Question

What essential components of corporate governance according to stakeholder and agency theories have you experienced in the workplace? How does corporate governance affect the ethical climate of the organization? If you have not experienced corporate governance personally in a professional environment, speculate as to what the essential components of corporate governance are in the professional environment and how they affect the ethical climate.

Answer 1

First let me explain you the basic things and then we get to the answer.

Good corporate governance is about exhibiting the ethical behaviour on all business dealings and mainly focuses on various things including the followings and everything in the interests of the company but not in the personal interests

• Compliance with laws and regulations
• Making policies and procedures
• Monitoring internal control
• Direction, control, and execution of the decision

Agency theory is used to understand the relationships between agents and principals. The agent represents the principal in a business transaction and is expected to represent the best interests of the principal without regard for self-interest.

Stakeholder theory describes the composition of organizations as a collection of various individual groups with different interests. These interests, taken together, represent the will of the organization. As much as possible, business decisions should consider the interests of this collective group and advance overall cooperation.

As you got to know the basics, let me explain the practical scenario of how the essential components of the corporate governance effects the workplace.

The essential components of corporate governance are accountability, transparency and security.

Scenario one: Company require to appoint a transport vendor, who must pick and drop employees on day to day basis. For any vendor appointment, Vice President approval is required if the contract exceeds $500,000. Director of the company can approve if the contract value is less than that amount. Company got two tenders with respect to the same. Both the vendors has good reputation in the city but comparatively vendor A provides more number of vehicles and good service than vendor B. Vendor B approached the Director and has offered some percentage of commission, if he would be selected. Director of the company instead of thinking in the interests of the organisation, seeking his personal interest, he has selected vendor B. Other employees who raised question on this point, he directly fired. There is no transparency (as he has hidden that he has taken commission and not acted in the interest of the company), no accountability and no security (fired employee of the company who raised question on this) here

Let me explain How does corporate governance affect the ethical climate of an organization?

The ethical climate has a direct relationship with the compliance of the governance principle. Higher the degree of compliance with corporate governance principle, the higher the ethical climate. As it emphasizes the compliance of laws and regulations that enacted to ensure ethical operation.

In the same scenario, if the director has complied with the corporate governance, he would have selected vendor A and he would have accountable for what he has selected and employee would not have been fired and maintained the ethical climate

Let me explain What are the essential components of corporate governance are in the professional environment and how they affect the ethical climate

Essential components that impact ethical climate is as under:

1. Nature of laws in a country
2. The political environment
3. Industrial pressure
4. Integrity of management
5. Expectation of stakeholders