Business and Corporate GovernanceIntroductionBusiness ethics refers to moral principles with which business is to be conducted. Corporates that run businesses need to be governed keeping these business ethics in view in all their activities. The only maxim known to corporates in the early days was maximisation of profit for the sake of shareholders on whose behalf the corporates were supposed to be managed by the elected board. Historically, religious beliefs have been the motivating factors for observing ethics in business, such as not to harm ‘thy neighbour’ and not to profiteer.
Democracy is its one of the dimensions with communism having failed. As such democracy and capitalism have come under more scrutiny and there have been opinions that democratic systems vary from country to country. It has been said that there should be industrial democracy i. e democracy at the industrial level so that democracy at the national level can blossom. It applies to multinational companies also as they develop as ‘nation-states’ and greater democracy is needed within organisations for employee motivation (Davies 1997). There are similar interested groups like suppliers, bankers, government agencies, and NGOs who have stakes in the company expecting that their interests should also be safeguarded.
Corporate governance is the manner in which all the stake holders’ interests are safeguarded. Cadbury (1990) has said that what hold the company together as glue are its beliefs and values and not its structures and systems. Though business ethics at first will appear as anti-business, it helps maximisation of firm value for the owner in the long run. As a corporate governance tool It is like management accounting as a management tool as it helps management take informed decisions.
Though small business can do without it and even corporates to some extent blindly operate without it in favourable circumstances, absence of management accounting is a serious handicap to business. It may be more adventurous to dispense with such aids but end result will not be as effective as it can be when the location of target and identity are known. Business ethics affords greater perception of what is important for business and improves business performance as the business ethics can identify the right business mission and vision and the ways and means of achieving them.
(Sternberg 2000)Relevancy of business ethicsShareholders verify the ethics of the companies they have invested in. Investment decisions are driven by not only financial strengths but also of the attitude and behaviours of the companies. In the U. S and UK, institutional investors resent the bad business practice of the companies. As said earlier, business ethics is all pervasive in organisations having several dimensions with the involvement of more than one group of stake holders. ((Sternberg 2000)The most vulnerable aspectIt is very simple and easy to observe business ethics in the stake holder areas such as suppliers, employees, shareholders, government agencies and others, at least not as complicated as it can be in accounting of the company.
And these accounting aspects affect all the above said areas. If business ethics is ensured in this area, half the job is done. The management can be sure of having established a fool-proof system as an insulation against anti-business and anti-ethical activities. And this is what corporate governance is all about.
In fact business ethics acquired its present importance among the public and the media, only after the surfacing of accounting scandals that shook the entire corporate world. Accounting is therefore a vulnerable area where business ethics could be compromised and ever since the infamous scandals such as Enron, Worldcom, HIH and others shook the confidence of the investors and other stakeholder, legislations like Sarbanes Oxley and Cadbury report have been made to make the accounting area fool-proof against ant- ethical activities. In order to know how these can damage, Enron episode is discussed hereunder.