Corporate governance is a term that refers to the practices, rules and processes that are related to the direction and control of the organization. Corporate Governance ensures the involvement of the Organization’s committee and board of directors, involves regulatory and legal frameworks of practice, incorporates the hierarchy of the organization, involves monitoring and control of the internal operations, ensures transparency and accountability for actions, and also supports the implementation of policies and procedures. The main aspects of corporate governance is to set up a vision for the organization, create drive towards it (mission), identify how to active them (strategy), decide the criterion for success (objectives) and implement achievable targets (smart goals) in the organization. Corporate social responsibility on the other hand is a part of corporate governance that ensures the business is conducted responsibility and the organization fulfills the duties of corporate citizenship. This includes fulfilling the responsibility of an organization towards its environment, community, workplace and its market. All these practices are based on the principles of ethics that helps the organization to understand the importance of governance and social responsibilities of an organization. Ethics are essentially the moral principles that help to govern the behavior of an organization or individual. Ethical codes help to identify and implement practices that are moral and responsible, involve accountability and ensure professionalism. Thus, ethical principles drive corporate governance, and CSR is one of the objectives of the corporate governance.
It is not unusual to come across an ethical dilemma in both professional and personal life. This can occur anytime when the actions that is expected does not align with the ethical or moral codes. In such instances, it is important to analyze the situation thoroughly, and identify where and how exactly id the breach of ethics is occurring. Once that has been identified, the correct and ethical practice should be implemented instead of the unethical one. Thus I would refer to the ethical codes of practice to analyze and identify the ethical issue, and try to rectify it through the implementation of ethical practice. Also, I would report the unethical practice to ensure such breach does not recur and strategies are taken to mitigate or prevent them.
Ethical Dilemma is a situation where an ethical paradox occurs. This implies a conflict between moral imperatives creating an ambiguity in the decisions or action that needs to be taken. An ethical dilemma occurs when more than one ethical principle or imperatives are opposing each other, thereby creating n obstacle in the decision making process. During such a situation, following one ethical principle can result in the breach of another ethical principle. Some examples of ethical dilemma are the debates that surround abortion, suicide and euthanasia.
Hiding information from the auditors is an unethical practice, since it prevents transparence and accountability in the processed and operations and also adversely affects the ability to monitor the organizations activities. Hence I shall refuse to comply with such a request and not hide any information.
Being ethical is definitely good for the business on the long run as it ensures the business follows a responsible and accountable practice and helps in developing a good image for the organization. Ethical businesses also can get more support and trust from the regulatory authorities and create better employee satisfaction which can improve the performance of the organization. Customers also show more interest for ethical businesses increasing the sales of the business and attract more investors. However, on a short term, ethical practices can also increase the expenses of the business and increase the paperwork, bureaucracy and workload for the employees.
Agency problem can be understood as a state of conflict of interest between the management of the organization and its stakeholders. This affects the relationship that exists between the principal with the agents where the agents conducts a task on behalf of the principal. Here principal refers to the benefactors or stakeholders of the organization and the agents refer to the individuals conducting the actions, and the principal employs the agency to perform the actions. Agency problems can be solved through the implementation of measures such as a comprehensive process of screening, incentivizing good actions and punishing bad ones and involving auditing or watchdog bodies. However agency problems are hard to be mitigated completely, because such strategies can increase the expense of the organization in an unsustainable way.
Ethics and ethical principles can be derived from several sources or institutions such as religious beliefs, family institution, education, social values or norms, community and neighborhood environment, legal and policy framework as well as the influence of the media.
Ethics are important for the business because it helps to improve the performance of the business, helps to comply with the legal requirements and obligations of the organization, prevent or mitigates harm due to wrong practices, helps to address the needs of the stakeholders and also promotes personal morality and accountability and fosters trust and transparency in the organization.
Lawrence Kohlberg’s stages of moral development or ethics reasoning include 6 stages which spans through three levels.
Level 1 is called Pre-Conventional morality (develops in children under 9 years of age), and includes 2 stages:
Stage 1: Orientation to Obedience and Punishment
Stage 2: Individualism and Exchange
Level 2 is called Conventional Morality (develops during adolescence and adulthood) and includes 2 stages:
Stage 3: Good interpersonal relationships
Stage 4: Maintenance of social order
Level 3 is called Post-Conventional morality (develops on individual principles and moral sense or reasoning) and includes 2 stages:
Stage 5: Social Contract and Individual Rights
Stage 6: Universal Principles
Corporate and Ethical climates are important factors that can enhance the behavior of the employees since both these factors support professional practice. This helps to develop practice that is accountable, responsible and is in compliance to the organizations objectives and obligations. Thus a corporate and ethical climate fosters the development of the organization as well as the employees through the changes in behavior that helps to maintain such a climate in the organization.
Unethical conduct or unethical practice can be reduced or prevented through several strategies such as the implementation of a compliance based approach and integrity based approach. Compliance based approach ensures that the practice of conduct complies with the legal or policy requirements of the organization. Integrity based approach ensures integrative in the practices and behavior of the employees. This can also be ensured by setting a good code of conduct for all employees, leading the employees through exemplary behavior, reinforce the consequences of non compliance and unethical practice, appreciate employees who show exemplary ethical behavior, involve good screening policies and also having strong auditing activities to identify and reprimand unethical practice or conduct.
