CORPORATE GOVERNANCE: BALANCING LAW AND ETHICS
INTRODUCTION
Corporate governance refers to the set of guidelines, customs, and procedures that regulate and control a business. It is focused on the duties and rights of a company’s various stakeholders, including its shareholders, directors, management, employees, creditors, suppliers, clients, and the general public.
Corporate governance places a high priority on the rule of law and ethics. Companies must abide by a set of laws’ rules and regulations. Ethics provide a moral framework for making decisions and conducting business.
It can be challenging to balance the law with ethics in company governance. While the law offers a set of precise and enforceable standards, it may not apply in all circumstances. Although it offers a moral foundation for judgment, ethics is frequently more arbitrary and susceptible to interpretation.
The role of law in corporate governance
The corpus of law that controls the creation, maintenance, and dissolution of businesses is known as corporate law. It outlines the duties and rights of various company stakeholders and offers a framework for corporate governance.
The key aspects
1. How the board of directors is structured
2. Directors’ obligations
3. Requirements for disclosure
The role of ethics in corporate governance
Ethics involves dealing with good and bad, right and wrong. It offers a structure for acting and making decisions in accordance with moral standards.
Corporate governance needs ethics because it ensures that businesses are managed responsibly and ethically. Furthermore, it promotes trust among businesses and their stakeholders.
The key ethical principles to corporate governance include:
- Honesty and integrity
- Fairness and equity
- Accountability
- Responsibility to society
Balancing law and ethics
It can be challenging to balance the law with ethics in company governance. While the law offers a set of precise and enforceable standards, it may not apply in every case. Although it offers a moral foundation for judgment, ethics is frequently more arbitrary and open to interpretation.
There could at times be an issue between the law and ethics. For instance, a business may be legally permitted to engage in a particular action, but doing so might be unethical. Companies in these situations must decide if acting ethically or in compliance with the law is more essential to them.
What the companies can do to balance law and ethics in corporate governance?
- Develop a code of ethics
- Establish an ethics committee
- Promote a culture of ethics
Examples of how companies can balance law and ethics in corporate governance:
1. Although it is not required, a company that is legally permitted to pollute the environment may decide to invest in pollution control measures.
2. Although it is not required to, a company that is legally permitted to lay off employees may decide to provide severance packages and help with finding new employment.
3. Although it is not required, a business that is legally permitted to use child labor in its supply chain may choose to purchase its goods from vendors who do not.
Suggestions for balancing law and ethics in corporate governance.
1. Create an ethics code that outlines the values and moral standards of the organization and instructs employees on how to make moral choices.
2. Create an ethics committee. This team should be in charge of monitoring the organization’s compliance with ethical standards and looking into any allegations of ethical transgressions.
3. Encourage an ethical workplace culture. Employees should feel free to voice ethical concerns and should receive praise for doing the right thing. Companies can foster this culture by offering ethics training, reviewing the company’s code of ethics on a regular basis, and setting an exemplary example.
Author: AUGUSTINE MATHOK MADUT, a Student of MARWADI UNIVERSITY, FACULTY OF LAW
