Corporate Governance & Ethics Assignment

CORPORATE GOVERNANCE & ETHICS
Corporate Governance & Ethics
Name of the student
Name of the university
Author note

1
CORPORATE GOVERNANCE & ETHICS
Executive summary
There has been a significant debate in relation to the purpose of a business. The prima faice
purpose of a business organization has always been towards making profits and ensuring that the
investors and other shareholders get adequate returns for the investment made by them in relation
to the organization. However various contemporary studies have depicted that the aim of the
modern day business is not merely to make profit, organizations also has a major role to pay in
relation to the society as it is also one of the major stakeholders of the organizations. The paper
provides an argument that businesses can only function properly if it aims to make profit through
the incorporation of ethics in its operations. The paper conducts a literature review on the various
theories available in relation to business organizations such as those provided by Freeman,
Friedman, Jenson and Boatright. The paper also provides how the broader view provided by the
thesis can benefit the society. The paper also discusses the approach in light of other theories
such as the duty of care, theories of justice and utilitarianism analysis. The paper also analyzes
the approaches based on principles of CSR, CSV, Blue Economy and circular Economy.

2
CORPORATE GOVERNANCE & ETHICS
Table of Contents
Introduction.................................................................................................................................................3
Literature review........................................................................................................................................4
Benefit to the society..................................................................................................................................7
Justice and normative theory analysis.........................................................................................................9
Other theories towards reconciling the view............................................................................................10
Conclusion.................................................................................................................................................12
Recommendations.....................................................................................................................................12
References.................................................................................................................................................13

3
CORPORATE GOVERNANCE & ETHICS
Introduction
There has been a long debate in relation to the purpose of a business entity. The prima
faice purpose of a business organization has always been towards making profits and ensuring
that the investors and other shareholders get adequate returns for the investment made by them in
relation to the organization (Smith 2003). However various contemporary studies have depicted
that the aim of the modern day business is not merely to make profit, organizations also has a
major role to pay in relation to the society as it is also one of the major stakeholders of the
organizations (Weinstein 2013). This is because of the growing competition between various
organizations goodwill has become point of distinction. The management of stakeholders in
relation to the operations of an organization is a critical component. According to Sharplin
(2003) any person, organization, group or the society who can be affected by or is likely to
presume themselves to be affected by a particular operation is known as a stakeholder. Positive
relationships are created through a process of effective stakeholder management. The position
can be reached by an appropriate management process with respect to the agreed objectives and
expectations of the stakeholders. One of the pillars of proper stakeholder management is the
carrying out of operations of a business organization based on the principles of ethics.
Ethical principles have to be incorporated into the functioning of organization to ensure
that the organization is able to make profit as well as ensure that the goodwill of the organization
among its stakeholders is maintained. However an organization cannot function solely based on
ethics as it is the one of the major functions of the organization to make profit and give proper
returns to the stakeholders.

4
CORPORATE GOVERNANCE & ETHICS
The thesis statement of this essay is that the businesses can only function properly if it
aims to make profit through the incorporation of ethics in its operations. The paper conducts a
literature review on the various theories available in relation to business organizations and
provide how the broader view provided by the thesis can benefit the society. The paper also
discusses the approach in light of other theories.
Literature review
According to Friedman (1970), (2007) "social responsibilities of business in a free-
enterprise,” is huge. He is of a view that the business entities must base their operations under
ethical considerations. There are several functions which business entities can serve is relation to
the society through basing their operations on the principles of ethics. These functions include
providing employment, eliminating discrimination, restricting population and other forms of
reforms in relation to the society. However according to the article businessmen have become
puppets of intellectual forces which is restricting the fundamentals of free society.
A corporation is an artificial person and not a real person however this fact is not enough
to come to a conclusion that business entities have no responsibility. The doctrine of social
responsibility is further used to clarify the statement. The corporations although is an artificial
legal person it comprises if natural people who run its operations. A corporate executive is a
worker of the business in a private property system free enterprise. Such workers have direct
responsibilities in relation to the employer which means the corporation. The responsibility
provides that the business has to be conducted by the employees according to the demands of the
employer (Sharplin 2003). These desires are primarily with respect to making money while
complying with ethical basic provisions incorporated through law and ethical customs. In
exceptional cases the employer may have objectives different to what have been stated above.

