance (Sharbatoghlie, Mosleh, & Shokatian, 2013, 550). Corporate governance also leads to fewer fines, lawsuits and penalties. This is because it enhances compliance with local, federal and state rules. Good corporate governance also enhances decreased frauds and conflicts since it limits potential of bad behaviors of employees through institutionalization of rules to reduce potential frauds and conflicts. On the other hand, business ethics have several advantages that include competitive advantages since consumers are able to trust brands from companies that apply ethical practices (Serenko, & Bontis, 2009, 391). Customers remain loyal to these products and brands despite difficulties. Most importantly, society is able to benefit from business ethics since ethical companies tend to recognize social responsibilities in organizations.
However, corporate governance experiences challenges. These challenges arise from lack of clear oversights, sentimental business decision through entrenched board and high costs of altering directions when a business way proves ineffective. Corporate governance can easily be corruptible hence requiring high levels government oversight in attempts to avoid corruption. Costs of monitoring corporate governance can also be a challenge. Individuals believe that they have to increase their contributions in order to have a chance to control their share. On the other hand, business ethics also suffer certain challenges (Serenko, & Bontis, 2009, 392). They reduce freedom of a company towards profit maximization. Improvements in certain working conditions tend to reduce the degree of cost-savings generated by a company. Nevertheless, many people can argue that restrictions on an organization’s freedom benefit the society.
Implications and Opportunities
Corporate governance has several implications especially to organizations and in the wider society. Corporate implications occur whenever there are two conditions present that include agency problem and transaction costs. Agency problem involves conflicts of interest that involve organizational members (Murphey, et al., 2007, 51). These can be owners, workers, managers, and consumers. Transaction costs hold that the agency problem is not solved through a contract. In absence of an agency problem, individuals linked to an organization can be advised to maximize profits or the net market value or cost minimization. Therefore, agency problem cannot offer a rationale for governance on its own. Therefore, agency problems and transaction costs are two vital implications of corporate governance. Implications of business ethics are associated with government policies. This is because governments tend to create rules on how businesses are run and the ways that they interact with other businesses. Governments have the abilities of changing rules as well as frameworks that means that a business should change its ways of operations (Gray, 2009, 253). Therefore, government policies should be considered in stipulating and implementing of business ethics.
Moreover, corporate governance offers several opportunities for organizations to explore the business world through improvements of profits that are used for research and development. Through sound corporate governance, companies can expand their shareholders’ portfolio in terms of investments (Hansmann, & Kraakman, 2000, 444). This will emerge from improved reputation. Other opportunities include focusing on long-term obligations, redefining board priorities, listening and communicating with shareholders and executive compensation. Business ethics have opportunities of attracting more customers to purchase products from an organization hence boosting profits of an organization. Employees also find it favorable to remain in an organization for long periods hence reducing turnover of labor. This boosts productivity in an organization. More employees can also be attracted to work in an organization and reduce recruitment costs. Business ethics also brings organization opportunities to recruit the best personnel (Mindeli, & Pipiya, 2007, 314). They also help in attracting investors through maintaining returns on shares as high as possible. In other words, both business ethics and corporate governance carry more opportunities for every organization.

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