Corporate Social Responsibility or CSR is an aspect of Corporate Governance that helps in the development of a sustainable business practice, ensures compliance to the organizations obligations and objectives and involves funding and skill development. CSR incorporates the philosophies of corporate citizenship, where the organization shows responsibility towards its environment, community, workplace and market. CSR essentially ensures that an organization or a business ‘gives back’ to the environment, communities or societies from which it draws its resources from. It also helps to mitigate the negative impact of the business on its surroundings. It is mandatory for several organizations ensuring that they conduct their business in a responsible, accountable and ethical manner.
The best CSR initiatives include:
The key advantages of Corporate Social Responsibility include:
Improves the brand image and reputation: A responsible organization attracts more reputation and improves its brand image in the market through activities that helps in the improvement of the environment, community, workplace and market. For example the philanthropic activities of Microsoft successfully developed its reputation and image.
PDCA stands for Plan-Do-Check-Act cycle which is a four step framework that can help a business to manage and implement continuous development of its products or services. In the stage of Planning, the organization can assess the current or new business processes and identify how they can be further developed through action plans. Doing is the stage where the action plan is implemented in the organization. Checking is the stage where the results and outcomes of the action plan is evaluated and compared with the initial objectives to find if it was successful. Acting is the stage where any improvements on the action plan are identified for further development of the process.
The Spheres of influence in an organization includes 6 nested spheres, with the innermost sphere being Leadership, followed by Workplace sphere around it, which is followed by Marketplace sphere, followed by Supply Chain Sphere, followed by Community Sphere and finally enabling environment sphere that encapsulates all the inner spheres. Understanding these spheres can help to comprehend the extent of the influence of each of these aspects on the organization or business. This also helps to implement the CSR initiates in a more effective way.
The important concepts of corporate governance includes: developing an effective relation between the management, board of directors and stakeholders of the organization, developing organization’s objectives, supporting employees to achieve the objectives and monitor the performance and compliance to these objectives.
Both Management and Governance are related concepts that involve the oversight and decision making processes that are aimed towards strategic objectives or directions of the organization. However the difference between Governance and Management is that governance includes evaluation, direction and monitoring activities, while management is a wider concept that includes planning, developing, implementing and monitoring of the organization. The management can use the guidelines that are developed by the board of governance.
Strong and sustainable ethical principles can help to develop effective corporate governance strategies that ensure compliance to all the legal, policy related, procedural and corporate responsibilities and obligations of the organization. Also effective corporate governance helps to support ethical practices and maintain an ethical and corporate environment in the organization.
BOD or Board of Directors is a group of individuals who represents the shareholders and stakeholders of the organization and oversees the activities of the organization. They also establish policies for corporate governance and management and takes decisions on major issues of the company.
Separating the authorities of the Chairperson and the Chairman Ex Officio (CEO) helps in better corporate governance as it allows focus not only towards the best interests of the organization and business but also on its employees, environment, market and the community. Any disputes in the focus can lead to conflicts of interests and therefore support the development of strategies that would prevent or minimize the adverse effects on any of these focal points.
Board of Directors must actively participate in the organizations activities since that can ensure a better monitoring of the work, developing realistic and practical policies as well as understand the challenges faced by the organization in a better manner. Such information and active involvement also help to make informed decisions taking into account the views of the stakeholders, management and the employees.
Germany implements a two tier system of boards such as the Supervisory Board (comprising of the shareholders as well as employee representatives) and the Executive Board (comprising of individuals involved in the day to day decision making process). The supervisory Board is informed by the shareholder meetings and the company’s employee representatives, while they report to the Executive Board themselves. Such two tier system can be utilized in UAE to ensure better corporate governance.
Conflicts within the members of the board can be resolved through effective conflict management strategies. To resolve any conflicts the strategies that I would use includes i). Identifying the points of views and biases of either side of the conflict. This can help to prevent the egocentric causes of conflict and see the perspectives of either side. ii) Preventing provocation or escalation of the conflict through proper handling of the conflict and ensuring a professional and ethical environment is maintained throughout the conflict. iii) Support better communication where the points of views or the perspectives of either side are presented properly and without biases. iv) Developing a comprehension of the deeper issues that gave rise to the conflict and addressing those issues. v) Identifying the best methods to address the problem. vi) Supporting an open and honest discourse of the problem and challenges that caused the conflict.
While designing and delivering strategic directions of the organization such as mergers it is important to involve the stakeholders, management, and board of directors and the employees of the organization. It is vital that the perspectives, opinions and inputs from all the levels of the organization is taken into account and how the strategic decision would affect the performance at each level should be considered in the process.
Independent directors can support better governance of the organization because independent directors can provide impartial and unbiased opinions and directives, they can support the best interests of the company and its shareholders and prevent the influence of the executive committee, helps in an in depth and comprehensive monitoring of the organization’s activities, helps to identify potential scope for development, helps in better conflict resolution through neutral decisions and preventing biased opinions, helps in sharing the network of decision making process through mentorship. Independent Directors also acts as better ‘watchdogs’ thereby identifying and preventing frauds or malpractice.
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