Corporate governance involves creating a formal model to guide an organization, and business ethics play a role in how ethics are applied during management. This includes employee selection, compensation, and relationships with external entities, as well as responsible corporate behavior such as environmental responsibility.
Corporate governance is a term used to describe the structure of organizations regarding the creation of a formal model that guides the functioning of the organization by those responsible. The role of business ethics in corporate governance refers to how ethics are applied during the management or administration process of the organization. To this end, business ethics in corporate governance can be applied in how the management of the organization, whether it be a business issue or a government one, addresses both internal and external issues.
An example of the role of business ethics in corporate governance is the way a company’s management approaches the issue of employee selection. The ethical way to select employees should be based on criteria including having the necessary human capital, rather than superficial attributes, such as nationality or physical attractiveness. Business ethics in corporate governance can also be seen in the way of remuneration that the company uses to compensate employees for their services to the organization. The question would be whether the company applies the same pay schedule or rate for deserving employees. For example, some companies may adopt different schemes to offer bonuses and other types of compensation to certain categories of employees, while ignoring other equally deserving employees.
Business ethics in corporate governance can also be seen in how the management of a company relates to individuals and external businesses, such as distributors, consumers and business partners. It can also be applied to how a business relates to host communities and society at large. One of the ethical considerations that an organization’s management must necessarily address is the question of responsible corporate behavior, including topics such as giving back to the community and ensuring that we do not pollute the environment unnecessarily. Where a company is directly or indirectly responsible for polluting the environment – through its own actions or the actions of any entity affiliated with it – the practice of business ethics in corporate governance will ensure that the company makes the right decisions in terms of to address the problem. For example, a tanker spilling crude oil overboard will present an environmental risk that a business will be both ethically and legally obligated to respond to by cleaning up the spill.
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