Ethics and corporate governance Essay
Introduction, decision making.
Jacobs (2004, p. 17) defines corporate governance as an arrangement where organizations are guided and managed, and the emphasis of this description is generally accountability. During the last five years, corporate governance has attracted more concentration from public interest due to its evident significance for the economic stability of corporations and communities in general.
Likewise, corporate governance is the process in which corporate boards administer the operation of an organization by its managers, and the way the board members are held answerable to the organization and shareholders. This contains some inferences for organization or company behaviour not just to shareholders, but also to workers, clients, company’s sponsors, and the stakeholders, as well as the society where the company operates.
The corporate governance system states the sharing of roles and rights among various members in the corporation, for example managers, shareholders, corporate panel, and other groups. It also identifies the processes and guidelines for decision making in corporate issues.
Through this process, it also gives the arrangement where the organization goals are set and the way of achieving those goals and assessing performance (Solomon, 2011, p. 219). This paper discuses a corporate governance and its situation in an organization with studies of leadership behaviours that maintain and overcome the principles of corporate governance in particular company and society in general.
Corporate governance is mostly experienced in companies or organizations. Workplace behaviour is possibly among the most complex elements of the entire corporate governance interest to manage and monitor. However, leaders should have certain values, such as transparency, truth and integrity as a normal element of daily functions so that corporate governance will be achieved.
Company’s managers must start to focus critically on roles to manage efficiently with definite and perceived unsuitable and corrupt conducts if they want to prevent the possible effects and consequences of legal, society, company, and judicial impact.
The possible attack on corporate governance occurs in companies that employ particular number of workers that come from wide cross section of environment and cultures. A company may have a good status among its associates since it addresses the issues that govern the employees and truly kind with wage packages.
A good example occurs when particular employee is called to handle issues like sexual harassment plan since there have been incidences with certain employee or manager. A company may want to zip this issue and can expect that through training they could transform employee or manager’s behaviour and keep the person often considered helpful employee. Actually, the employee may have been set aside for the company’s leadership plan and may be in risk since the victim may affirm that he will resign if the incident is not tackled instantly.
It is possible that different situations of racial harassment or discrimination, similar to sexual harassment, are addressed since they are partly aligned. A company often recruits all workers from different races and cultures, which may cause hatred and discrimination.
Some employees often accuse other employees and request them to return to their home countries or regions. Certainly, managers or employers state that they declined to recruit based on nothing, but only that they did not want them since they identify them to be non-conformist to the company’s culture and principles.
Personally, I could advise the company that it should persist that the behaviour is illegal under the company’s Act. The situation may turn more complex if the clients, working with the section of the company, do not want certain employees to be recruited in its projects. Therefore, the companies should receive the explanation that as contractors they are often accountable based on the Act. The company should understand that it is poorly exposed and could undergo severe consequences.
They should eventually decide to assess and reform the company’s policies and to offer training for employees and level training for every operation they undergo. They should recruit extra employees to cope with the raised workload and to offer advice to administration to make sure that it abides by the company’s policies. The accused employee should leave the company and the victim should be promoted after the leadership training plan.
This incident is common in most companies since discrimination or harassment is common on an occasion where employees have different backgrounds, cultures, or nationalities. It may continue unless employees are provided with their rights and roles and are placed through an informative procedure. Companies can often focus on certain issue that has been exposed as bringing about a violation of the ethics Act of the company (Giroud & Mueller, 2011).
However, it is essential that managers in these companies assume holistic plans and address all issues that arise. They should examine all elements of the legislation and allocate an appropriate process, plan, and method ready to make sure that a violation should not happen under all other positions of the Act. Plans that comprise integrity and ethical decision making are essential as basis to follow and achieve appropriate corporate governance conducts (Klein, 2005).
Certain measures should be followed in all situations of corporate governance if the company needs to help employees and managers demonstrate and transform behaviour by using ethics and integrity. Consequently, they can follow acceptable corporate governance regulations.
