BUSINESS

ETHICS AND
GOVERNANCE

FRANCLENE MAY Y. MAGADIA

THE IMPORTANCE OF
GOVERNANCE AND BUSINESS
ETHICS
Governance is important because it creates a system of rules and practices that
determines how a company operates and how it aligns the interest of all its
stakeholders. Good corporate governance leads to ethical business practices, which
leads to financial viability. In turn, that can attract investors.
Business ethics enhances the law by outlining acceptable behaviors beyond
government control. Corporations establish business ethics to promote integrity
among their employees and gain trust from key stakeholders, such as investors and
consumers.
WHAT IS GOVERNANCE?

Governance is a system by which corporates are directed and

controlled. Governance also provides the framework for the
attainment of a company’s objectives. The main focus is to make
the business function in a highly effective manner so as to
achieve positive results and thereby maximize the returns of the
stakeholders.
What is Governance?
 DISADVANTAGE
•Separation of ownership and management

Advantage and The officials and executives who oversee a company’s internal affairs
and make the bulk of its policies are not necessarily shareholders. For
can, publicly traded corporations, this may become a problem. In the

Disadvantages of absence of a controlling shareholder, and the majority of shareholders

vote by a proxy, the company’s assets shall be managed by the Board of

Governance
Directors and the officials. The ownership-management distinction will
lead to a conflict of interest between management’s obligation to
maximize shareholder value and increase its revenue.
•Illegal Insiders’ Trading
The word “corporate insiders” applies to corporate executives, managers
and employees as they may have access to sensitive, non-public
ADVANTAGE information about the company that could impact their share value. 
•In a globalized and competitive environment good •Misleading Reports
governance can be a significant advantage. There are many ways of presenting factually, accurate financial
•Good governance can: statements in a way that misleads investors.
- Reduce the cost of capital - Manage increased scrutiny •Regulation Costs
- Increase shareholder base - Increase consumer The misuse of corporate governance has led to the adoption of a broader
confidence range of federal and state laws to discourage such abuses from repeating.
- Facilitate economic growth Compliance with this legislation can be burdensome and costly for
companies.
 WHAT IS BUSINESS ETHICS?

Business ethics is a kind of applied ethics. It is the application of

moral or ethical norms to business. The term ethics has its origin from
the Greek word “ethos”, which means character or custom- the
distinguishing character, sentiment, moral nature, or guiding beliefs of
a person, group, or institution relationship with others. Business ethics
comprises the principles and standards that guide behavior in the
conduct of business.
 ADVANTAGE
• Enhance Business Reputation: Business ethics helps in enhancing the

Advantage and
reputation of the organization in the market.
• Positive Work Environment: It helps in maintaining a positive work

Disadvantages of
environment for business.
• Improves Customer Happiness: Ethics leads to improve customer

Business Ethics
satisfaction with the business.
• Retain Good Employees: Adopting of ethical principles enable business in
retaining good employees for a longer period.

• Builds Investor Loyalty: All investor wants to be associated with the

ethical business for earning better return.
• Avoid legal Problems: Controlling legal issues is another important
advantage provided by business ethics.
DISADVANTAGE

• Reduce Profits: Business ethics reduces the profit earning ability of the organization by putting limits to its operations.
• Time Consuming: Implementation of ethics within the business practices is a time-consuming process.
• Not Ideal for Small Business: Ethical standards are not suitable for small scale business as it lower their profit.

• Instability: Business ethics are not stable and are changed from time to time. 
What is the Relationship Between Business Ethics and
Governance?

 Business ethics represent the values, principles or characteristics that a

company follows when conducting business in the economy. Governance
is the internal framework that a company designs and implements to
govern and protect those invested into the company. The relationship
between ethics and governance comes from an organization’s owner or
executive managers, who create the governance and decide which ethical
principles employees will follow.
How does GOVERNANCE
• Corruption, in turn, can prevent good governance
corruption principles and structures from being put in place, or
enforced. Violations of the principles of transparency,
affect the accountability and rule of law appear to be most closely
associated with corruption.
Governance
and Business BUSINESS ETHICS
Ethics? • In business, corruption can affect everything from
licenses to contracts to lawsuits. Corruption means that
business deals often contain hidden prices, competition
is not what it seems, and partnerships are chosen for the
sake of expediency rather than quality.
CONCLUSION:
Ethics is the first line of defense against corruption while law enforcement id
remedial and reactive. Good corporate governance goes beyond rules and
regulations that the government can put in place. It is also about ethics and the
values which drive companies in the conduct of their business. It is therefore all
about the trust that is established over time between companies and their
different stakeholders. Good corporate governance practice cannot guarantee
any corporate failure. An effective ethics programmed requires continual
reinforcement of strong values