Business Ethics & Corporate Governance

Major companies are finding new ways to meeting expectations for business ethics and corporate governance

What is ethics?

Ethics are the moral standards constituted by values and judgement with respect to right and wrong. It is the study of morality and its application of reason to depict specific rules and principles that determine right and wrong for any given situation.”

What is the difference between right and wrong and how do we determine it in our actions?

The origins in ethics have historical value from multiple cultures (different cultures have different points of view), religions (moral/spiritual guidelines/rules), and society (increasingly important; reaction to globalization/environmentally).

Ethics and self-interest are not mutually exclusive where self-interest is not a comprehensive guide to ethical behaviour. The short-term and long-term requires consideration as they encompass the consequences of our actions.

“morality is the persisting norms, values and beliefs that are embedded in social structures defined by right and wrong per individual and community.”

In business, this would require owners to evaluate their activities and decisions on the basis of right and wrong, but the values that are used can be relative to the geographical location. Judicial locations differ, for example common law in North America has a different ethics and morality structure than that of Sharia law.

Decisions can be legal and not ethical, or ethical and not legal.

Business ethics is incredibly important for corporate governance has changed the landscape as the responsibility of business to society has increased. Businesses have the power to influence society as they create economic value for its citizens, and have potential to provide major contributions to society, but also have the potential to inflict harm.

There are increasing demands from stakeholders to incorporate corporate governance to combat any lack of business ethics education or training that may or may not have caused occurrences of ethical infractions. There are many ways to evaluate the different ways of managing ethics with rewarding benefits. The morally and ethically “correct way of acting” is based on normative ethical theory that is used as like an antidote, whereas descriptive ethical theory requires ongoing decisions actually made by the business.

Some perspectives of ethics for corporate governance take a stance of absolutism where claims are eternal and universally applicable, the vice versa being ethical relativism that applies contextual dependent and subjective rationale. Some societal examples would include feminism, nationalism, patriotism, pluralism, and protectionism – on a scale from relative to absolute, where do you think this fall into?

Emerging Issues In Business Ethics

When multiple cultures meet, their ethical frameworks collide and there are competing values that ensue:

  • Gift giving in Japan

  • Child labour in Pakistan

  • Facilitation payments in the Congo

  • Gender issues in the Persian Gulf

These multiple forces must be acknowledged and respected in order for the world and business to move forward successfully. There are two lenses through which we may interpret emerging issues so that we can evolve our ethical structures, which lends to the importance of evolving corporate governance. The "Lexus" is our power over technological futures and our drive for modernization. The "Olive Tree" represents the importance of our sense of identify, geography, ethnicity and our past.

Chipotle has experienced major change since 2015 when hundreds of customers became sick. The company has struggled with transparency, ethical decision-making, and corporate governance.

This evolution has been attributed to two major types of societies: progressive (tech and innovation, economic wealth distribution, and globalization) and traditional (cultural, religious, and linguistic). A holistic measure relates to respecting all cultures as a means of relativism, which is the belief that all cultures are equal in sovereignty with no international rights and wrongs. If an activity is believed to be acceptable within a specific culture, then it is void of ethical implications from other cultures. This is more true in international law because each country reverts to its country’s sovereignty.

Ethical Issues In Intl Business

There are proactive vs. reactive management types that can address key ethical issues if the business operates internationally so that corporate governance has embedded business ethics. Strategies to tackle theft of intellectual property (unique and individual ideas), bribery and corruption (e.g. Lockheed scandal), intentionally selling dangerous products (pharmaceuticals in Africa, Nestle baby formula), and intentional misrepresentation in negotiations (bait and switch, hidden costs, requests for facilitation payments).

Political issues can take precedent depending on the severity. Sanctions have taken precedent in the past 30 years in South Africa, Iran, Iraq, Cuba, and Burma. Even when the sanctions are not to or from the nation you reside, such as sanctions on Russia by the US, there can be repercussions on Canada, the UK, and Australia due to Free Trade Agreements (FTAs) that Russia is part of (add FTAs Russia is part of). This affects corporate governance because businesses should be weary of unethical behaviour during politically and internationally unstable times. Unethical behaviour such as profiting from war, selling weapons to both sides (i.e. the Rothchilds and Rockefeller families). Doing business with regimes that are unethical such as Saddam Hussein.

Major questions ensue:

  • Should corporations sell to companies that are attached to “evil” regimes.

  • What would you do if your supplier participates in child labour?

  • Minimum wage or living wage?

  • Would you take a bribe?

  • Would you allow your products to be produced in a sweatshop? What if you had no other choice?

  • What if your business partner lives in a nation that hangs gay men? What do you do?

There is a cost-benefit analysis to every aspect of business, not just in the negotiation stages. Sending employees to dangerous locations is a predicament many companies have and there requires a company structure that can protect them or bring them home swiftly. Corporate governance is the structured approach to conducting your business ethically with every decision, or at least always aiming to.

