RiskOperational RiskEthical Principles Lacking in EU Corporate Governance Guidance, says IBE

Ethical Principles Lacking in EU Corporate Governance Guidance, says IBE

Explicit ethical guidance is notably lacking in corporate governance policy debates and frameworks within the European Union (EU), claims the Institute of Business Ethics (IBE).

The IBE is about to issue a report, entitled
‘A Review of the Ethical Aspects of Corporate Governance Regulation and Guidance in the EU’,
in association with the European Directors’ Association (ecoDa), which examines why this is the case, whether this should be addressed and how.

The IBE comments that questions of ethics, or the ‘right way to run a business’, are inherent in all aspects of corporate governance, including the way the board conducts itself. Ethical choices are relevant to the business strategies that boards pursue and the way that they direct and structure the business to achieve them.

“We began this report wanting to understand whether there was guidance for companies in governance policies, at national and EU level, on ethical business practice,” said Julia Casson, the report’s author. “Although we did find similarities in corporate governance requirements around practice and certain issues, there seems to be a general lack of ethical language in corporate governance provisions. This is in spite of the fact that boards are expected to set the values which will guide their company’s operations.”  

For some key governance issues that boards have been expected to address, the explicit driver is most often given in terms of what is ‘good for business’ rather than engagement with any moral imperative, the IBE notes This is the case even though what is generally viewed as unethical behaviour, including at the most senior levels, has led to business failure on numerous occasions. The link has yet to be explicitly made in corporate governance discourse that what is ethical is very often good for business, or at least that what is unethical generally impacts negatively on business.

At the member state level, the beginnings of a greater focus on board behaviour and conduct can be seen, especially in guidance for directors. Some governance codes contain ‘various rules of conduct’- such as commitment, leadership, discretion, independent judgment, integrity, acting in the corporate interest and acting in the interests of stakeholders – and refer to behaviours required by boards.

“Attention to ethics is increasingly a core feature of boardroom agendas,” said Philippa Foster Back, director of the IBE.

“Many companies recognise business ethics, sustainability and social responsibility, and also boardroom ethics, as characterising the right way to run a business as well as being essential for long term success. This is in spite of the apparent lack of explicit engagement at EU level with ethical principles in corporate governance guidance, and the limited requirement, or indeed encouragement that boards operate with high ethical standards.”

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