Corporate governance is an encompassing concept that defines the way a company or organisation is managed and controlled. It prescribes a set of rules which help companies imbibe and work towards transparency, accountability, honesty and openness. Good corporate governance provides proper incentives for the board and Management to pursue objectives that best serve the interest of the company and its stakeholders whilst also facilitating effective monitoring. It is now established that the adoption of good governance best practices largely determines the sustainability of corporations.
Analysing the importance of ethical compliance mechanisms, Surendra Arjoon, (a Professor of Business and Professional Ethics at the University of West Indies) made a distinction between the use of legal compliance and ethical mechanisms as tools for ensuring good governance. According to him, when legal mechanisms are introduced for the purpose of discipline, it can only promote a freedom of indifference to the letter of the law and may not necessarily inspire or instil excellence. Conversely, ethical compliance mechanisms promote a freedom for excellence which corresponds to the spirit of the law. Legal compliance mechanisms may not necessarily address the real and fundamental issues that inspire ethical behaviour.
Infusing good corporate governance practices into business operations entails establishing processes and policies that will ensure that the expectations of all stakeholders are met in a sustainable manner. Principle 24 of the Nigerian Code of Corporate Governance (NCCG, 2018) sets out certain standards and best practices on business conduct and ethics. The code suggests content for a standard Code of Business & Ethical Conduct (COBEC).
Typically, a COBEC seeks to promote a culture of ethics and compliance within the organisation and defines the way and manner in which the company conducts its business guided by its core values. Whereas “engaging in business” speaks to activity, “business conduct” refers to the method by which such business should be conducted, and “ethics” refer to the principles and standards that guide the organisation’s business practices. Whilst providing Management with the flexibility to take on various business opportunities, defining professional business and ethical standards builds and safeguards corporate reputation and instils investor confidence.
The board of directors is expected to ensure compliance with the COBEC and that breaches are effectively sanctioned. This responsibility may be delegated to the nominations and governance committee.
“The establishment of professional business and ethical standards underscores the values for the protection and enhancement of the reputation of the company while promoting good conduct and investor confidence.”
A code of business and ethical conduct may be defined as a set of principles designed to guide stakeholders towards conducting business with integrity and in line with agreed rules defined by the organisation’s leadership. Investopedia notes that whilst many laws exist to set basic ethical standards within the business community, it is largely dependent upon a business’ leadership to develop a code of ethics for the organisation.
The NCCG code recommends that the COBEC should assert the importance of directors and senior management acting in good faith and in the best interest of the company within legal and defined ethical boundaries. The COBEC is expected to remind directors that whilst acting in their official capacity and exercising the powers attached to their office, they owe a fiduciary duty to the company and as such must conduct diligent analysis of all proposals before the board.
Directors are also expected to be guided in the appropriate use of confidential information and not take advantage of their position for personal gain or competition with the company. The COBEC must highlight the importance of reporting unlawful and unethical behaviour and the protection of those who report violations in good faith.
The COBEC should also be sufficiently detailed to provide clarity for its users and must be formally communicated to all internal and external stakeholders. To be effective and relevant, the COBEC should be reviewed regularly to incorporate new principles and fade out obsolete ones.
Companies are the most significant nucleus of modern economic activity. Whilst the ultimate objective is sustainable growth – reflected by profitability, these entities have a responsibility to ensure that they pursue and achieve this objective in an ethical manner. This responsibility requires a moral commitment driven by the board of directors which has the responsibility for the ethics and integrity standards that underpins how the company conducts its business.
The determination of what is right or wrong is universal and not subject to cultural and individual relativism and thus the test cannot be a subjective one. It has been argued that what is considered ethical is a product of an individual’s moral perspective. However, the collapse of organisations in recent times indicate that, irrespective of our relative perception of morality and ethics, failure to adopt appropriate business ethics in undertaking economic activities will not serve the interest of all stakeholders.
Source: Businessdayng