5
CORPORATE GOVERNANCE & ETHICS
However as provided by Turnbull (1997) corporations are not always incorporated for the
purpose of making profit but may also be for a eleemosynary objective. These corporations do
not have the objective of making profit but that of rendering specific services effectively. The
article states that if the doctrine of social responsibility is to be taken seriously the scope of
political mechanisms would cover all human activities (Shah and Bhaskar 2007). According to
the article that the only social responsibility of the business organizations is to direct its
resources towards making profit as long as it promotes free trade and does not indulge in
deception or fraud.
Jenson (2002) provides a relationship between stakeholder management and the theory of
values of theory maximization which is known as enlightened value maximization. The concept
uses the structure of the stakeholder management theory but also accepts the theory in relation to
value maximization in relation to the organization in the long run. The businesses cannot strive if
the merely focus on one theory. They need to maintain a balance between making profits and
managing the stakeholders at the same time. The article also provides that the theory of balanced
scorecard which is a managerial equivalent to the theory of stakeholder management have
various flaws if not flawed totally. The scorecard provided to the managers by the theories give
no score which means that there is no single measure to evaluate how they had performed. Thus
in such a system where there is lack of a proper evaluation method the managers do not get the
basis of making evident based and purposeful decisions. The author argues by considering the
positive as well as the normative arguments that the firms who are flowing the traditional
stakeholders theories are less likely to succeed in competitive market. To the contrary those firs
which adopt a single approach of value creation are likely to flourish in such market. The

6
CORPORATE GOVERNANCE & ETHICS
stakeholders’ theory is only preferred by the managers and executives as it enhances their powers
and does not make them accountable.
The idea in relation to a stakeholder is has become one of the most significant additions
to the contemporary business ethics (Boatright 2006). The issues faced by all groups of
stakeholders have become broadly recognized features with respect to ethical management.
According to Beauchamp, Bowie and Arnold (2004) while making a decision the managers must
consider the interest of all stakeholders. Commonly the lists of stakeholders include customers,
creditors, employees, suppliers, shareholders and the society as a whole. There is not much
argument against the concept of stakeholders’ management provided by modern business
models. The argument lies in the fact that how to ensure profitability of the business along with
the ensuring the interest of other stakeholders. Dobson (1999) provides an argument that
stakeholders management acts as a guide for managers rather than a method of corporate
governance. The concept provides a useful guidelines to those executives who how all
stakeholders can be benefited from shareholders primacy and use it as a reason for not
considering other stakeholders. Such executives themselves make a mistake towards determining
how the corporation should be managed and governed. There is no reason which suggests that a
manager who is acting in the best interest of the shareholders would not be able to provide
benefits to the other stakeholders of the business such as the society.
Freeman (2007) provides a study in relation to outlining stakeholders’ management
which is an emerging view for business organizations. The concept of stakeholders’ management
is said to have emerged over the last three decades through scholars belonging to a diverse set of
disciplines starting from finance to philosophy. The fundamental principles in relation to the

7
CORPORATE GOVERNANCE & ETHICS
concept provide that the businesses along with its managers must have an aim to create value for
employees, customers, suppliers, shareholders and the communities. Carefully attention has to be
provided to how to create such values and manage the relationships. However the article
contrasts the dominant view which is adopted in the business world which provides for managing
the organization to benefit the shareholders and all other benefits and harms are created
incidentally. The dominant model of business is resistant to change neither is it consistent with
law or fundamental ethical principles as stated by Martin (2010). It has been argued by
Hansmann and Kraakman (2000) that the dominant model is a good idea because it provides
good consequences for all. The arguments in relation to rights provide that all property rights are
provided to the shareholders leaving out the rights of the other stakeholders. Ferrell and
Fraedrich (2015) has provides one of the strongest argument in favor of stakeholder management
by asking the executives what kind of company they want. Thus businesses must operate in a
ethical manner to ensure its proper existence.
Benefit to the society
During the past two decades evidence has been provided through empirical studies that
corporate social responsibility initiative provides measurable payoffs towards the organization as
well as its stakeholders. The organizations have a major role to pay in the society. They have the
power to influence the promotion of ethics into the society and seek its overall development. The
organizations provide employment to the individual of the society. These individuals work
together in the organization towards a common purpose of making profit and other objectives of
the organization. How these individual behave in their work place have a significant effect on
their behavior outside the workplace. The organizations have significant power to influence the

