Importance of Legal and Ethical Corporate Governance

Contents
Introduction......................................................................................................................................2
Rebuttal............................................................................................................................................3
Conclusion.......................................................................................................................................5
References........................................................................................................................................5

Introduction
The Corporate governance has its own significance in the organization. It is set of principles,
policies and laws through which a company is administered. In actual, the corporate governance
is made for the employees to work in certain restrictions and under certain laws. It tells the
process and mechanisms by which the employees of the organization are governed. All the
employees have the distributed work and their responsibilities are also different amongst each
other. Each of the stakeholder including the shareholders, officials, managers, creditors and
board of directors are governed under the corporate laws and governance. A legal or compliance
manager is hired by the company who frames the corporate law or corporate governance for the
company. Through the corporate governance, the mission and vision and sets of goals and
objectives are established. Thus, the Corporate Governance is necessary, as all the stakeholders
will have the knowledge of their line of action, mostly the shareholders and top management i.e.
CEO, CFO and the board of directors (Adams, Haan, Terjesen, and van Ees, 2015). The
Corporate Governance should be explicit and effectively communicated to all the employees and
the stakeholders. Resultantly, they would know on the rules and regulations they would have to
abide upon. The Corporate governance is just like a constitution for a country. The constitution
of the country is explicit and well written for all the citizens of the country. It also expresses the
fundamental rights of every citizen and it also tells the rules and regulations on which every
citizen of the country has to abide upon. Similarly like this, the corporate governance is the set
of instructions or the constitution of the company which gives the guidelines or directives to all
the employees and the stakeholders of the company on which they have to follow on the same
(Harjoto, Laksmana, and Lee, 2015). In the present era, most of the large organization or public
and private listed companies have their legal and compliance department. This department is
required to set up the laws for the organization. These rules and regulations are to be governed
within the organization not only amongst all the employees but also amongst shareholders,
suppliers, auditors, creditors etc. Therefore, the Legal Corporate Governance has its own
significance as it caters the problems of the entire people who are associated with the
organization. There are some of the pillars on which the legal corporate governance stands.
These pillars are fairness, responsibility, transparency and accountability. Consequently, every
employee of the organization has to follow the rules and regulation to maintain certain discipline
in the organization. The Legal Corporate Governance is also governed for the investor of the
company.
On the other hand, the ethical corporate governance is also important for the organization. The
Ethical Corporate gives the employees a way for their behavior. The organization while being in
a society has to abide on some ethical standards and it has some responsibility for the society as
well. Therefore, the ethical standards are disseminated amongst the employees through different
modes i.e. stories, norms and rituals made by the employees itself of the organization (Bear.,
Rahman. and Post., 2010). Thus, besides the basic motive of running a business for either profit

maximization or the cost minimization, the company should also focus on the ethical standards
as well (Reddy, 2009). It will also be beneficial to attract the investors as well as the customers.
Rebuttal
The legal corporate governance is very much essential for the organization. As the word stated
legal, therefore, the laws and rules are regulated within the organization. The Legal Corporate
Governance provides the fairness, accountability, transparency and sense of responsibility within
the employees of the organization. This means that the rules and regulations are stated within the
organization and every employee has to follow that. For instance, the company is following the
straight line method for depreciation of its assets. So the accountant or the head of department of
production or accounts departments cannot direct its subordinate to follow any other depreciation
method. All the rules and regulations in the organization are fair and transparent. Thus, every
person which is attached with the organization has to follows the set of rules and instruction as
stated in the legal corporate governance. Through the legal corporate governance, the discipline
amongst the employees is also maintained. The Standard Operating Procedures (SOPs) are
actually well stated in the legal corporate governance. Hence, the employee would know its
boundaries and limits in which he has to work (Han and Lu, 2013). All the employees of the
organization are responsible for their acts and actions. As the rules and regulations written in the
corporate governance are strongly communicated amongst the employees, therefore, the
employee cannot express his innocence if he has committed any crime, because he would all the
terms and conditions settled in the company. Subsequently, the employees would know that all
the management has to adhere to certain discipline and such behavior has to be maintained from
all the employees of the organization. Simultaneously, the investor or shareholders or the owners
of the company has also some restrictions. They cannot make any type of management decision
as they have choose the board of directors as their representatives and they would be the ones
who would be making the decisions for the company. This is also because the investors have
now chosen the board of directors and now they are accountable for any mishaps, if any, happens
in the organization. The top level management have to take decision on their risk and if any
decisions are incorrect, so they would not only hurt the image of the organization and the
employees would be offended by their decision, but they would have to accountable for the
decision made by them in front of the shareholders as well. The top management would be the
role models of the company, thus the ideals of the company would be have to strictly follow the
rules and regulations and be consistent in the manner. The same effect would be on the
employees of the organization. It would also be helpful in achieving the goals and objectives if
the discipline is maintained. Similarly, the audit team who is independent to the work would
firstly examine the corporate governance and the rules and regulations as stated. Then, the audit
team would check the accounting standards, rules and other compliance made by the different
departments of the organization (Sanan and Yadav, 2011). The audit team would also check the
compliance report of the every departments of the organization. The annual report of the audit
team is mostly on which the all the stakeholders i.e. investors or shareholders, suppliers, banks,