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The Role of Ethics in Corporate Governance [+ Case Study]

Welcome to our comprehensive guide on the crucial role of  ethics in corporate governance . In the dynamic and complex landscape of business, ethics play a pivotal role in governing operations and ensuring the integrity and trustworthiness of organizations.

When it comes to corporate governance, ethics encompass the principles and values that guide decision-making processes and practices. It is imperative to understand the place of  ethics in corporate governance  and the significant impact they have on the overall success and reputation of businesses.

In this article, we will explore the  importance of ethics in corporate governance  and its profound influence on transparency, accountability, finance, banking, accounting, and even the global business environment. We will also discuss the role of a  code of ethics in corporate governance  and strategies for addressing ethics violations.

By delving into these topics, we aim to provide you with valuable insights into the integration of ethics into corporate decision-making processes and maintaining the highest standards of integrity in today’s business landscape.

Understanding Corporate Governance and Ethics

Ethics in corporate governance refers to the system of moral principles and values that guides the behavior of an organization and its decision-making processes.

It encompasses the responsibilities of organizational leaders to make choices that are not only legal but also right in terms of societal and stakeholder expectations

The Relationship Between Corporate Governance and Ethics

In business, corporate governance serves as a set of principles that guides the behavior and actions of individuals involved in the decision-making processes.

It involves establishing structures, policies, and procedures that promote ethical conduct and protect the interests of stakeholders.

The role of ethics in corporate governance  is fundamental, as it dictates the moral compass by which organizations operate. Ethical considerations provide the foundation for responsible decision-making, fostering an environment of integrity, trust, and transparency. 

Corporate governance and ethics in business  are inseparable, as they ensure that organizations are not only focused on maximizing profits but also on creating long-term value for all stakeholders.

How to Integrate Ethics into Corporate Governance

Integrating ethics into corporate governance requires a comprehensive approach that encompasses all levels of an organization.

Ethical guidelines and codes of conduct must be established to outline the expected behavior of individuals within the company.

Regular training and communication initiatives are also vital to promote ethical awareness and understanding.

Achieving effective  corporate governance in ethics  requires accountability and oversight mechanisms to ensure compliance with ethical standards.

Boards of directors play a crucial role in upholding ethical principles, setting the tone from the top and overseeing the implementation of ethical practices throughout the organization.

The Benefits of Ethical Corporate Governance

When ethics and corporate governance align, organizations experience numerous benefits. Not only does ethical corporate governance promote public trust and reputation, but it also attracts and retains top talent by creating a positive organizational culture.

Moreover, ethical decision-making contributes to sustainable growth, as companies that prioritize ethical practices are more likely to maintain long-term success and weather crises.

By prioritizing  the role of ethics in corporate governance  and integrating ethical considerations into decision-making processes, businesses can demonstrate their commitment to responsible conduct, build stakeholder trust, and contribute to a more sustainable and ethical business environment.

Ethical behavior guides decision-making processes, ensuring that actions align with organizational values and principles.

 It creates a framework for responsible conduct, protecting against fraudulent practices and unethical behavior that could harm the company and its stakeholders.

Organizations that prioritize  business ethics in corporate governance  gain a competitive advantage in the marketplace.

By embracing and promoting ethical behavior, companies demonstrate their commitment to doing business in a responsible and sustainable manner, positively influencing public perception and attracting like-minded stakeholders.

“Business ethics is not a mere buzzword – it is the foundation of a strong corporate governance framework that ensures long-term success and a positive impact on society.”

Overall, the  importance of business ethics in corporate governance  is undeniable. It goes beyond legal compliance and encompasses fostering a culture of integrity and ethical behavior throughout the organization. 

By embracing and prioritizing business ethics, companies can build trust, improve stakeholder relationships, and enhance their long-term sustainability in a dynamic and competitive business environment.

The Role of Ethics in Ensuring Transparency and Accountability

Transparency and accountability are crucial elements of effective corporate governance. They promote trust, integrity, and responsible decision-making within organizations. Adopting ethical practices plays a vital role in safeguarding these principles and ensuring that businesses operate ethically and responsibly.