8
CORPORATE GOVERNANCE & ETHICS
behavior of those who are working for it through the incorporation of ethical principles in its
system (Lawrence and Weber 2014). When the organization introduces strict ethical compliance
in relation to its workplace the individuals get use to such behavior and thus ethical behavior is
reflected outside the organization in the society. For instance the incorporation of principles
regarding bullying and discrimination into the workplace polices would also ensure that the
individuals would reflect such polices in the society however there may a certain exceptions.
It has been understood for a long period that the motive of a business is only to make
profit. Any individual who wants to start a business activity does it solely on the objective of
making profit. However when the business grows and evolves into a large organization its
objective must become different as provided by the above discussed literatures. According to
Carroll and Buchholtz (2014) a business cannot flourish by only acting on the principles of
making profit as there is immense competition in the market and a point of distinction which
investors and customers seek between the organizations is in relation to their social involvement.
The social involvement of the organizations in an ethical manner can do wonders for the society.
The organizations have access to large capital which can be used towards the betterment of the
society such as increasing measures towards the protection of environment and indulging in
community developments activities. For instance an organization which is in indulging in the
process of production can incorporate efficient technology to prevent pollution which is a serious
concern for the modern day society. This would not only ensure a better environment and trigger
sustainability but also enhance the reputational capital of the organization. Through restraining
from anti-competitive activities by indulging in ethical dealings the organizations can promote
ethical compliance in the society as it would lead to a transparent business structure which is free
from corruption. The broader view would only benefit the organization in the long run and along

9
CORPORATE GOVERNANCE & ETHICS
with promoting the development of the society would also ensure that they like up to the
expectations of their shareholders through making profit (Martin 2010).
Justice and normative theory analysis
According to the kantanian theory it is unfair to treat people as means of end and
individuals of the society has to be treated as ends themselves. Here the means of end refer to
any specific actions for the purpose of achieving a particular goal. The theoretical approach
which has been provided by Jenson (2002) in relation to organization proposes that the
stakeholder management theory is flawed and a mixture of stakeholder management as well as
value creation is needed for proper development is not totally consistent with the Kantnian
theory. This is because the theory provides to hold people as the ends themselves whereas the
approach provides that people may be used to generate profit for the organization as long as their
personal development is also ensured. In the same way the resources of the society can be
utilized for the purpose of generating profits for the organization (Bowie 2017).
According to the theory of duty of care a person whose activities can reasonable cause
harm to another person has a duty of care towards such person and where the duty is violated it
results in compensation. According to the approach provided by Friedman (1970) where the
motive of the organizations is to make profit only, the organization cannot make profit without
utilizing the resources of the society and as the organization has vast influence on the society its
actions can harm the society as whole. The organization therefore owes a duty of care towards
the society and if any harm is caused they are responsible to compensate the society for such
losses. As per the theory of Boatright (2006) which argues that the organizations must use a more
synthesized approach by merging ethical approaches with the profit making approach the duty of

