Akshma Gupta
INTRODUCTION
Corporate governance is the set of laws, customs, and procedures that regulate and control an organisation. It entails striking a balance between the interests of a company’s numerous constituents, including shareholders, management, clients, vendors, financiers, the government, and the public.
On the other hand, ethics refers to the moral principles and ideals that govern how people and organisations behave. In terms of right and wrong, good, and bad, just and unjust, fair and unfair, ethics is worried.
Because ethical behaviour and decision-making are necessary for effective corporate governance, there is a close connection between corporate governance and ethics. Honesty, transparency, fairness, responsibility, and accountability are all components of ethical business governance.
A business is more likely to win the trust of its stakeholders, draw investment, and maintain its long-term growth and success if it operates with sound corporate governance practises. On the other hand, a business that practises unethical behaviour and bad corporate governance is more likely to face legal and reputational risks, financial losses, and a decline in stakeholder confidence.
HISTORY OF CORPORATE GOVERNANCE
Ancient times were when the idea of corporate governance first emerged, and it was mostly focused on managing public institutions like marketplaces, ports, and temples. Yet, as corporations grew larger, more complicated, and more prominent in the global economy, the current notion of corporate governance arose over the 19th and 20th centuries.
In the United States, important legislative decisions and rules like the Sherman Antitrust Act of 1890 and the Securities Exchange Act of 1934 helped to establish the corporate governance environment. These rules attempted to encourage honest competition and openness in business dealings.
The corporate governance movement grew in popularity in the United States during the 1960s and 1970s, with a focus on corporate board duties and shareholder rights. The 1980s saw a growth in shareholder activism as investors started to pressure boards of directors for greater accountability and transparency.
Several business scandals, including those involving Enron and WorldCom, occurred in the 1990s and early 2000s. As a result, corporate governance procedures are now subject to more scrutiny and oversight. The Sarbanes-Oxley Act of 2002, which sought to increase the responsibility and openness of company boards and senior management, was one of the corporate governance regulations and recommendations that resulted from this.
The Cadbury Report from the UK in 1992, which demanded more responsibility and openness in business operations, had an impact on corporate governance norms in Europe. The UK Corporate Governance Code was created as a result of the study, and many other European nations have since embraced it.
With ongoing discussions and debates about the duties and rights of corporate boards, shareholder rights, and the requirement for greater accountability and transparency in corporate operations, corporate governance continues to be a crucial issue for businesses and stakeholders around the world today.
SIGNIFICANCE OF CORPORATE GOVERNANCE
Corporate Governance is important for several reasons:
1. Accountability: Corporate governance enables the holding of businesses responsible for their deeds and choices. This is crucial for preserving confidence and faith among all parties involved, including shareholders, clients, and staff.
2. Transparency: Good corporate governance encourages the disclosure of pertinent information to stakeholders and openness in decision-making. This makes it possible for everyone to access the same information and make educated choices.
3. Ethics and values: Corporate administration aids in advancing moral conduct and ethical business methods. This is crucial for upholding the company’s reputation and making sure that it functions in accordance with its values and mission.
4. Risk management: Good corporate governance makes it easier to spot and control risks that could harm a company’s image or performance. Risks associated with a company’s financial success, social and environmental responsibility, and adherence to laws and regulations are all included.
5. Long-term viability: A company’s long-term viability and success depend on its capacity to practise sound corporate governance. This involves making sure the business has a clear strategy, is managed well, and runs in a way that generates value over the long term for all stakeholders.
ETHICAL PRINCIPLES TO GOOD CORPORATE
Good business governance requires adherence to several moral standards. These ideas include:
1. Integrity: According to this principle, people and organisations must always behave honestly and fairly. It entails being sincere, open, and responsible for one’s deeds.
2. Responsibility: According to this concept, people and organisations must accept accountability for their deeds and the effects they have on stakeholders. It entails accepting responsibility for one’s acts and acting to repair any damage.
3. Fairness: According to this concept, everyone must be treated equally and fairly by both individuals and organisations. Making sure that choices are made based on merit and avoiding discrimination and favouritism are both part of it.
4. Respect: According to this principle, everyone must be treated with dignity and have their rights upheld. It entails behaving politely, sympathetically, and intelligently towards others.
5. Citizenship: According to this principle, people and organisations must behave responsibly in the communities in which they work. It entails advancing societal justice, preserving the environment, and serving the greater good.
6.Following these moral guidelines for corporate governance can promote confidence, protect the organization’s reputation, and promote long-term success.
IMPACT OF COVID-19 ON CORPORATE GOVERNANCE
Corporate accountability has been significantly impacted by the COVID-19 pandemic. The following are some ways that the pandemic has impacted company governance:
1. Remote Work: As a result of the pandemic, many businesses have had to switch to remote work, which has created new issues for corporate administration. To ensure that remote employees are productive while upholding company standards, boards of directors and management teams have had to adjust to holding meetings virtually.
2. Cybersecurity: Cybersecurity has become a more urgent problem for businesses as remote work has increased. Directors’ boards have been required to make sure that their organisations have the essential security measures in place to guard against online threats.
3. Risk management: The pandemic has made businesses more susceptible to new risks, such as supply chain disruptions, financial volatility, and worries about the health and safety of their workers. To make sure that their businesses are ready for these new risks, boards of directors have had to review their risk management plans.
4. Stakeholder Engagement: The pandemic has brought stakeholder engagement—with customers, workers, and communities—to light. To address their concerns and keep their stakeholders’ confidence, businesses have had to improve their communication with them.
5. Financial reporting has become more difficult because of the pandemic’s substantial financial uncertainty for businesses. Companies now must disclose in greater depth how the pandemic has affected their operations, financial results, and cash flows.
CONCLUSION
Business ethics and governance have always been essential components in making sure that organisations succeed and last. These values direct the actions and choices of the company’s executives, workers, and stakeholders, which in turn impact the organization’s performance, reputation, and bottom line.
Businesses around the world are facing enormous difficulties because of the COVID-19 epidemic, with many finding it difficult to adjust to the shifting market and economic conditions. The significance of business ethics and governance has increased under this situation. In order to keep the confidence of stakeholders and the general public, businesses have had to make painful decisions, such as firing people or cutting compensation, and it has been crucial to make sure that these decisions are handled in a fair and ethical manner.
The pandemic has also made it clear that businesses must prioritise the health and safety of their workers and clients as well as the effects they have on the environment and the larger community. Also, due to the pandemic, the trend towards remote work has escalated, posing additional difficulties for team management and fostering productive collaboration.
In conclusion, good corporate governance and ethical behaviour are crucial for any successful business, especially in trying times like the COVID-19 pandemic. A company is more likely to effectively traverse the pandemic’s obstacles and come out stronger in the long run if it places a high priority on ethical decision-making, stakeholder engagement, and environmental and social responsibility.
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Author ‘Akshma Gupta’ from University of Petroleum & Energy Studies, pursuing BA.LLB (Corporate Hons.), 3rd year.