Ethics serve as a guiding framework for corporate governance, helping organizations establish transparent communication channels and accountability mechanisms.

By adhering to ethical standards, companies can maintain open lines of communication with stakeholders, providing them with accurate and timely information about the organization’s performance, goals, and values.

Ethical practices also contribute to accountability within corporate governance. When ethical guidelines are firmly ingrained in an organization’s culture, employees are more likely to take personal responsibility for their actions and decisions.

Ethical conduct establishes clear expectations and norms for behavior, encouraging individuals to act in an accountable manner.

The Limitations of Corporate Governance in Incorporating Ethical Values

While corporate governance plays a central role in shaping an organization’s ethical practices, it is not without limitations.

Corporate governance frameworks often prioritize financial performance and shareholder value, sometimes neglecting the broader ethical implications of business decisions. This narrow focus can create a gap between corporate governance practices and ethical considerations.

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Another limitation is the potential for conflicts of interest. In some cases, corporate governance structures may be influenced by individuals with their own personal agendas, which can compromise ethical decision-making processes.

It is crucial for organizations to establish checks and balances to mitigate these conflicts and ensure that the interests of all stakeholders are prioritized.

Ethics in Finance and Corporate Governance

When it comes to corporate governance, the integration of ethics and finance is crucial for the long-term success of an organization. 

Ethics in finance and corporate governance  refer to the principles and standards that guide financial decision-making while ensuring accountability and transparency.

However, the neglect of ethical considerations in financial decision-making can lead to significant challenges for investors and stakeholders.

One of the main problems that investors face in corporate governance and ethics is the potential for unethical behavior within financial institutions.

The lack of ethical guidelines and oversight can result in actions that prioritize short-term gains over long-term value creation.

This can include misleading financial reporting, insider trading, and excessive risk-taking, all of which can detrimentally impact investors’ interests.

Additionally, the absence of  ethics in finance and corporate governance  can erode trust between investors and companies.

When ethical considerations are disregarded, investors may question the integrity of the decision-making process and hesitate to invest their capital. 

This lack of trust can have far-reaching consequences, including reduced market confidence and limited access to capital.

To address these challenges, it is essential for organizations to prioritize  ethics in finance and corporate governance . 

This can be achieved by adopting robust ethical frameworks, implementing effective internal controls, and promoting a culture of accountability and transparency. 

By integrating ethics into financial decision-making processes, companies can safeguard investor interests, build trust, and enhance long-term value creation.

By addressing these challenges and placing ethics at the forefront of finance and corporate governance, organizations can inspire investor confidence, attract capital, and contribute to the overall integrity and sustainability of the business ecosystem.

Ethics and Corporate Governance in the Banking Industry

When it comes to ethics and corporate governance, the banking industry faces unique challenges that require careful consideration and adherence to ethical standards.

As banks play a crucial role in the economy by managing financial transactions and providing essential services, maintaining ethical practices is of utmost importance to ensure trust, integrity, and stability in the financial system.

The Ethical Challenges in the Banking Industry

The banking industry operates in a complex environment with various stakeholders, including customers, employees, shareholders, and regulatory bodies. This complexity gives rise to several ethical challenges that banks must navigate:

• Conflicts of interest:  Banks often face conflicts of interest when dealing with clients, shareholders, and their own financial interests. Managing these conflicts ethically is vital to avoid compromising the interests of stakeholders.
• Transparency and accountability:  Banks must strive to maintain transparency and accountability in their operations and reporting practices. Ethical behavior ensures that all stakeholders have access to accurate and timely information.
• Risk management:  Ethical considerations play a significant role in risk management within the banking industry. Banks must balance the pursuit of profit with the responsibility to manage risks ethically and safeguard the financial well-being of their customers and investors.

Maintaining Ethical Standards

To address these ethical challenges, banks need to establish robust corporate governance frameworks that prioritize ethics and integrity. This includes:

• Developing a strong ethical culture:  Banks must foster an ethical culture throughout their organization, starting from the top leadership down to every employee. Clear ethical guidelines and regular training programs are essential to promote ethical behavior.
• Implementing effective risk management:  Banks should have comprehensive risk management systems in place that identify, assess, and mitigate potential ethical risks. This ensures that ethical considerations are integrated into decision-making processes.
• Engaging stakeholders:  Banks should actively engage with stakeholders to understand their expectations and concerns. This includes maintaining open lines of communication and soliciting feedback to address governance issues effectively.

