Day 76 – Q 5.Corporate governance is driven by motives. Do you agree? Can ethics fit into corporate governance? Examine.

5. Corporate governance is driven by motives. Do you agree? Can ethics fit into corporate governance? Examine. 

कॉर्पोरेट प्रशासन केवल लाभ की मंशा से प्रेरित है। क्या आप सहमत हैं? क्या नैतिकता कॉर्पोरेट प्रशासन में फिट हो सकती है? जांच करें।

Introduction:

Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. 

Body

• Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.
• Most companies strive to have a high level of corporate governance. For many shareholders, it is not enough for a company to merely be profitable; it also needs to demonstrate good corporate citizenship through environmental awareness, ethical behavior, and sound corporate governance practices. Good corporate governance creates a transparent set of rules and controls in which shareholders, directors, and officers have aligned incentives.
• Bad corporate governance can cast doubt on a company’s reliability, integrity or obligation to shareholders—all of which can have implications on the firm’s financial health. Tolerance or support of illegal activities can create scandals like the one that rocked Volkswagen AG starting in September 2015. 
• The development of the details of “Dieselgate” (as the affair came to be known) revealed that for years, the automaker had deliberately and systematically rigged engine emission equipment in its cars in order to manipulate pollution test results, in America and Europe. Volkswagen saw its stock shed nearly half its value in the days following the start of the scandal, and its global sales in the first full month following the news fell 4.5%.
• While the drive for good corporate governance is generally associated with publicly listed companies, the governance benefits to non-listed companies are less often talked about – in many countries, national codes of corporate governance set out practices and standards that are desirable but not mandatory for non-listed companies.
• Revolution in information technology facilitated companies to adopt new changes in the field of communication for improving corporate performance. Growth is another driving force for corporate governance.

Corporate governance is out-and-out a matter of ethics. It is about who is responsible to whom, and for what, and under what conditions. The balance of pursuing market opportunities while maintaining accountability and ethical integrity has proved a defining challenge for business enterprise since the arrival of the joint- stock company in the early years of industrialism. 

• Business ethics is the application of general ethical principles to business dilemmas and encompasses a broader range of issues and concerns than laws do, as everything that is legal is not ethical. Ethics involves learning what is right or wrong, and then doing the right thing — but “the right thing” is not nearly as straightforward.
• Although the law can guide ethical behaviour, ethicists are quick to point out that the law should be thought of as the bare minimum of an ethical framework. Complying with the law and behaving ethically are not necessarily synonymous.
• The overall objective should be pluralist in the sense that companies should be run in a way which maximizes overall competitiveness and wealth and welfare for all. But the means which company law deploys for achieving this objective must be to take account of the realities and dynamics which operate in practice in the running of a commercial enterprise. 
• It should not be done at the expense of turning company directors from business decision-makers into moral, political or economic arbiters, but by harnessing focused, comprehensive, competitive decision-making within robust, objective professional standards and flexible, but pertinent accountability. 
• Moral liability occurs when corporations violate stakeholder expectations of ethical behaviour in ways that put business value at risk thus endangering the entire corporate structure towards malpractices.

Conclusion

The effectiveness of the Corporate Governance has become a global concern. Mainly after many corporate collapse (e.g. Enron, Boeing etc), fraud cases (e.g. Lehman Brothers), shareholder suits or questionable strategic decisions are drawing attention to the top level decision-making body of the corporation and the board of directors, necessitating the need for ethical considerations where in Indian context, Uday Kotak committee recommendations can form guidelines for better ethical corporate governance.