Contemporary in Business Ethics and Corporate Governance

Contemporary in Business Ethics and Corporate Governance

Introduction

With the growing strength of consumer movements and rising levels of awareness among stakeholders, corporations are realizing that stakeholders and consumers are no longer indifferent to unethical practices like financial irregularities, tax-evasion, poor quality products and services, kick-backs, non-compliance with environmental issues, and hazardous working conditions.

Many Indian companies too have recognized the importance of integrity, transparency, and open communications.

They believe that the goodwill resulting from adopting and successfully implementing a code of business ethics will, in the long run, translate into economic gains. Today, investors want to ensure that the companies they invest in are not only managed properly, but also have proper corporate governance.

They regard corporate governance as a control mechanism that ensures the optimum use of the human, physical and financial resources of an enterprise.

Companies have now begun to integrate ethics into their corporate cultures and concentrate on putting appropriate corporate governance mechanisms in place.

Importance of Ethics in Business

Metaethics is the study of the origin and meaning of ethical concepts. Broadly, it deals with metaphysical, psychological and linguistic issues. While normative ethics establishes certain moral standards for human behaviour. Normative ethics is further classified as: teleological, deontological and virtue ethics.

According to teleological ethical theory, an action is considered morally correct if the consequences of that action are more favourable than unfavourable. Deontological ethical theory focuses on certain fundamental duties such as duties to God, duties to oneself and duties to others. Applied ethics deals with specific controversial issues like capital punishment, abortion and nuclear war.

Unethical practices like coercion, deceptive information, theft and bribery hamper the effective functioning of the market system. For business to be successful in the long run, it must build up relationships of trust with its suppliers, customers and employees.

Social contract theory is an informal agreement concerning behavioural norms. It comprises of three elements: hyper norms, macro social contract and micro social contract. Hyper norms are universal norms that apply to all individuals. Macro social norms provide global norms while micro social norms are developed for community.

Ethical Issues in Finance

The attitude of a business towards its employee's acts is a litmus test for its ethical character. The relationship between the business and its employees is based on the employment contract. An ethical organization follows the principle of ethical selection for hiring prospective employees.

According to this principle an organization should hire a person who is expected to contribute the maximum towards enhancing long-term owner value.

According to the principle of ethical selection factors like age, gender, religion and nationality are irrelevant for hiring a person. Ethical remuneration rewards only those acts of an employee that contribute to long-term owner value.

Ethical Issues in Human Resource Management

The attitude of a business towards its employee's acts is a litmus test for its ethical character. The relationship between the business and its employees is based on the employment contract.

An ethical organization follows the principle of ethical selection for hiring prospective employees. According to this principle an organization should hire a person who is expected to contribute the maximum towards enhancing long-term owner value.

According to the principle of ethical selection factors like age, gender, religion and nationality are irrelevant for hiring a person. Ethical remuneration rewards only those acts of an employee that contribute to long-term owner value.

Corporate Responsibility - Stakeholders

Internal stakeholders are shareholders, employees and management. External stakeholders include consumers, suppliers, creditors competitors and community. Shareholders are important to the business, because they have a primary stake in the business.

To provide professional management, fair returns on their investment, disclose relevant information, protect shareholders assets etc. The organizations responsibility towards employees are improving working conditions, maintaining open and honest communications, welcoming suggestions/complaints, providing equal opportunity etc. Management plays a key role in balancing the multiple claims of stakeholders.

Therefore the responsibility of management involves maintaining healthy relationships among the stakeholders. The organizations responsibilities towards consumers include offering quality goods, providing prompt services, treating customers fairly etc. Good relations with suppliers will determine the profitability of the company.

The company must treat its suppliers with respect. Suppliers / Creditors must be paid promptly. Companies must also follow ethical competitive practices. Finally, the responsibilities of the organization are, respecting human rights, improving workplace safety and economic well being etc.

The Role of Business in Society

Business is expected to create wealth and employment, while society is expected to provide a conductive environment for the business to flourish. The value and ethical standards that a company adopts are the long-term assets of the organization.

There are a number of tasks that a business has to fulfil to the society. These include the financial task, political task, environment task, adaptive task, economic task, and social tasks. Financial tasks include laying down policies and guidelines for the proper functioning of the financial systems.

The environmental tasks include the