Case Study: Wells Fargo’s Ethical Crisis

In 2016, Wells Fargo was embroiled in one of the most significant ethical crises in the banking industry when it was revealed that employees had opened millions of unauthorized customer accounts.

This unethical practice was driven by an aggressive sales culture that incentivized employees to meet unrealistic sales targets, often at the expense of customer interests.

As a result, employees created fake email addresses and forged customer signatures to set up new accounts and generate fees.

The scandal came to light through a series of investigations that unveiled systemic failures in corporate governance, including a lack of oversight from senior management and inadequate internal controls.

This failure not only breached ethical standards but also violated legal frameworks, leading to fines and penalties for Wells Fargo.

The U.S. Consumer Financial Protection Bureau (CFPB), along with other regulatory bodies, fined the bank $185 million, reflecting the severity of the misconduct.

Following the crisis, Wells Fargo took several remedial actions to restore its reputation and realign its operations with ethical standards.

This included overhauling its sales practices, eliminating sales goals for retail bankers, and implementing a new system for whistleblowers to report unethical activities safely.

The bank also made changes at the executive level, signaling a commitment to ethical reform by appointing new leadership and enhancing board oversight.

Despite these efforts, the scandal had far-reaching consequences, damaging customer trust and leading to a broader industry-wide examination of sales practices in banking.

The Wells Fargo case serves as a stark reminder of the critical importance of ethics in corporate governance. It underscores the need for organizations to foster a culture of integrity and transparency and to establish robust mechanisms that prevent, detect, and address ethical violations effectively.

The Code of Ethics in Corporate Governance

Corporate governance is essential for maintaining integrity and ethical standards within organizations. A crucial component of corporate governance is the establishment and implementation of a  code of ethics . 

This code serves as a guiding framework that outlines the expected behaviors and principles that all employees and stakeholders should adhere to.

A well-developed  code of ethics in corporate governance  helps foster a culture of transparency, trust, and accountability. It provides employees with clear guidelines and expectations, ensuring that ethical decision-making is prioritized in all aspects of business operations.

Some key elements typically addressed in a  code of ethics in corporate governance  include:

• Integrity and honesty: Upholding high ethical standards and acting with honesty and integrity in all business interactions and transactions.
• Conflicts of interest: Recognizing and managing conflicts of interest to ensure that personal interests do not compromise professional judgment.
• Compliance with laws and regulations: Adhering to all applicable laws, regulations, and industry standards.
• Fair competition: Engaging in fair competition and avoiding practices that could result in antitrust violations.
• Confidentiality: Respecting and safeguarding confidential information, both internally and externally.
• Respect and diversity: Treating all individuals with respect, valuing diversity, and promoting an inclusive work environment.

“A code of ethics is not just a piece of paper; it sets the tone for the entire organization and shapes its culture.”

Having a well-communicated and regularly reinforced code of ethics is essential for maintaining trust and credibility among stakeholders, including employees, customers, investors, and the wider community.

It demonstrates a commitment to ethical conduct and helps organizations navigate complex ethical dilemmas.

Corporate Governance Ethics in the Global Business Environment

In the increasingly interconnected and complex global business environment, the ethical practices of corporations play a crucial role in maintaining effective corporate governance.

With multinational companies operating in diverse cultural and regulatory contexts, the integration of ethics into corporate governance becomes paramount for long-term success and sustainability.

When multinational corporations prioritize corporate governance ethics in their global operations, they demonstrate their commitment to responsible and ethical decision-making.

By adhering to high ethical standards, these companies foster trust among stakeholders, including shareholders, employees, and customers.

One of the key challenges that organizations face in promoting corporate governance ethics in a global business environment is navigating the differences in cultural values and legal frameworks.