10
CORPORATE GOVERNANCE & ETHICS
care theory would provide to ensure the development of society as a whole as it still involves
using the resources of the society.
According to Follesdal (2015) the term justice is used to define the importance of
fairness, equality and rights. People would thing that it is unjust when they are not getting proper
return on their investments unfairly, having there right of enjoying equality in the society
violated and being unfairly treated because of one’s protected traits. In his theory Rawl’s rejects
the utilitarian forms of justice and provides that justice is not the same as morality. A new way to
have knowledge about the position of justice has been suggested by him. It has been argued by
Rawls that economical and social inequalities are not just unless certain requirements are met.
Firstly equal opportunities have to be provided and higher inequalities must advantage those
least economical and social resources. Thus the utilitiranism approaches provided by Piacquadio
(2017) those economic inequalities can be justified where it maximizes happiness is rejected by
the justice theory. Here an argument can be provided by Rawls in against the approach provided
by Follesdal (2015) that distributing disposable income in the profit of many would enhance the
economy.
Other theories towards reconciling the view
The theories in relation to corporate social responsibility (CSR) provide that the operation
of the organization has to be based on two pillars. The organization while having the objective of
making profits must also ensure that their actions depict ethical interactions with the surrounding
community (Lee 2017). The nature of CSR with respect to an organization also provides the
conception in relation to making profit while also having its effects on border question related to
the welfare of community. There are four obligations which are imposed on an organization
through the concept of corporate social responsibility. Firstly the economic responsibility of

11
CORPORATE GOVERNANCE & ETHICS
earning profits ;Secondly, legal responsibility which is in relation to complying with the legal
rules and regulation; thirdly ethical responsibilities which is in relation to doing what is right
even when it is not required by law and lastly philanthropic responsibility which means to
indulge in the projects of the society even when they are not related to the business activities
(Carroll and Buchholtz 2014). The theory is totally consistent with the synthesized approach of
ethics and profit argued by this paper and proposed by Boatright (2006). Both the theories provide
that ethics and profit making must both be incorporated by the organizations in relation to their
operations.
As per the theory of creating shared values Crane et al. (2014) there is mutual
dependence among the competitiveness of an organization and the health of communities around
it. Capitalism can be redefined and next wave of global growth can be unleashed by capitalizing
and reorganizing these connections among economic and societal progress. The theory of CSV,
thus is not consistent with the approached provided by Friedman (1970) and Freeman (2007) and
is totally consistent with the synthesized approach proposed by this paper. According to Pauli
(2010) economy can be enhanced through the process of creating more jobs, reducing the use of
energy and alongside benefiting community development know as blue economy. The concept is
also to some extent consistent with the proposed argument of the paper in relation ethical
observations but not in relation to making profits. The economy model proposed the creation of
enhanced values rather than cutting cost in a blind manner (Svensson and Pendleton 2014). This
proposal can be interpreted as making profits while addressing the needs of the society. the
theory of circular economy which is an alternative to the traditional theory of linear economy
which provides the concept of make use and dispose, provides a view that resources are to be
kept as long as possible for the purpose of extracting maximum values while they are in use and

12
CORPORATE GOVERNANCE & ETHICS
then recover and reproduce material and products at the end of every service life (Tukker 2015).
The view is consistent with the theoretical approach provided by Boatright (2006) in relation to
the incorporation of ethics with respect to operations.
Conclusion
“A business is successful to the extent that it provide a product or service that contributes
to the happiness in all of its forms”- Mihaly Csikszebtmihalyi. In case the organizations are
provided with the motive of making profit only than in the contemporary business world, such
organizations would not be able to succeed. This is because there is so much completion and
availability of similar technology that the differentiation which the customers seek is with
respect to the social indulgence of the organization. In addition an organization would not be
able to address the needs of its shareholders and investors if it does not make adequate profits.
Thus the synthesized approach is the best possible approach which can be used by the
organization towards their operations.
Recommendations
 The organizations must indulge in social projects even when they are not related to the
business
 The organizations must ensure ethical and legal compliance within the workplace to
ensure that the individuals working for them are influenced by such principles.
 Fair completion and fair trading in the market place has to be used by the organizations in
relation to its dealings
 The organizations has to work on the principles of sustainability as it has been provided
and proved by various researches that the concept helps in attaining long term goals.

