28 November 2024 : Daily Answer Writing
Q1) Ethics stand as the cornerstone of corporate success in an ever-evolving landscape of business. In light of the above statement, discuss the role of ethics in corporate governance with suitable examples.
(150 Words/10 Marks)
ANS
Corporate governance refers to the set of processes, customs, policies, and institutions that determine how decisions are taken in corporates, and how businesses are operated and regulated. Corporate Governance ensures that a company is governed in the best interest of all stakeholders. It determines the relationship that exists among the board, corporate, managers, shareholders, employees, auditors, consumers, government, and society at large.
Ethics stand as the cornerstone of corporate success and has a significant role to play in corporate governance as:
- Trust and confidence sustain the market and ethical corporate practices provide the basis for such trust. Lack of corporate integrity compromises such trust. For example, The Cambridge Analytica scandal resulted in the drop of trust in Facebook by 61% and Facebook’s shares fell more than 24% and lost $134 billion in market value in a week.
- Unethical corporate governance tarnishes the positive contribution of responsible corporates to the overall development of society. E.g., ICICI Bank loan fraud case by Chanda Kochhar.
- The self-interested blind pursuit of profit, with no concern for other stakeholders, will ultimately lead to business failure and, at times, to counterproductive regulation. Thus, it is the duty of business leaders to always assert leadership so as to preserve the ethical foundations of their organization. For example, Tata Group’s contribution towards nation-building has made it one of the oldest and most successful brands in India.
- If capitalism is to be respected, and to ensure its sustainability, it must be both responsible and moral. Business therefore needs a moral compass in addition to its practical reliance on measures of profit and loss. This has led to the development of the idea of ‘compassionate capitalism’. For example: Mahindra and Mahindra Ltd (M&M) made low-cost ventilators for India.
- When corporates act ethically, they are also rewarded monetarily. Through corporate social responsibility, corporates can build a positive image for themselves and consequently, the brand value of their product, the likelihood of consumption of their product by people and the profitability also increases.
- While laws and free market forces are necessary, they are insufficient guides for responsible business conduct (like tax avoidance through account sheet adjustments). This makes corporate ethics an important guide for the responsible conduct of businesses.
Mahatma Gandhi called commerce without morality a deadly sin highlighting the importance of morality and ethics in the management of corporations for sustainable profit and public welfare.