What may be considered ethically acceptable in one country may be viewed as unethical in another. Therefore, multinational corporations must be mindful of the cultural nuances and legal requirements of the countries in which they operate.

Furthermore, multinational corporations must prioritize ethical behavior not only within their own operations but also among their suppliers, partners, and stakeholders throughout the global supply chain.

This commitment to ethical practices in the global business environment helps prevent unethical practices such as corruption, human rights abuses, and environmental degradation.

To emphasize the importance of corporate governance ethics in the global business environment, the following table highlights the key factors and their impact:

By prioritizing corporate governance ethics in the global business environment, multinational corporations can contribute to the development of sustainable and resilient economies that benefit both societies and shareholders.

Addressing Ethics Violations in Corporate Governance

When ethics violations occur in corporate governance, the consequences can be far-reaching, impacting not only the reputation of the company but also its stakeholders and the overall integrity of the business ecosystem.

It is crucial for organizations to address and rectify such violations promptly to restore trust and maintain ethical standards.

Effective strategies for addressing  ethics violations in corporate governance  involve a multi-faceted approach that encompasses prevention, detection, investigation, and remediation.

The following steps can help organizations navigate the challenges posed by ethics violations:

• Develop and enforce a robust code of ethics:  A well-defined and comprehensive code of ethics serves as a guiding framework for ethical behavior and decision-making. Organizations should clearly communicate their expectations and ensure compliance through regular training, monitoring, and enforcement mechanisms.
• Establish an independent and effective ethics reporting mechanism:  Whistleblower hotlines and reporting systems provide avenues for employees and stakeholders to report potential ethics violations confidentially and without fear of retaliation. These channels should be readily accessible and supported by a culture that encourages ethical reporting.
• Conduct thorough investigations and implement appropriate disciplinary actions:  When ethical misconduct is reported, organizations must conduct timely and impartial investigations. This process should be carried out by an independent team or external experts. If violations are substantiated, appropriate disciplinary actions, such as employee reprimands, suspensions, or terminations, should be taken to reinforce the seriousness of ethical breaches.
• Strengthen internal controls and risk management systems:  Robust internal controls and risk management frameworks help identify and mitigate the potential for ethics violations. These mechanisms should encompass regular audits, risk assessments, and compliance monitoring to ensure adherence to ethical guidelines.
• Cultivate a strong ethical culture:  A culture of ethics starts at the top with leaders who demonstrate and prioritize ethical behavior. Organizations should promote ethical values and integrity through training, communication, recognition of ethical conduct, and aligning performance evaluations with ethical standards.

By proactively addressing  ethics violations in corporate governance , organizations can foster a culture of trust, accountability, and transparency. This, in turn, enhances stakeholder confidence , protects reputations, and contributes to sustainable business success.

“Ethics is not just about avoiding wrongdoing; it’s about doing what is right, even when no one is watching.”—Aldo Leopold

The Triple Bottom Line: Ethics and Corporate Governance

Corporate governance is not solely concerned with financial performance and shareholder value. In recent years, a broader perspective called the triple bottom line has emerged, emphasizing the interconnection between social, environmental, and financial sustainability. 

In this context, ethics in corporate governance play a crucial role in ensuring responsible and sustainable business practices.

When we examine the triple bottom line, we can see how ethics weave into each dimension:

• Social sustainability:  Ethics in corporate governance drive organizations to consider the well-being of their employees, customers, and communities. It includes fair labor practices, diversity and inclusion, and responsible marketing. By prioritizing social sustainability , companies build trust and foster positive relationships with their stakeholders.
• Environmental sustainability:  Ethics in corporate governance involve responsible resource management, waste reduction, and minimizing the organization’s ecological footprint. By integrating environmental ethics into decision-making processes, companies contribute to a sustainable and resilient future, mitigating the negative impact of their operations on the environment.
• Financial sustainability:  Ethical considerations in corporate governance play a vital role in long-term financial success. By practicing transparency, accountability, and integrity, companies maintain the trust and confidence of investors, attract sustainable capital, and foster long-term profitability.

