The Principle of Ethics refers to guiding beliefs that govern a person’s behavior or how an activity is conducted. It is a conception of right or wrong. Collins Thesaurus prescribes ethics as conscience, morality, moral values, etc. With reference to business, the application of these ideals into the operations of business establishes the base for corporate governance.
Setting the Tone
Corporate Governance is the expression of the consciousness and internalized values that an organization follows. As James D. Wolfensohn points out, “Corporate Governance is about promoting corporate fairness, transparency, and accountability.” It aims for long term fullness of strategic goals of the business as well as the interest of the employees, compliance of legal and regulatory requirements, and ensuring positive ambiance in the corporation.
Ethics and Corporate Governance goes hand in hand. However, when it comes to strike a balance between the principles of ethics in corporate governance and the profit-making intention of a company, it poses a challenge to the corporation. Corporate Governance ensures the earning of profit through ethical channels whereas the profit-making intention might lead to profit maximization through unethical means. It is significant for a company to choose the quality product and services as well as the safety of its shareholders and stakeholders in a situation confronting ethical dilemmas to accentuate its credibility. An ethical standard can lead to long term benefits for a company.
Striking a Balance
Ethical practices can be a driving force behind the profit earning intention of the companies. By subscribing to certain ethical standards this balance can be achieved:
1. Avoiding short-term gains – Companies shall avoid running after short term gains as a general practice. Instead, focus shall be on developing a sustainable business, which guides a company’s interest in long-term business strategy to earn profits and do away with unethical means for short-term gains.
2. Corporate Misrepresentation – Overstating the value of the company’s products, showcasing increased figures in the company’s balance sheet, as well as the broadcasting of false advertisements, are some forms of corporate misrepresentation, considered as unethical practices. A corporation shall steer clear of such misrepresentation as it puts the company’s credibility to question thereby decreasing its market value and raising a red flag on the profit earning capacity of the company. Therefore, maximizing profits on the grounds of corporate misrepresentation shall be replaced with the ethical practice of transparency to balance business and growth ultimately balancing ethics and profit. For instance, the Satyam Scam was one of such infamous incident where corporate misrepresentation as an unethical practice was the prime reason behind the business failure of the company.
3. Shaping expenses into the right place – The probable results of expenses shall always be analyzed at first. Employees’or worker’s safety shall be of prime importance. Economic benefits shall never be preferred over safety and security.Therefore, in this way we can balance the long-term growth and employee satisfaction in a company since the sense of security boosts the efficiency of the employees and ultimately leads to long term benefits. This ethical practice can overshadow the unethical one of concentrating only upon economic benefits and thereby strike a balance between the principle of ethics and profit-making intention of the companies. For instance, the Ford Pinto’s case, where an explosion of Ford Pinto occurred due to a defective fuel system design. The major reason being inaction on part of the company to put in the safety feature as the cost would have exceeded the benefits. Therefore, such practices shall not be promoted.
4. Management Ethics – It is important for the leader of the organization to believe in internalizing the principles of ethics to walk the terms of corporate governance. The ethical flow of accountability and responsibility from the top to bottom positions in the company can secure an ethical ambiance and positive impact upon the overall profitability of the company. It also leaves an imprint of positivity among the employees and workers to work ethically, strikes a requisite balance between principles of ethics and profitability of companies.
5. Focus upon ethical means of production – The ethical means can always reduce cost and ultimately increase long term profit. Ethical means such as adopting water, energy, waste reduction, and green packaging initiatives in the business and supply operations rather than going after cheap alternatives that can only earn short-term gains, might be productive for a business and capable of striking a balance between ethics in corporate governance and profit-making intention. PepsiCo Inc. announced savings of $375 million in 2010 only from adopting such ethical means of production and distribution.
6. Consumer’s Preference – Principle of Ethics in observing Corporate Governance is important because it is a driving factor in maintaining customer relations. An ethical business is always a primary preference of a customer. Therefore, adopting ethical standards would automatically attract consumers, and thereby profit-making intention of the company shall be satisfied. There is a direct relationship between ethics and profit-making.
Looking Ahead
Profit maximization shall never be the only objective of the company. The principles of ethics are supplements and ancillary objectives without which the long-term growth of a corporation remains at stake. Morally good standards and ethical value shall always be the tone of the management. Code of Conduct is a must for any corporation. They shall have the liberty to legislate certain ethical standards within their culture. This imbibed culture would always remind the members, the importance of principles of ethics in observing corporate governance in contrast to the profit-minded companies.
[1] Study Material Professional Programme, Governance, Risk Management, Compliances and Ethics, The Institute of Company Secretaries of India, 3 (2020), https://www.icsi.edu/media/webmodules/GRMEC_BOOK_2020.pdf.
[1] Overview of Sustainable Business, The Sustainable Business Case Book, https://saylordotorg.github.io/text_the-sustainable-business-case-book/s05-02-overview-of-sustainable-busine.html.
[1] Karen Alvarez, Business Ethics v. Profit, Manila Standard (Dec., 7, 2014, 11:20 PM), https://manilastandard.net/business/business-columns/green-light/165016/business-ethics-vs-profit.html.
[1] 3 Reasons and Ethical Business leads to Profits, Washington State University [Date Accessed (Aug. 28, 2020, 1:52 PM), https://onlinemba.wsu.edu/blog/3-reasons-an-ethical-business-leads-to-profits/.
So helpful.
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