13
CORPORATE GOVERNANCE & ETHICS

14
CORPORATE GOVERNANCE & ETHICS
References
Beauchamp, T.L., Bowie, N.E. and Arnold, D.G. eds., 2004. Ethical theory and business.
Boatright, J.R., 2006. What’s wrong—and what’s right—with stakeholder management. Journal
of Private Enterprise, 21(2), pp.106-130.
Bowie, N.E., 2017. Business ethics: A Kantian perspective. Cambridge University Press.
Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder
management. Nelson Education.
Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder
management. Nelson Education.
Chell, E., Spence, L.J., Perrini, F. and Harris, J.D., 2016. Social entrepreneurship and business
ethics: does social equal ethical?. Journal of Business Ethics, 133(4), pp.619-625.
Crane, A., Palazzo, G., Spence, L.J. and Matten, D., 2014. Contesting the value of “creating
shared value”. California management review, 56(2), pp.130-153.
Davis, J.H., Schoorman, F.D. and Donaldson, L., 1997. Toward a stewardship theory of
management. Academy of Management review, 22(1), pp.20-47.
DesJardins, J.R. and McCall, J.J., 2014. Contemporary issues in business ethics. Cengage
Learning.
Dobson, J., 1999. Is shareholder wealth maximization immoral?. Financial Analysts Journal,
pp.69-75.

15
CORPORATE GOVERNANCE & ETHICS
Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases. Nelson
Education.
Ferrell, O.C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases. Nelson
Education.
Follesdal, A., 2015. John Rawls’ Theory of Justice as Fairness. In Philosophy of Justice (pp.
311-328). Springer Netherlands.
Freeman, R.E., Harrison, J.S. and Wicks, A.C., 2007. Managing for stakeholders: Survival,
reputation, and success. Yale University Press.
Friedman, M., 2007. The social responsibility of business is to increase its profits. Corporate
ethics and corporate governance, pp.173-178.
Hansmann, H. and Kraakman, R., 2000. The end of history for corporate law. Geo. LJ, 89, p.439.
Jensen, M.C., 2002. Value maximization, stakeholder theory, and the corporate objective
function. Business ethics quarterly, pp.235-256.
Khalid Ali, K., Ramly, Z. and Lau, T.C., 2014. Business ethics. Oxford University Press.
Lawrence, A.T. and Weber, J., 2014. Business and society: Stakeholders, ethics, public policy.
Tata McGraw-Hill Education.
Lee, P.T., 2017, May. Business and Ethics. In INTERNATIONAL FORUM JOURNAL (Vol. 14,
No. 2, pp. 39-54).
Martin, R., 2010. The age of customer capitalism. Harvard business review, 88(1).

16
CORPORATE GOVERNANCE & ETHICS
Piacquadio, P.G., 2017. A fairness justification of utilitarianism. Econometrica, 85(4), pp.1261-
1276.
Shah, S. and Bhaskar, A.S., 2007. Shareholder View vs Stakeholder View of a Firm: A
Review. Paradigm, 11(2), pp.67-76.
Sharplin, A., 2003. A challenge to shareholder supremacy in the public firm. Business and
Society Review, 108(2), pp.225-234.
Shaw, W.H., 2016. Business ethics: A textbook with cases. Nelson Education.
Smith, H.J., 2003. The shareholders vs. stakeholders debate. MIT Sloan Management
Review, 44(4), pp.85-91.
Suliman, A.M., Al-Khatib, H.T. and Thomas, S.E., 2016. Corporate Social
Responsibility. Corporate Social Performance: Reflecting on the Past and Investing in the
Future, p.15.
Svensson, L.E. and Pendleton, L., 2014. Transitioning to a New Blue Economy.
Tai, F.M. and Chuang, S.H., 2014. Corporate social responsibility. Ibusiness, 6(03), p.117.
Tukker, A., 2015. Product services for a resource-efficient and circular economy–a
review. Journal of cleaner production, 97, pp.76-91.
Turnbull, S., 1997. Corporate governance: Its scope, concerns and theories. Corporate
Governance: An International Review, 5(4), pp.180-205.
Weinstein, O., 2013. The shareholder model of the corporation, between mythology and
reality. Accounting, Economics and Law, 3(1), pp.43-60.

17
CORPORATE GOVERNANCE & ETHICS
Weiss, J.W., 2014. Business ethics: A stakeholder and issues management approach. Berrett-
Koehler Publishers.