The Role of Ethics in Corporate Governance

Introduction

This paper discusses the role of ethics in corporate governance. I seek to show the application of moral and ethical principles in corporate governance. Ethics is a topic that has generated a lot of interest in the last decade especially after high profile scandals. The failures of prominent companies such as WorldCom, Enron, Merrill lynch and Martha Stewart portrays the lack of corporate ethics. The failure of such business has seen an increased pressure to incorporate ethics in corporate governance. The result of corporate scandals has been eroding investor and public confidence. The entire economic system has experienced some form of stress from loss of capital, a falling stock market and business failures.

The past scandals that failed the ethics test were characterized by lack proper disclosures on financial records. This paper will reveal the dubious accounting practices that contributed to the failure of some of the companies. According to (Anderson and Orsagh, 2004) not all failures were attributed to corporate ethical issues however most of the scandals involved conflict of interest among directors, excessive compensation though stock options, greed and lack of enforcement of the laws put in place to protect shareholders. As stated by (Paul S. Adler), the legal community appears to not protect shareholders as “white- color” crime is treated far more leniently than “street” crime even though its economic and social costs are greater. This perception has made public perception of white-color crime to be one that is casual

There has been a drive towards corporate governance which has been driven by a greater need for shareholder protection. If investors feel well cushioned then there is a higher chance that t...

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