The Role of Ethics in Corporate Governance Essay

1634 Words 7 Pages
This paper discusses the role of ethics in corporate governance. I seek to show the application of moral and ethical principles in corporate governance. Ethics is a topic that has generated a lot of interest in the last decade especially after high profile scandals. The failures of prominent companies such as WorldCom, Enron, Merrill lynch and Martha Stewart portrays the lack of corporate ethics. The failure of such business has seen an increased pressure to incorporate ethics in corporate governance. The result of corporate scandals has been eroding investor and public confidence. The entire economic system has experienced some form of stress from loss of capital, a falling stock market and business failures.
The past
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Corporate governance
Corporate governance has a broad definition. The term is used to describe the ethical balance between economic and social goals of the corporation’s values and practices. The concept defines how the company will relate to its shareholders and society at-large in promotion of accountability, fairness and transparency. The Organization for Economic Co-operation and Development (OECD) defines corporate governance as “Procedures and processes according to which an organization is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization – such as the board, managers, shareholders and other stakeholders – and lays down the rules and procedures for decision-making." From the definition we see that there is a relation among managers, employees, shareholders and society as a whole. It is this relationship that makes ethics essential in corporate governance. This relationship may from time to time result into a conflict of interest and there has to be a system in place to solve such conflicts. The financial times defines such a system as corporate governance. According to The financial times “How a company is managed, in terms of the institutional systems and protocols meant to ensure accountability and ensure sound corporate governance”. The OECD definition was endorsed by Sir Adrian

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