Moral Sanctions

Ethical Norms as a solution to corporate governance problems

Submitted By
Parag Singhvi (60836)

Introduction
Purpose : Ethical norms offer powerful basis to solve corporate governance problems
Focus more on government interventions & market remedies Why isnt ethics taken very seriously as solution to corporate governance problems?

The Nature of the governance problem

3 levels of questions to be asked about governance of companies
How can society induce companies to serve the public interest?

How can company boards be induced to serve the shareholders interests in running the company? How can company executives induce employees to serve the companys interest while carrying out their jobs?

The Nature of governance problem

Corporate Social Responsibility Cause of governance problems

Interests are not well aligned Companies can increase their profit BOD have opportunity to increase their wealth Employees shirk work and still get paid

Responses to the governance problem

Adam Smiths answer to corporate governance problems
Government intervention Use economic instruments to attempt to align public and private interests

Why ethics has had a marginal role?

Ethical motivations impotent in the face of financial self interest
Economics profession accepts ethical norms as a mechanism for social co ordination & control

Theory of ethical norms

Moral Philosophy
Concerned with how to justify moral principles rather than use them to explain & predict behavior Contemporary business ethics is applied moral philosophy Fragmented & immature

Ethical norms as a response to corporate governance problems

Wide range of norms accepted by all in companies Identical to ethical norms that govern everyday individual behavior Special norms: Business Ethics, CSR These ethical norms can play an important role in reducing corporate governance problems This feature striking rather than financially disadvantageous ethical norms

Conclusion
Currently, ethical norms do not play a substantial part in standard theoretical & public policy approaches to corporate governance problems

Work needs to be done for a fully developed Norms Theory of corporate governance & corporate responsibility