Measures that include corporate ethics and governance ensure that organizations navigate the complexities of the triple bottom line effectively. By embedding ethics into the governance framework, companies can align their values with their business strategies and enhance overall sustainability.

What is the place of ethics in corporate governance?

Ethics play a crucial role in corporate governance by guiding decision-making processes and ensuring the integrity and trustworthiness of business operations.

What is the role of ethics in corporate governance?

Ethics influence the practices and processes of corporate governance, helping to establish transparency, accountability, and responsible behavior within organizations.

Why is ethics important in corporate governance?

Upholding business ethics in corporate governance is essential for maintaining a positive reputation, fostering stakeholder trust, and achieving long-term organizational success.

What is the relationship between ethics, finance, and corporate governance?

Ethical considerations are crucial in financial decision-making within corporate governance. Overlooking ethics can lead to problems such as conflicts of interest, insider trading, and unethical financial practices.

How are ethics integrated into corporate governance in the global business environment?

In a global business context, ethics in corporate governance are vital for multinational corporations to navigate diverse cultural norms, regulatory frameworks, and stakeholder expectations.

How should ethics violations in corporate governance be addressed?

Ethics violations in corporate governance should be taken seriously and addressed through effective policies, mechanisms for reporting misconduct, and appropriate consequences for wrongdoing.

In summary, ethics play a vital role in corporate governance, ensuring integrity, transparency, and accountability within organizations. Upholding business ethics is essential for building trust among stakeholders and maintaining a positive reputation.

Integrating ethics into decision-making processes is a corporate governance best practice that fosters responsible and sustainable business practices. It promotes a culture of professionalism, fairness, and respect, which ultimately contributes to the overall success of an organization.

By recognizing the  importance of ethics in corporate governance , businesses can navigate the complexities of the global business environment while upholding ethical standards.

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What Is Business Ethics?

Understanding business ethics, why is business ethics important, types of business ethics.

• Implementing Good Business Ethics
• Monitoring and Reporting

The Bottom Line

What is business ethics definition, principles, and importance.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Business ethics is the moral principles, policies, and values that govern the way companies and individuals engage in business activity. It goes beyond legal requirements to establish a code of conduct that drives employee behavior at all levels and helps build trust between a business and its customers.

Key Takeaways

• Business ethics refers to implementing appropriate business policies and practices with regard to arguably controversial subjects.
• Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities.
• The law usually sets the tone for business ethics, providing a basic guideline that businesses can choose to follow to gain public approval.

Investopedia / Katie Kerpel

Business ethics ensure that a certain basic level of trust exists between consumers and various forms of market participants with businesses. For example, a portfolio manager must give the same consideration to the portfolios of family members and small individual investors as they do to wealthier clients. These kinds of practices ensure the public receives fair treatment.

The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased focus on "social issues" was a hallmark of the decade.

Since that time, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies must do legally vs. maintaining a competitive advantage over other businesses. Firms display business ethics in several ways.

Business ethics ensure a certain level of trust between consumers and corporations, guaranteeing the public fair and equal treatment.

Principles of Business Ethics

It's essential to understand the underlying principles that drive desired ethical behavior and how a lack of these moral principles contributes to the downfall of many otherwise intelligent, talented people and the businesses they represent.

There are generally 12 business ethics principles:

