Ethical Corporate Governance : Why does it matter?
Ethical Corporate Governance (also called Ethical Governance) has very much become a buzzword these days, just about every company thinks its a good idea and may even proclaim to follow it, but what exactly is it, and how can we know for a sure that a company is practising what it preaches?
Ethical Corporate Governance refers to the processes and policies that a company has in place to deal with issues concerning how it is administerd and conducts day to day business. It is important to remember that companies exist primary to create a product or service, which is used to generate profit. However that intention must be balanced with controls that ensure a company pursues profit without crossing over the line into the realms of unethical behaviour.
In the past many companies may have exploited their market positions to inhibit competition or even threaten local populations, ethical corporate governance exists to prevent this happening.
A corporate governance policy should also cover the expected conduct of senior members of a company, for example the chief executive officer, board of directors and other senior management, who are often seen as exempt from the normal policies applied in the company.
Corporate governance is a multi-faceted subject with many layers of complexity. An important part of corporate governance deals with accountability, fiduciary duty and mechanisms of auditing and control.
Investors may only be concerned with a companies performance and earnings, but bad corporate governance can be symptomatic of greater problems with the company. For example, before the collapse of Enron, the company and its associated traders are believed to have artificially inflated the price of energy in certain US states, thus increasing their profit margins. While this action alone was not enough to cause teh company to collapse it was a clear indication that internal controls had failed, which of course meant that other much larger abuses were possible, which eventually lead to the downfall of the company.
The International Charter is committed to encouraging good corporate governance and all the business certification programs offered by the organization incorporate some element of corporate governance requirement.