Employees and managers are expected to translate policy and legislation into substantial activities and conducts. Formalised plans in themselves will never offer admirable results, mainly a sheep dip way, and it is immature for leaders to consider that this will provide the intended outcome.
Present employees in the organizations are required to be provided clear indications that describe unsuitable and corrupt conducts since they are not tolerable by management. A sticking point in the public sector is that employees are operating on an ethical stiff rope. This sector’s institutional environment creates it nearly impracticable for them to sustain a sturdy sense of ethics and resulting in a conduct that supports appropriate corporate governance.
Generally, the above approaches are among the main elements that I will use to tackle some instances of corporate governance in any company I will participate in. It is the similarity of legislation with workplace behaviour that in the future will attain achievement for corporate governance as a global project. This occurs when every sector of the society adopts certain values, such as transparency, sincerity, and truth as a common element of daily actions.
Corporate governance is among the major elements in decision making and supports the assessment and understanding of financial statements, as well as directs the sensible investment of finance to exploit net profits and income. Various ethical theories are present and can be used in various situations to update company’s thinking and to sustain acceptable decision making. The essential function of corporate governance is to make sure that tactical decision making is provided in the interest of people with a stake in thriving results.
These functions have an impact on the company’s decision making and important during assessment of the investment decisions and asset investment to a great coverage. Some major ethical theories involved in decision making are Consquentialism, Principlism, and Deontology.
Consquentialism proposes that the only element that matters ethically is the consequence of an activity in the company. Deontology states that the essential element is not the consequences of actions, but the moral responsibilities that make the people to do these actions. Principlism enables the people to address almost all ethical issues, and it involves four principles. The four principles include justice, respect for autonomy, non-malaficence, and beneficence.
The ethical virtues are implanted character traits that are considered socially important, such as honesty, reliability, humanity, and sincerity (Parnell, 2009, p. 99). Practical wisdom connects the manner in which virtues are used or passed, and virtue focuses on a person of good character performing an appropriate action (Porta & Lopez-de-Silanes, 2008).
Failure in corporate governance is a serious risk to the opportunities of all companies or firms. Efficient corporate governance, which abides by the core values of reliability and honesty, helps firms have competitive benefit in drawing and sustaining talent, as well as producing constructive responses in the market.
If a company follows a status for ethical behaviour in the current market environment, it provokes not just customer loyalty, but also employee loyalty. Efficient corporate governance may be attained through following a range of guidelines and greatest practices. A great deal relies upon equality, truth, integrity, and the way the firms carry out their businesses. Ethics is really an important element for business success and will go on to act as the outline for success in the current competitive market setting.
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Klein, P. (2005). Entrepreneurship and Corporate Governance. The Quarterly Journal of Austrian Economics , 2(2): 19–42.
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Porta, R., & Lopez-de-Silanes, F. (2008). Investor protection and corporate governance. Journal of Financial Economics , 58: 3-27.
Solomon, J. (2011). Corporate Governance and Accountability. New York: Solomon.
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Ethics and good governance
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- Published: 02 June 2020
- Volume 184 , pages 379–398, ( 2020 )
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- Roger D. Congleton 1
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Public choice research has revealed a variety of political dilemmas associated with governance that tend to make good governance unlikely. This paper suggests that the good governments that we observe are likely to have cultural or ethical support–support that solves or ameliorates the dilemmas uncovered by public choice research. It demonstrates that five important impediments to good governance can be ameliorated by internalized ethical dispositions. Although good government is not generated by ethical conduct per se, some forms of conduct regarded as ethical are supportive of good governance and arguably prerequisites to it.
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Introduction: Ethical Dilemmas, Social Values, and Public Policy: The Context of Governance and Citizenship
The institutional determinants of self-governance: a comment on Edward Stringham’s Private Governance
Private governance and the three biases of political philosophy.
