Application of Ethical theories in

Business
• Theory of Corporate Moral Excellence
• Ethics and Stakeholders theory
• Ethics and Corporate Governance

Dr.S.Subramanian, IIMK
 Theory of Corporate Moral
Excellence
Corporations have two sets of values
Espoused Values
Values in Practice

Differences between the above two will

result in violation of ethical norms

Dr.S.Subramanian, IIMK
Ethics and Stakeholders theory
Act in a responsible manner by paying
attention to the needs and rights of the
primary stakeholders
Stewardship Theory

Dr.S.Subramanian, IIMK
Corporate Governance

History of Corporate Form

Dr.S.Subramanian, IIMK
 Nature of Charter companies
• Right to deal with rulers (Monarchs)
• Right to form banks
• Right to own, manage and grant or
distribute land
• Can raise its own police force
• Have trade monopolies
Early joint stock companies – only trade- no
manufacturing
The shareholders did not have limited
liability

Spread to manufacturing industries after

industrial revolution
 Problems with JSC
Liability –
Shareholders don’t manage their money.
But they are liable to the creditors in case
of losses.
The majority shareholders who manage the
company may show fake losses to other
shareholders
 Limited Liability
• France -1807- Napoleon - limited
liabilities- With Napoleon’s conquest on
Europe the concept spread- It is Civil law
version of limited liability
1811 - New York state brought in a general
limited-liability law for manufacturing
companies. Other American states
adopted it
 Limited liability

Concept of limited liability was not new

Roman empire had certain types of limited
liability – but they were for partnership
firms – not an universal limited liabilities
 British Initiatives
1844- British Companies Act
1855- Limited Liability Act

Corporate form gradually emerged in the

19th century
 Characteristic of Corporations in
20th century
Limited liability
Transferability
Legal personality
Perpetual entity
Central management
Business Ownership
Pattern
 Business Ownership
• Traditionally the business firms are
promoted and controlled by business
families

• Even today 35 % of Fortune 500

companies are controlled by Families
 Majority Stake owners
Classification
• Business Families
• Governments
• MNCs
• Institutional Investors (Mutual funds,
Pension funds, Private Equity Firms )
 Ownership Pattern Across the
World – Big business firms (10%)
Medium size business firms
 Japan
• Zaibatsu – before WW II – 14 powerful
Zaibatsu’s controlled 25 % business
assets in Japan – Mitsui, Mitsubishi,
Sumitomo

• After WW II - Keiretsu – Crossholding

 Ownership pattern in USA
• Wide spread shareholding
• Separation of ownership and management
Professional managers
 Corporate Governance
Managers (or controlling shareholders) have
the control

Other stakeholders are affected by their

actions

This creates problems for the stakeholders

when the managers act selfish objectives
 Corporate Governance
• Corporate Governance- guiding corporations to
protect the interests of stakeholders
• Corporate governance is system by which
business corporations directed and controlled
Or
System of structuring operating and controlling a
company with a view to achieve long-term
strategic goals to satisfy primary stakeholders