Business Ethics: The Key Role of Corporate Governance - Literature review Example

Business Ethics: The Key Role of Corporate Governance In the era of fast paced technological advancement and rapid globalization, the business dynamics are also undergoing dramatic transformation. The emerging new economies of the developing world have made the global market more challenging and interesting. With the global competition becoming increasingly stiff, the business houses are becoming less rigid and changing their business and market strategy as per the socio- economic compulsions of the changing values. While it is true that the present times require versatility in the work ideology and functioning and embrace the multi-cultural to meet the challenges with efficiency and unmatched proficiency, it also cannot be denied that the new business equations need to be more ethical in its business practices to maintain its competitive edge over their rivals. In the age of multi-cultural societies, the businesses across the globe need to be more sensitive towards cross cultural values and their corporate social responsibilities. Good business practices have become vital ingredients of business strategies, making it imperative for the corporate world to encompass business ethics in their core business strategy. They need to redefine their strategy in a way that would not only uphold a high standard of corporate ethics but which would give them cutting edge competitive advantage also. Hence incorporation of business ethics becomes one of the key roles of corporate governance. Corporate governance can be defined as the modules of decision making that are framed at the level of board of directors that facilitate the accomplishment of its core values of ethical considerations, transparency and corporate social responsibility and accountability. In the hugely competitive environment of global business, business ethics and good corporate governance become main factors for developing trust and credibility within the public, investors and business community. The various scholarly articles have proposed and affirmed the necessity of practicing good business ethics and incorporating them in their management strategies. Simon Longstaff in his article ‘Business ethics: An essential ingredient in corporate governance’, has very concisely defined good corporate governance as developing policy framework for good relationship between the various inter-related elements of business. According to him, people within the organization need to be made participants to collective decision making with regard to its operational and management strategies. Ethical considerations involve essential social elements. He says ‘there is a profoundly moral aspect to corporate governance. Not only does a board have to decide the broad parameters within which a company will operate, it also has to decide how the company will be’ (Longstaff, 1996). Corporate social responsibilities (CSR) are very important part of corporate governance which represent and promote business ethics of the organizations. Organizations exercise their responsibility towards the society by incorporating development issues and implementing methodologies within their core competencies and management strategies. Case study of ‘Starbucks’ is an exemplary example of good governance (Starbuck case study). While providing a high quality of services in the area of coffee café, its leaders have ensured that the company fulfils its social accountabilities through very measures of employees’ welfare schemes, environmental concerns and charitable works in the area of education, training and development of entrepreneurial skills etc. (CSR, internet). The company’s mission and vision were developed keeping in mind the socio-environmental dynamics in the fast changing technology. Hence the sensitive and focused approach of the company in dealing with the various aspects of the environmental features became the most crucial compulsions of the company while implementing their business strategies and plans. The company has expanded its business in areas that directly and indirectly meet the challenges of its core competencies in quality coffee beans that not only are the major source of revenue but the company is also able to fulfil its social responsibility by encouraging environmental friendly processes that are designed to promote preservation and conservation of natural resources. Its foray into the area of logistic planning and education are the landmark decisions that display company’s sincerity and commitment towards its social responsibility. Marketing myopia was an article written by Theodore Levitt, then a Lecturer in Business Administration at the Harvard Business School. In the article, the author has emphasized that to maintain a sustainable growth in the industry or business environment, it is important that customers’ requirements and changing needs, be the focus of all marketing strategies. In fact the market strategies must become a priority for all types of industries in order to continue to grow. It is vital part of corporate governance that the organization must keep the interests of its customer as the top priority. It is important to differentiate between selling and marketing. While sellers’ main concern is to convert products into cash, marketing takes into account the preferences of the customers and thereby builds a solid customer loyalty. In the article Levitt says ‘it is a myth the belief that profits are assured by expanding and more affluent population is dear to the heart of every industry (Marketing myopia)…. There is no such thing as growth industry… organization must learn to think of itself not as producing goods or services but as buying customers, as doing the things that would make people want to do business with it’ (Levitt, 1960). In an expanding market organizations get trapped into the illusion of increasing profit with growing