• Leadership : The conscious effort to adopt, integrate, and emulate the other 11 principles to guide decisions and behavior in all aspects of professional and personal life.
• Accountability : Holding yourself and others responsible for their actions. Commitment to following ethical practices and ensuring others follow ethics guidelines.
• Integrity : Incorporates other principles—honesty, trustworthiness, and reliability. Someone with integrity consistently does the right thing and strives to hold themselves to a higher standard.
• Respect for others : To foster ethical behavior and environments in the workplace, respecting others is a critical component. Everyone deserves dignity, privacy, equality, opportunity, compassion, and empathy.
• Honesty : Truth in all matters is key to fostering an ethical climate. Partial truths, omissions, and under or overstating don't help a business improve its performance. Bad news should be communicated and received in the same manner as good news so that solutions can be developed.
• Respect for laws : Ethical leadership should include enforcing all local, state, and federal laws. If there is a legal grey area, leaders should err on the side of legality rather than exploiting a gap.
• Responsibility : Promote ownership within an organization, allow employees to be responsible for their work, and be accountable for yours.
• Transparency : Stakeholders are people with an interest in a business, such as shareholders, employees, the community a firm operates in, and the family members of the employees. Without divulging trade secrets, companies should ensure information about their financials, price changes, hiring and firing practices, wages and salaries, and promotions are available to those interested in the business's success.
• Compassion : Employees, the community surrounding a business, business partners, and customers should all be treated with concern for their well-being.
• Fairness : Everyone should have the same opportunities and be treated the same. If a practice or behavior would make you feel uncomfortable or place personal or corporate benefit in front of equality, common courtesy, and respect, it is likely not fair.
• Loyalty : Leadership should demonstrate confidentially and commitment to their employees and the company. Inspiring loyalty in employees and management ensures that they are committed to best practices.
• Environmental concern : In a world where resources are limited, ecosystems have been damaged by past practices, and the climate is changing, it is of utmost importance to be aware of and concerned about the environmental impacts a business has. All employees should be encouraged to discover and report solutions for practices that can add to damages already done.

There are several reasons business ethics are essential for success in modern business. Most importantly, defined ethics programs establish a code of conduct that drives employee behavior—from executives to middle management to the newest and youngest employees. When all employees make ethical decisions, the company establishes a reputation for ethical behavior. Its reputation grows, and it begins to experience the benefits a moral establishment reaps:

• Brand recognition and growth
• Increased ability to negotiate
• Increased trust in products and services
• Customer retention and growth
• Attracts talent
• Attracts investors

When combined, all these factors affect a business' revenues. Those that fail set ethical standards and enforce them are doomed to eventually find themselves alongside Enron, Arthur Andersen, Wells Fargo, Lehman Brothers, Bernie Madoff, and many others.

There are several theories regarding business ethics, and many different types can be found, but what makes a business stand out are its corporate social responsibility practices, transparency and trustworthiness, fairness, and technological practices.

Corporate Social Responsibility

Corporate social responsibility (CSR) is the concept of meeting the needs of stakeholders while accounting for the impact meeting those needs has on employees, the environment, society, and the community in which the business operates. Of course, finances and profits are important, but they should be secondary to the welfare of society, customers, and employees—because studies have concluded that corporate governance and ethical practices increase financial performance.

Businesses should hold themselves accountable and responsible for their environmental, philanthropic, ethical, and economic impacts.

Transparency and Trustworthiness

It's essential for companies to ensure they are reporting their financial performance in a way that is transparent. This not only applies to required financial reports but all reports in general. For example, many corporations publish annual reports to their shareholders.

Most of these reports outline not only the submitted reports to regulators, but how and why decisions were made, if goals were met, and factors that influenced performance. CEOs write summaries of the company's annual performance and give their outlooks.

Press releases are another way companies can be transparent. Events important to investors and customers should be published, regardless of whether it is good or bad news.

Technological Practices and Ethics

The growing use of technology of all forms in business operations inherently comes with a need for a business to ensure the technology and information it gathers is being used ethically. Additionally, it should ensure that the technology is secured to the utmost of its ability, especially as many businesses store customer information and collect data that those with nefarious intentions can use.

A workplace should be inclusive, diverse, and fair for all employees regardless of race, religion, beliefs, age, or identity. A fair work environment is where everyone can grow, be promoted, and become successful in their own way.

How to Implement Good Business Ethics

Fostering an environment of ethical behavior and decision-making takes time and effort—it always starts at the top. Most companies need to create a code of conduct/ethics, guiding principles, reporting procedures, and training programs to enforce ethical behavior.

Once conduct is defined and programs implemented, continuous communication with employees becomes vital. Leaders should constantly encourage employees to report concern behavior—additionally, there should be assurances that if whistle-blowers will not face adversarial actions.

A pipeline for anonymous reporting can help businesses identify questionable practices and reassure employees that they will not face any consequences for reporting an issue.