Union Carbide in India, also known as the Bhopal disaster, is an example of missing the mark in terms of local skill levels were not high enough to ensure safe use of technology and using the appropriate protection of India’s citizenry and their environment. Environmental pollution is another example of how businesses today are working to make change, to engage itself and its employees to participate in education of environmental affairs around the world.

Disposal of hazardous materials (e.g. PCPs in Nigeria, or asbestos in Ukraine); research what standards a nation has is part of a businesses corporate governance and due diligence. Make sure to note which standards apply – home or foreign. Other key information a business must educate itself on is gender issues, social customers, and animal rights. A business’s ability to perceive interdependence while thinking ethically and responding effectively will produce a valuable trust between customers, employees, leadership, and other businesses.

Corporate Social Responsibility & Corporate Citizenship

Business keeps evolving, and as society’s expectations evolve with it there are particular aspects of corporate social responsibility (CSR) and corporate citizenship that must be acknowledged – legality and ownership. Although corporations are legal entities or “artificial persons”, and owned by shareholders, they act independently.

According to Milton Friedman, businesses only have responsibility towards profit. Except businesses such as Patagonia and Google show how vigorous a company can be to thwart Friedman’s perspective so that there is a higher moral compass to be responsible for human being, to have a shared value beyond that of shareholders, and address economic, social, and environmental issues (the triple bottom line of sustainability) of a community.

These are the particular corporate governance activities that create an atmosphere of transparency that help businesses connect with society. There is a level of responsibility that is shared to society about the actions of the business, and although there are long and complex debates on business etiquette, some even argue of “information overload”, which is too much information about company activities, that society is now bombarded with company information that is too complex to navigate and acts as a means for business activities to disappear into a sea of data.

Corporate Social Responsibility (CSR) puts emphasis on what businesses should be responsible for at the philanthropic, ethical, legal, and economic levels

Ethics And Corporate Governance

A company is built to address issues through their shareholders who can ultimately influence managers into decisions. Except there are monitors that balance this dynamic such ad a board of directors, auditors, analysts, bankers, credit agencies, and attorneys.

It is a common understanding that if a company with reputable ethical behaviour and high levels of corporate social responsibility must also have effective systems of corporate governance. These systems should be stated in the company mission, vision and values. Legal requirements should also be followed along with industry standards. Other issues arise that can affect ethical decisions depending on the acceptable levels of ethics in a country.

Some possible signs of unethical behaviour could include:

  • shirking work responsibilities

  • nepotism

  • excessive perks

  • high risk

Culture and Corporate Governance

Companies must have an integral motivation to search out culture. Enculturation is the non-intentional process that includes learning valuable information in a new environment. This can be culture shock when entering a new country. Primary socialization is the intentional learning of new cultures and subcultures to develop and understanding of ethnic groups’ backgrounds, language, religion and other characteristics from the majority population. Secondary socialization happens after the primary socialization and helps to equip people with knowledge, skills, and behaviours for successful activities with other cultures.

There are 3 main levels of understanding culture:

  • artifacts: surface level, visual manifestations; easy to observe and hard to decipher

  • beliefs and values: explicit level, normative, focus on what is judged to be important

  • underlying assumptions: difficult to reach, integrated, unconscious perceptions

Strong cultures tend to persist over time and are difficult to change once many people have assimilated to its norms. Some issues may arise such as tyrannical leaders, who are many times also charismatic. They can cultivate autonomy and decision making in themselves and their citizens, and act as if they are a member of an ideal kingdom of ends that justify its means. They envision a future while energizing and enabling followers into fervent loyalty. Some examples are Adolf Hitler and Josef Stalin.

These are also examples of “transformational leaders” who can create basic structures to operate and are capable of amplifying response, reshape focus, and direct loyalty by putting emphasis on “mutual empowerment”, that they are able to liberate their citizens out of whichever strife they are facing. These types of people are usually enamoured by their own visions, but usually begin in the “Bathsheba Syndrome”, which is when leaders make ethical errors in a downward spiral during high success. They are obsessed with positive benefits and become privileged and controlling.

Enron dissolved after the crash of 2009 as the company hid illegal accounting activities that aided in inflating the company's assets.

Corporate governance is sometimes about employees spotting bad leadership and helping to correct the problem. The following can help to pinpoint the Bathsheba Syndrome:

  • leaders in a position of power who should be focusing on doing what is right for the company but are never where they are supposed to be and doing what they are supposed to be doing.

  • Temptations can be a serious issue for a leader. Know what can tempt a leader and keep an eye and open ear.

  • Leaders who frequently place greater emphasis on personal gratification

  • If it is difficult or “impossible” to act unethically

  • A leader who tries to cover-up activities that may otherwise seem ethical without close analysis

  • A leader who doesn’t get caught for smaller unethical activities may be self-deluded into getting away with larger unethical activities.

  • A leader that has dissatisfaction for a company or progression, and is unmoved by the destruction a company and its employs may face for unethical behaviour

Joshua David Joseph is our founder and main contributor at Sustainability: Through The Looking Glass. He is passionate about global business, sustainability, and culture. Find more from Josh on our members page.

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