Rule 1: The Ethical Approach - Corporate Ethics in Governance
Corporate ethics in governance is fundamental as it underpins the structures and systems used to ensure good governance and without it governance will fail.
So our first Golden Rule of corporate governance is that the business morality or ethic must permeate an organisation from top to bottom and embrace all stakeholders.
Just as widespread bribery and corruption in society are recognised as being inimical to the development of a healthy economy, similarly the lack of a high standard of ethical behaviour in a company is inimical to trust and loyalty, which in turn has a detrimental effect on the health of the company over the longer term. (We define ethical business here.)
It may be argued that an owner can run a business in whichever way he or she wishes, and at first glance there would appear to be a case for this so long as no other shareholders are involved, and only his or her money is at risk, and of course with the acquiescence of the employees and trading partners. However, in many years of observing different standards of behaviour in different business circumstances, one recognises the relationship between the perception of ethics which permeates an organisation and the degree of trust and loyalty present among employees and between staff and management. The conclusion one reaches is that loyalty and trust have a significant value in terms of the efficiency and effectiveness with which a business can be run, and the concomitant cost of control systems needed.
In other words, a highly ethical operation is likely to spend much less on protecting itself against fraud and will probably have to spend much less on industrial relations to maintain morale and common purpose. This should be motivation in itself to instil good corporate ethics and governance in any organisation.
An experienced eye and ear will recognise the ethical stance of a business within a fairly short while from talking to directors and senior management, and this will be rounded out by discussions with a representative sample of staff, particularly those concerned with customers and personnel management. It will almost certainly be confirmed by a conversation with the Finance director and an appreciation of how the money matters are dealt with.
Clearly it is necessary to deploy rather more than gut feel in examining a business’s position in regard to business ethics and in our good corporate governance implementation section you can find out how to install an effective, ongoing assessment and monitoring programme which uses primary research, including market research, a key differentiator to other approaches. In our view it is the only way to pick up on questionable behaviour and so ensure good corporate ethics and governance.
Return from Golden Rule No.1: Corporate Ethics in Governance to Best Corporate Governance Practice: the Five Golden Rules