Question

Your consulting services have been requested by the CEO of a large international corporation. The CEO is concerned about ethical issues surrounding corporate governance from a global perspective. A common example may be where a corporate board of directors breached one or more duties, such as the duty of loyalty, to its shareholders—although there are many other areas where business ethics are at the center of a case that originated at the governance level of an organization. You are asked to conduct research and analyze a case involving ethical issues surrounding corporate governance from a global position.

Briefly describe the facts of the case, the legal issue, and the decision of the court. In addition, discuss the effect of the case from a global business perspective, on society in general, and how the corporation could prevent such issues in the future. Incorporate the legal terminology from your textbook where appropriate, in both your original post and in your responses to your classmates. Use academic or legitimate news sources such as The New York Times, the Los Angeles Times, the Washington Post, CNN, MSNBC, and/or Fox News, for example. Please include the link or links used for your research in your post for your fellow classmates to review and to comment on

Answer 1

Understanding ethical behavior in the context of corporate governance requires two levels of analysis: the internal concerns of corporate agency and the emergent effects on social welfare.

Corporate agency is based on the premise that employees, managers, and directors (i.e., agents) should behave in the best interests of owners or shareholders (i.e., principals). Two things get in the way of that ideal:

First, managers’ interests, while overlapping with those of shareholders, are distinct. Sometimes agents can help themselves in ways that hurt the firm and its shareholders. Examples include shirking, waste and, in extreme cases, fraud or other self-serving actions that can bring down the company, as have happened in numerous business scandals.

Second, shareholders have neither the specific knowledge nor skills possessed by management. That can create a dynamic where even well-intentioned managers may feel compelled to “short-termism,” i.e., acting in ways that look good to shareholders now, but actually undermine value creation over time. Various oversight, transparency, and incentive mechanisms have evolved, and continue to develop, to contain agency costs.

Social welfare is based on the premise that companies should engage in fair dealing with all of their stakeholders—including customers, employees, suppliers, and communities, as well as shareholders—in accordance with the expectations of the larger society in which they operate. The debate about what is “fair dealing” reflects the larger, ongoing debate about the purpose of corporations in society, but even a shareholder-centric model recognizes that companies benefit from at least nurturing their reputations among all stakeholders, and that minimizing their negative externalities (pollution, plant closures, etc.) preserves the freedom of companies to operate with otherwise minimal external constraints.

While traditional corporations are expected to prioritize shareholder interests above those of other stakeholders and, to a considerable extent, attempt to maximize shareholder value within their legal constraints, other corporate forms permit a more balanced approach between shareholders and vendors (cooperatives) or between shareholders and specified other constituencies