The Good and the Bad Of Corporate Governance, Research Paper Example

Introduction

There have been many scandals in the corporate world that have divided the way in which stakeholders and the general public place trust in corporations. Scandals such as Enron, Bernie Ebbers, WorldCom, Bernie Madoff, and so many others have made the public and the government take issue with the issue of business ethics practiced in corporations. The lack of coherent regulation and support of corporate governance within organizations in order to keep in line with the desires of the stakeholders, has aided in the number of illegal and unethical breaches in business conduct. Business ethics is an essential element in every business, in dealing with issues that question the legal, ethical, and financial decisions. The presence of corporate governance can be a substantial factor or can be ineffective in mitigating ethical decisions for a corporation.

There has been many studies conducted to show the importance of corporate governance in organizations, as well as a few opponents that feel corporate governance can work to an organizations disadvantage. This paper will show the two sides of the debate, as well as provide its own opinion. Corporate governance can work, but will need the compliance of executives and management to follow the ethical and legal requirements for greater accountability and transparency. This paper will show the pros and cons, and where this paper lines up in the middle for the importance of business ethics.

Pro Article

Corporate governance aims to please the minority interests of its shareholders, and in an effort provide measurements, monitor, and tools for mitigating the interests of both the organization and the shareholders. Corporate governance goes beyond the scope of the legal precedent, in outlining the guidelines and rules that an organization follows to stay ethical and conduct good business practices. At the point when organizations or firm need or have a poor corporate governance they are generally the focus making bad ethical decisions. Business ethics is comprised of the principles and standards of guide the organization in the aspect of conducting business. According to Pallavi Majahan, “Ethics is concerned with truth and justice, concerning a variety of aspects like the expectations of society, fair competition, public relations, social responsibilities and corporate behaviour.” (Majahan 1) Corporate governance secures the shareholders right, and screens and controls, the directors inside the organization to relieve any issues.Corporate governance frameworks are outlined to counteract such grievous esteeming and poor ethical decisions, along with decisions dealing with acquisitions and mergers. Such approaches to anticipate poor choice making, and focusing on the profit maximization of an organization can force companies to seek out unethical means of making their organization successful. Studies have shown that a good corporate governance in place will help to mitigate issues of ethical decision making as well as ensure that businesses maximize profit following good business practices.

Pro Article

Research from sources such as, Surendra Arjoon (2005) and C. Bota-Avram(2013), outlines the significance that corporate governance provides to organizations. Surendra Arjoon (2005), maintains that the aspects of corporate governance has gain steamed in the last two decades because it has supported the initiative of ensuring economic health of organizations and society’s trust in general. Investor’s confidence has been undermined due to the recent scandals of companies that have lacked business ethics such as Rite Aid, Computer Associates, Adelphia Communications, Putnam, Parmalat, Tyco, and many others that have partook in corporate failures, criminal investigations, abuses of corporate power, dubious accounting practices, and other bad business ethics. These scandals have indicated, “that the entire economic system upon which investment returns have dependent is showing signs of stress that they undermined investor’s confidence.” (Arajoon 3) While the lack of business ethics has put in motion for bad decision making in regards to failed acquisitions and mergers, illegal accounting practices, and other problems that have driven the motives of ethics, it has renewed the interest of establishing good corporate governance.

Pro Article

Corporate governance works to ensure that business ethics throughout the organization, as well as the stakeholders are upheld and followed. Good business ethics entails not only the general ethical principles to be applied to business decisions, but also incorporates a larger range of concerns and issues beyond the scope of the laws. According to Bota-Avram, good corporate governance helps promote and define an ethical code. “This ethical code is not only an internal instrument, though a commitment to ethical behavior from their employees is required, but also an instrument for developing ethical business relationships according to assumed ethical principle.” (Bota-Avram 325) Good corporate governance ensures that not only organizations comply with the legal regulations, but adhere to the ethical standards for the discharge of social responsibility, distribution of wealth, and adherence to the ethical standards for the development of sustainability throughout the organization. Corporate Governance embodies the moral basis, the ethical basisand the value basis under which an organizationleads and shows to the rest of their organization.” (Bota-Avarm 326)

Con Article

The problem of business ethics in organizations won’t be solved with corporate governance. Opponents of corporate governance believe that it serves as a disservice to the overall organizational culture. Corporate governance can contribute to the risks that there will be an increased conflict of interests, the risks of inexperienced directors, unequal share voting rights, and overly lucrative compensation. Opponents such as, Steven Drew and T Kendrick, (2005), and recent research from Weitzner and Peridis (2011) point out that while corporate governance aims to do good in an organization, there are disadvantages that impact poor ethical decision making.

Corporate governances are easily corruptible if business ethics by the management is not valued. According to Mahajan, “A company must have an effective ethics programme to ensure that all employees understand its values and comply with the policies and codes of conduct that create its ethical climate.” (Mahajan 3) Much like many organizational boards that regulate the rules and standards, there needs to be a certain level of oversight from the government in order to avoid corruption in organizations. This is largely involved in the banking and corporate finance areas in which deregulation contributed to the practices of predatory lending, and was the archetype for the credit crisis in the United States  Drew and Kendrick (2005), also support this standing in which they outline five reasons in which corporate governances can be corruptible. These includes the central reason in which create a gross imbalance of power such as the dual role of the CEO and the Chairman of board for corporate governance. According to Drew and Steven, the board is seen as high level governing body, which exists within the structure of the high levels of management. They have substantial task that includes evaluating mergers and acquisitions, overseeing preparation for financial statements, voting on executive pay packages, and selecting the CEO. (Steven and Kendrick 33) These risks of corruption is high, along with the lack of governmental oversight can lead to ethical business decisions in which can impact the profitability of the organization.