affluent population and miss the wider implications and imaginative applications of the products and services, thereby often losing out to more progressive competitor. Good business ethics promote better understanding of changing perspectives of their customers that goes a long way to maintain sustainable growth pattern of the organizations. In yet another article titled ‘Marketers: Bid farewell to strategy based on old 4P1s’, the author, Don Shultz stresses the need to redefine marketing strategies that must meet the growing demands of the changing times. According to him, McCarthy’s principles of 4Ps of marketing have outgrown their effectiveness in the present age of information technology. Today, the technological advancements have brought forth an explosion of information that is easily accessible to public through the internet and other media like television, radio, mobile phones etc. The internet has made it easy for the customers to become aware of the product details including its availability at competitive prices which has precipitated the need to develop a whole new perspective for a new marketing technique. Hence one needs to be more open when Shultz say that it is the end-users who now control the markets rather than the marketers. Shultz is convinced that good corporate values and sound business ethics that take into considerations the changing demands of their customers are important criteria of good corporate governance. It is true that last few years have seen rising cases of CSR in the socially relevant areas like education, medical health, skill development programs for the under privileged, social issues like dowry, gender bias, disability etc. Where ever possible, they have forged strategic partnership with aiding agencies, government and NGO2s to participate actively to improve the socio economic status of the segment. But it is not totally a philanthropic act on their part. CSR gives them an opportunity to spread their business and at the same times provides them with a credible public image making them popular with the masses. ‘The image of multinational companies working hard to make the world a better place is often just that - an image ... Whats needed are new laws to make businesses responsible for protecting human rights and the environment wherever they work,’ (Christian Aid). Thomaj J. Borelli, Ph.D is the editor of FreeEnterprise.com and social activist who has been studying the CSR of prominent global business corporate bodies like giant energy company BP and GE, the industrial giant etc. and has voiced grave concern regarding the role of CEO3 in corporate social responsibility of the organizations. The CSR is becoming increasing controversial and the corporate houses and multinationals are trying to subvert public interest policies in the wider propaganda of their involvement in the welfare of the society. ‘CSR is an insurance policy for image-sensitive CEOs. By paying an ideological and financial cover charge to social and environmental causes,. ... By feeding into politically correct themes, these campaigns frequently distract the media and shareholders from failed business practices and poor stock performance’ (Borelli, 2006). According to him John Browne of BP has aggressively advertised their concern for global warming, carbon footprints and alternate energy which has successfully managed to overlook their highly unethical business practices like polluting the environment, manipulating the gas prices, lack of adequate safeguards in their refineries in Alaska where the major oil pipeline leak resulted in explosion, killing and maiming several people. He says that lack of effective machinations in the policy matters and genuine concern for the developmental issues are major factors that protect the CEOs and helps them to use public concern to hide their nefarious intentions. In the end, one can say that to make corporate governance really effective, it is imperative that governments must come up with strict rules and regulations for the corporate houses and multinationals with regard to their corporate social responsibilities. In the last twenty years, CSR has been used and misused by the multinationals either to siphon out the money or disregard local interest, human right violations or even completely ignore environmental parameters and factors. It is seen observed that wherever the government has been vigilant with strict and well defined regulations, the multinationals have made commendable efforts at meeting out the expectations of the people. Hence a detailed research regarding social responsibilities of the corporate houses and the strategies to make it more effective, are the need of the hour. ‘The forces and actors promoting corporate responsibility vary in different national contexts; and it is important to conduct research to clarify the roles of different stakeholders, as well as the types of pressures and opportunities that might promote corporate social and environmental responsibility’ (UNRISD, 2000). Reference Borelli, Tom. National Center for Public Policy Research. August 2006. Available from: [Accessed 25 September, 2008]. Behind the mask. The real face of corporate social responsibility. Christian Aid. February 4, 2004. Levitt, Theodore.(1960). Marketing Myopia. Business Harvard School Review. Available: www.hbr.org Longstaff, Dr. Simon. (1996). Business Ethics: An essential ingredient in Corporate Governance. Internal audit Masterclass at Hyatt Regency Hotel, Sydney. Available from: [Accessed 25 September, 2008]. Shultz, Don E. Bid Farewell Strategy based on old 4Ps. Marketing news; Feb 12, 2001; 35,4; ABI/INFORM Global. p 7. Case study of Starbucks. Corporate Social Responsibilities. Available from: [Accessed 25 September 2008]. Promoting Corporate Responsibility in Developing Countries: The Potential and Limits of Voluntary Initiatives. UNRISD Workshop. Geneva. 23-24 Oct. 2000. [Accessed 25 September, 2008]. Read More