The Role of Morals and Ethics in Corporate Governance

“Ethics or simple honesty is the building block upon which our whole society is based, and business is a part of our society, and it is integral to the practice of being able to conduct business, that you have a set of honest standards”.   – Kerry Stokes

Corporate governance is an encompassing concept that defines the way a company or organization is managed and controlled. It prescribes a set of rules which help companies imbibe and work towards transparency, accountability, honesty and openness. Good corporate governance provides proper incentives for the board and management to pursue objectives that best serve the interest of the company and its shareholders whilst also facilitating effective monitoring. It is now established that the adoption of good governance best practices largely determines the sustainability of corporations worldwide.

A review of the different Corporate Governance Codes in Nigeria and codes in other jurisdictions reveals the respective Codes set out the morally right and acceptable ways of conducting corporate activities. Within the context of business activities, morality prescribes proper behavior while ethics is the application of morals in the conduct of the company’s business. Corporate Governance thus provides a moral and ethical framework for the governance of companies.

Analyzing the importance of ethical compliance mechanisms, Surendra Arjoon, (a Professor of Business and Professional Ethics at the University of West Indies) made a distinction between the use of legal compliance and ethical mechanisms as tools for ensuring good governance. According to Arjoon- when legal mechanisms are introduced for the purpose of discipline, it can only promote a freedom of indifference which to the letter of the law may not necessarily inspire or instill excellence. Conversely, ethical compliance mechanisms promote a freedom for excellence which corresponds to the spirit of the law. Legal compliance mechanisms may not necessarily address the real and fundamental issues that inspire ethical behavior.

The range and quantity of business ethical issues in any organization reflect the interaction of profit maximizing behavior with non-economic concerns or business ethics. Business ethics is critical to the fabric of any organization and most organisations today promote their commitment to non-economic values (business ethics) through clearly defined core values, a Code of Business and Ethical Conduct (COBEC) and a Corporate Social Responsibility (CSR) Charter. The Codes of Corporate Governance in Nigeria all prescribe the adoption of a COBEC and CSR Charter by the companies.

Typically, a COBEC promotes a culture of ethics and compliance within an organisation and defines the way and manner in which the company conducts its business such that its core values are reflected. The World Bank defines Corporate Social Responsibility as “the commitment of businesses to contribute to sustainable economic development – working with employees, their families, the local community and society at large to improve the quality of life, in ways that are both good for business and good for development”. A CSR Charter is a carefully articulated policy on how a company seeks to achieve commercial success in ways that promote ethical values, respect for people, communities and the natural environment. The process usually involves adopting responsible business practices for the workplace, the community and the environment.

Organisations are the most significant nucleus of modern economic activity and though formed for economic purposes, they have a responsibility to ensure that they pursue and achieve these purposes in an ethical and sustainable manner. This responsibility requires a moral commitment at a subjective and a collective level. While it may be argued that determining what is right or wrong is subject to cultural and individual relativism and that what is considered ethical is a product of an individual’s moral perspective, the failure or collapse of organisations in recent times indicate that, irrespective of our relative ideas on the concepts of morality and ethics, the absence of business ethics in economic activities will prevent companies from acting or taking decisions that will best serve the interest of all stakeholders.