Con Article

The cost of maintaining and sustaining a good corporate governance can be more than what stakeholders want to put into an organization. According toWeitzner and Peridis (2011) “corporate boards of directors need to place a much greater emphasis on the ethical oversight of managerial decisions, an orientation that would require a greater exercising of strategic control than most boards have displayed a willingness to engage in the recent past.” (Weitznerand Peridis34)While corporate governance boards try to entice executives and employees with incentives and bonuses, for many organizations that do not have the input from shareholders to follow these programs. The cost of monitoring, also plays with the input from shareholders how want their interests involved, as well as seeking a profitability. If they feel their decision is being honored, they will either pour money in to see their vision is followed, or halt which can lower stock prices, or hinder the ability of the organization to make ethical decisions.

Moderate Article

The role of business ethics is substantial in organizations, however the presence of good corporate governance cannot be undermined. Business ethics is a valuable set of principles in which leaders and employees must follow to ensure that organizations follow the set legal and ethical principles that keep with the standards of good business practices. Taking the research from, the articles, Bebchuk, Foren and Farrell, follows a cost/benefit analysis of the importance of corporate governance and the organization’s interests of profit maximization. Taking from am Utilitarianism view, organization not only place monetary value on humans, but also on their decisions in which can cloud their ethical decision making.

In order to support the organization in making good ethical decisions a good corporate governance must be in play to get the organization in line with the rules and regulations set by the government. Corporate governance’s fundamental target is to ensure and serve the shareholder’s interest, and further stake a case in the money streams and incomes of the business. Corporate governance meets expectations two-fold and must capacity as a controller for the observing and overseeing of stakeholders and the general public’s control of the organization. (Bebchuk, Foren, and Farrell 790) While additionally rehearse the methodology of obligation regarding the choices and exercises the organization performs. The components of corporate governance can be ordered into outside and inner elements to the organization. Both components of the framework present numerous choices for the two variables to work as an inseparable unit as one being more evident than other.

Conclusion    

Why experts and opponents disagree on business ethics and how corporate governance can be effective in organizations, the role of business ethics is only enforceable from the top down approach. According to O.C Farrell, “In order to support the organization in making good ethical decisions a good corporate governance must be in play to get the organization in line with the rules and regulations set by the government.” (Farrell 126) Corporate governance is a two-fold methodology in which functions as not only a regulator for managing and monitoring the interests of society and the shareholders, but most be followed by the executives of the organization. In order to business ethics to be understood and followed, executives must implement a policy in which outlines the ethical standards and behaviors that follow the legal, moral, and ethical standpoints of the organizations. For this to be enforced, the top must set a precedence in which to be leaders in pushing the policy for employees to adhere to.

Business ethics is a significant aspect in keeping organizations in line to make good ethical and legal decisions. Mahajan outlines the importance of using business ethics within the organization. “In making ethics work in an organization it is important that there is synergy between vision statements, mission statements, core values, general business principles and code of conduct confers a variety of benefits.” (Mahajan 6) In staying in line with good practices, organizations must implement or organize their corporate governance in order to support, monitor, and maintain good business practices. As outlined, organizations must take the initiative in developing and implementing good business practices that line up with the outlined mission and objectives of the business. The pros and cons of corporate governance all underline that it is the decisions of the management and executives to ensure that the company follows good business practices. Studies have outlined its significance and disadvantages, but it is up to the organization to make good ethical decisions to ensure trust and good business conducts.

Works Cited

Arjoon, Surendra. “Corporate Governance: An Ethical Perspective.” Financial Conference. 2005. Web. 24 October 2014. https://sta.uwi.edu/conferences/financeconference/Conference%20Papers/Session%205/Corporate%20Governance%20-%20An%20Ethical%20Perspective.pdf

Bebchuk, L., Cohen, A. and Ferrell, A. “What Mattersin corporate governance?”Review of Financial Studies, 22(2),783-827. 2009. Web. 24 October 2014. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=593423

Bo?a-Avram, Cristina. “Is Ethical Behaviour Of Companies Influenced By Governance?.” International Advances In Economic Research 19.3 (2013): 325-326. Business Source Complete. Web. 27 Oct. 2014.

Ferrell, O.C. “Business Ethics and Customer Stakeholders.” Academy of Management Executive. Vol. 18. No.2. 2004. Web. 24 October 2014. http://danielsethics.mgt.unm.edu/pdf/Customer%20Stakeholders.pdf

Drew, Stephen A. W., and Terry Kendrick. “Risk Management: The Five Pillars Of Corporate Governance.” Journal Of General Management 31.2 (2005): 19-36. Business Source Complete. Web. 27 Oct. 2014.

Mahajan, Pallavi. “Business Ethics In The Scenario of Corporate Governance.” SSRN. 13 May 2011. Web. 23 October 2014. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1840599

Weitzner, David, and Theo Peridis. “Corporate Governance As Part Of The Strategic Process: Rethinking The Role Of The Board.” Journal Of Business Ethics 102. (2011): 33-42. Business Source Complete. Web. 27 Oct. 2014.