Here and in other papers on the role of ethics in choice, I use the term “pragmatic” in a manner that is a bit more severe than many would use the term. It is used as an antonym to behavior that is “idealistic” in the sense of being substantially determined by one’s internalized norms. This is one of its many definitions. It is not used in its philosophical sense, although this author has some sympathy for its conclusions, but as a term to characterize a person’s immediate, practical, narrow interests in such matters as their own (and perhaps their family’s) health, safety, comfort, wealth, status, and fame.
See, for example, Grether and Plott ( 1979 ) or Ostrom ( 1998 ).
That evolutionary support for such rule internalization exists is implied by a variety of simulation studies, beginning with the simple round-robin tournaments among rules (computer programs) for participating in prisoners’ dilemmas organized by Axelrod ( 1980 ). The first application of simulations to study norms for participating in social dilemmas (with exit) were undertaken by Vanberg and Congleton ( 1992 ), who subsequently extended the approach to multiparty prisoners’ dilemmas with exit possibilities in Congleton and Vanberg ( 2001 ).
Issues of cosmology are beyond the scope of this essay, but it bears noting that a deistic theory of the divine would allow Locke’s theory of natural law to be compatible with both genetic and social transmission of rules of conduct from one generation to the next. Disagreements among deists, physicists, and biologists boil down to whether a first mover exists or not—which of course is not a testable proposition.
A variety of social dilemmas have to be solved for all of that to happen, but they are beyond the scope of this paper. They are addressed in the book manuscript mentioned in a previous footnote on ethics and prosperity.
In many respects, this approach is similar to that developed by Nozick’s classic ( 1974 ) book, who also begins with the Lockean state of nature. However, the point of the present paper is that ethical predispositions are necessary—or at least the most plausible explanations—for solutions to political dilemmas that tend to make extractive regimes more commonplace than productive ones, even in cases in which governing institutions are adopted through largely consensual means. Nozick, in contrast, simply assumes that all agents behave in accord with a specific interpretation of natural rights and explores what types of governments and governmental policies are consistent with such rights.
The equilibrium for such markets is very similar to that of Akerlof’s ( 1970 ) lemons dilemma, but without his differential equations. Note also that this and the other game matrices developed later in the paper can be used to characterize larger number games and the subgame perfect equilibria of finitely repeated versions of such games. Their one-shot versions are adopted to simplify the narrative.
Rent extraction requires the existence of economic profits, which is to say rents that can be extracted or shared without bankrupting the merchant or commercial organization of interest. Such markets would be commonplace when, for example, production processes are Ricardian rather than Marshallian, or markets diverge from perfectly competitive and monopolistically competitive equilibria. The enforcement game with bribery (not shown) tends to generate a stochastic pattern of law enforcement that is sufficient to make the threat of punishment credible but weak enough to maximize the bribe revenue collected.
In the case in which all law enforcers are volunteers, S = 0. In others, S > 0. Including the possibility of S > 0 demonstrates that the problem is not caused by the assumption that the enforcers are volunteers.
Becker and Stigler ( 1974 ) advocate paying law enforcers relatively high salaries (efficiency wages) to reduce their temptation to accept bribes. However, the the enforcement dilemma goes through in that case as well, insofar as such a salary is simply one of many values that S can take. The use of efficiency wages requires a still higher level of authority that would dutifully fire the highly paid rule enforcers that failed to perform their duties.
Congleton and Vanberg ( 2001 ) demonstrate that some evolutionary support exists for such enforcers. Somanathan and Rubin ( 2004 ) provide a social evolutionary theory of the emergence of honesty.
It bears noting that internalized norms also improve the performance of extractive organizations: as with promise keeping, deference to authority, and bravery, which likewise may be reinforced by the formal rule-enforcing aspects of such organizations. The contracts adopted by pirate ships (Lesson 2007 ), for example, clearly relied upon internalized norms for much of their effect on the behavior of both officers and members of the crew.
An institutional structure for divided governance emerges if such rules are to be enforced (executed) by the preexisting customary law enforcing agency. Such divisions have many advantages (Congleton 2011 , 2013 ), but most are beyond the scope of this paper.