Monitoring and Reporting Unethical Behavior

When preventing unethical behavior and repairing its adverse side effects, companies often look to managers and employees to report any incidences they observe or experience. However, barriers within the company culture (such as fear of retaliation for reporting misconduct) can prevent this from happening.

Published by the Ethics & Compliance Initiative (ECI), the Global Business Ethics Survey of 2021 surveyed over 14,000 employees in 10 countries about different types of misconduct they observed in the workplace. 49% of the employees surveyed said they had observed misconduct and 22% said they had observed behavior they would categorize as abusive. 86% of employees said they reported the misconduct they observed. When questioned if they had experienced retaliation for reporting, 79% said they had been retaliated against.

Indeed, fear of retaliation is one of the primary reasons employees cite for not reporting unethical behavior in the workplace. ECI says companies should work toward improving their corporate culture by reinforcing the idea that reporting suspected misconduct is beneficial to the company. Additionally, they should acknowledge and reward the employee's courage in making the report.

Business ethics concerns ethical dilemmas or controversial issues faced by a company. Often, business ethics involve a system of practices and procedures that help build trust with the consumer. On one level, some business ethics are embedded in the law, such as minimum wages, insider trading restrictions, and environmental regulations. On another, business ethics can be influenced by management behavior, with wide-ranging effects across the company.

What Are Business Ethics and Example?

Business ethics guide executives, managers, and employees in their daily actions and decision-making. For example, consider a company that has decided to dump chemical waste that it cannot afford to dispose of properly on a vacant lot it has purchased in the local community. This action has legal, environmental, and social repercussions that can damage a company beyond repair.

What Are the 12 Ethical Principles?

Business ethics is an evolving topic. Generally, there are about 12 ethical principles: honesty, fairness, leadership, integrity, compassion, respect, responsibility, loyalty, law-abiding, transparency, and environmental concerns.

Business ethics concerns employees, customers, society, the environment, shareholders, and stakeholders. Therefore, every business should develop ethical models and practices that guide employees in their actions and ensure they prioritize the interests and welfare of those the company serves.

Doing so not only increases revenues and profits, it creates a positive work environment and builds trust with consumers and business partners.

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Corporate Governance and Business Ethics

• First Online: 12 May 2024

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• Arão Sapiro   ORCID: orcid.org/0000-0002-2795-7051 2  

Part of the book series: Classroom Companion: Business ((CCB))

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This chapter explores how organizations can address various sustainability challenges including climate change, human and labor rights, and sustain the global commons. As no business can address these systemic challenges alone, a particular focus lies in how multiple stakeholders collaborate to create novel governance solutions, in the transition to a net-zero economy.

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Sapiro, A. (2024). Corporate Governance and Business Ethics. In: Strategic Management. Classroom Companion: Business. Springer, Cham. https://doi.org/10.1007/978-3-031-55669-2_4

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SEMESTER-4 ASSIGNMENT-BUSINESS ETHICS,GOVERNANCE & RISK

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15.22: Assignment- Business Ethics and Corporate Social Responsibility

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Open Pedagogy Assignments are assignments in which students use their agency and creativity to create knowledge artifacts that can support their own learning, their classmates’ learning, and the learning of students around the world. (See this peer-reviewed article for more details.) The assignment on this page is aligned to the learning outcomes of Introduction to Business and we’ve identified the module where the reading appears. All of the assignments can be created with a cell phone camera or any video recording device, Google or Word documents, and your learning management system.

Learning Objectives

• Give examples of corporate social responsibility

In the module on Business Ethics and Corporate Social Responsibility (CSR), there is a case study on TOMS shoes. For this assignment, you are going to work with a small group to hunt down useful links and resources for your fellow students about other businesses who may fit into the same CSR. This work will become a living document that future students will use. Think of your audience as friends who have never heard of the company of your choice.

• In your own words, summarize the business’ mission statement. You can take a look at TOMS website as an example of what to look for in your research.
• Does your business of choice reflect the values of a social entrepreneur? If so, why? If not, why? Cite specifics from the business’ website.