Congleton ( 2020 ) suggests that agreement-based governments are likely to rely upon consensus or supermajority rules. Majority rule is used in the examples that follow because it is so widely regarded to be the best rule for collective action—where “best” is used in its normative sense. Such majoritarian norms are likely to play a role in solving the last majoritarian dilemma examined in this paper.
To be fair to Black, he would have regarded such choices as multidimensional in which each person’s net benefit share is a separate dimension. However, as far as pragmatists are concerned, such choices are essentially single dimensional. Only effects on themselves are relevant.
Shepsle and Weingast ( 1981 ) and Weingast et al. ( 1981 ) propose a series of procedures that can stabilize majoritarian systems, which may provide an alternative to the norm-based one suggested in the text. However, such institutionally induced equilibria require that such institutions be adopted formally, which would tend to be subject to the same cycling problems. Moreover, their associated rules have to be followed faithfully. The same reasoning applies to other mechanism design solutions as well. Such solutions thus also rest ultimately on the existence of rules for solving majoritarian cycling problems and supportive “rule-following” norms after the ameliorating institutions are adopted.
Support for such demogrant programs comes and goes in the West. Such programs—sometimes termed negative income taxes—were favored by both mainstream candidates in the 1972 US presidential election and have returned to prominence as proposals for universal basic income in the past decade.
The model easily can be generalized to account for life cycles and economic growth. In a generalized model, pragmatists would maximize the present value of their lifetime incomes, and economic growth would be affected by the size of the demogrant program. The first-order conditions for ideal tax rates and demogrants conceptually would be very similar to those developed above, although the mathematical characterizations would be somewhat more complex and include new terms for time horizons, discount rates, and growth rates. The steady state model examined thus is sufficient for the purposes of this paper.
For an early analysis of the effects of norms on the politics and sustainability of a welfare state, see Lindbeck et al. ( 1999 ).
Lott and Bronars ( 1993 ), for example, find little or no evidence of significant policy or voting changes in an incumbent candidate’s last term of office.
Table 7 leaves out two even higher-income states regarded as democracies because their PPP per capita rgdps were implausibly high: Luxembourg and Norway. Including them would not have changed the basic results.
Bjørnskov and Méon ( 2013 ) provide persuasive econometric support for the generalized trustcausality explanation. Insofar as generalized trust characterizes trustworthiness and trustworthiness is generated by a community’s most commonplace ethical dispositions, the main body of the present paper can be regarded as providing one plausible theoretical explanation for their results.
As I had not read their paper before constructing Table 7 , their results likewise can be regarded as a further test and affirmation of the hypotheses developed above.
Notice that “vintage” is not necessarily decisive. India’s and Germany’s democracies are of approximately equal age and in force long enough to have influenced the political culture of their politicians and parties, but they are still very different in terms of their average effects on income and perceived corruption. However, it also bears noting that India exhibits the highest generalized trust of the poor democracies and Germany is among the lowest of the rich democracies.
See Bjørnskov ( 2019 ) for an overview of public choice research on trust and Potrafke ( 2018 ) for an overview of public choice research on ideology. Evidence of the effects of internalized norms also is indicated by the various “demographic” variables commonly used in statistical studies, although they rarely are grounded in explicit behavioral models.
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Acknowledgements
A previous version of this talk was delivered at the Political Economy of Democracy and Dictatorship conference in Muenster Germany in February 2020, where several useful comments and questions helped push its development forward. The very diligent editor in chief of this journal also provided numerous helpful suggestions. Christian Bjørnskov deserves special thanks for provided the data on trust used in Table 7 .
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Congleton, R.D. Ethics and good governance. Public Choice 184 , 379–398 (2020). https://doi.org/10.1007/s11127-020-00824-3
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Published : 02 June 2020
Issue Date : September 2020
DOI : https://doi.org/10.1007/s11127-020-00824-3
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