A Note To Teachers: Use the case study in the course as a way to scaffold your students’ discussions and research. You may want to break your students into groups and let them work on their own document that you will eventually create into one document. Over time, it may be useful to have students check to see if businesses have changed their practices for better or for worse. We chose the TOMS example because they’ve changed their charitable focus as they’ve become more successful.

Contributors and Attributions

• Open Pedagogy Assignment: Business Ethics and Corporate Social Responsibility. Authored by : Lumen Learning . Provided by : Lumen Learning. License : CC BY: Attribution

• Business Ethics Cases
• Markkula Center for Applied Ethics
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Find ethics case studies on bribery, sourcing, intellectual property, downsizing, and other topics in business ethics, corporate governance, and ethical leadership. (For permission to reprint articles, submit requests to [email protected] .)

In this business ethics case study, Swedish multinational company IKEA faced accusations relating to child labor abuses in the rug industry in Pakistan which posed a serious challenge for the company and its supply chain management goals.

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What responsibility does an employee have when information they obtained in confidence from a coworker friend may be in conflict with the needs of the company or raises legal and ethical questions.

A manager at a prominent multinational company is ethically challenged by a thin line between opportunity for economic expansion in a deeply underserved community, awareness of child labor practices, and cultural relativism.

A volunteer providing service in the Dominican Republic discovered that the non-profit he had partnered with was exchanging his donor money on the black market, prompting him to navigate a series of complex decisions with significant ethical implications.

The CFO of a family business faces difficult decisions about how to proceed when the COVID-19 pandemic changes the business revenue models, and one family shareholder wants a full buyout.

An employee at an after-school learning institution must balance a decision to accept or decline an offered gift, while considering the cultural norms of the client, upholding the best interests of all stakeholders, and following the operational rules of his employer. 

A senior vice president for a Fortune 500 savings and loan company is tasked with the crucial responsibility of representing the buyer in a multi-million dollar loan purchase deal and faces several ethical challenges from his counterpart representing the seller.

Extensive teaching note based on interviews with Theranos whistleblower Tyler Shultz. The teaching note can be used to explore issues around whistleblowing, leadership, the blocks to ethical behavior inside organizations, and board governance.

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A New Model for Ethical Leadership

• Max H. Bazerman

Rather than try to follow a set of simple rules (“Don’t lie.” “Don’t cheat.”), leaders and managers seeking to be more ethical should focus on creating the most value for society. This utilitarian view, Bazerman argues, blends philosophical thought with business school pragmatism and can inform a wide variety of managerial decisions in areas including hiring, negotiations, and even time management. Creating value requires that managers confront and overcome the cognitive barriers that prevent them from being as ethical as they would like to be. Just as we rely on System 1 (intuitive) and System 2 (deliberative) thinking, he says, we have parallel systems for ethical decision-making. He proposes strategies for engaging the deliberative one in order to make more-ethical choices. Managers who care about the value they create can influence others throughout the organization by means of the norms and decision-making environment they create.

Create more value for society.

Idea in Brief

The challenge.

Systematic cognitive barriers can blind us to our own unethical behaviors and decisions, hampering our ability to maximize the value we create in the world.

The Solution

We have both an intuitive system for ethical decision-making and a more deliberative one; relying on the former leads to less-ethical choices. We need to consciously engage the latter.

In Practice

To make more-ethical decisions, compare options rather than evaluate them singly; disregard how decisions would affect you personally; make trade-offs that create more value for all parties in negotiations; and allocate time wisely.

Autonomous vehicles will soon take over the road. This new technology will save lives by reducing driver error, yet accidents will still happen. The cars’ computers will have to make difficult decisions: When a crash is unavoidable, should the car save its single occupant or five pedestrians? Should the car prioritize saving older people or younger people? What about a pregnant woman—should she count as two people? Automobile manufacturers need to reckon with such difficult questions in advance and program their cars to respond accordingly.

• MB Max H. Bazerman is the Jesse Isidor Straus Professor of Business Administration at Harvard Business School and the author (with Don A. Moore) of Decision Leadership: Empowering Others to Make Better Choices (Yale University Press, 2022) and Better, Not Perfect: A Realist’s Guide to Maximum Sustainable Goodness (Harper Business, 2020).

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