What is the Importance of Ethics When it Comes to Governance?

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Ethics is the study of what should be done. The terms ethics and morality are often used interchangeably . The word ethics comes from a Greek word ethickos – meaning an ethos, habit, pattern of behaviour or prevailing attitude. It has been widely viewed that ethics is not an easy word to define.

We believe that ethics has no substantive form, has no single method and is not in the domain of any one discipline or individual. Rather, ethics is best characterized as a space, a region of turbulence, where the space is defined by what is at stake – values, relationships, behaviour and human flourishing. This space contains many of the things that people care about, but about which not everyone can agree.

What is governance? It may be loosely defined as the act manner, fact or function of governing. This implies that to govern is to rule with authority, to exercise the function of government . Governing is therefore a whole range of actions, in a spectrum from the rule through influence to self – control.

In essence, governance may be seen as a process for reconciling the ambitions of the individual with the need to preserve and develop the ‘common weal’ which binds individuals through shared interests.

Why does governance matter? Governance has been largely taken for granted in the past, both because its failure was only apparent in infrequent crises, such as revolutions, or major systemic failures such as that caused by the Black Death. For most of human existence governance has been imposed on the majority by small elite, whose power has been legitimized by a priesthood which had a virtual monopoly of knowledge.

This form of governance depends on curtailing the freedom of the ruled in order to maximize the power of the rulers. Thus we can conclusively say that governance is concerned with the intrinsic nature, purpose, integrity and identity of an institution with a primary focus on the entity’s relevance, continuity and fiduciary aspects.

Governance involves monitoring and overseeing strategic direction, socioeconomic and cultural context, externalities and constituencies of the institution. Governance is usually delivered through an agreed constitution, through a complex web of customs and practices, underpinned by a shared system of ethics, to a range of stakeholders in that institution.

Thus with the above definitions it is quite clear that ethics is an important aspect when it comes to good governance . There are certain factors which influence ethics. These include values, culture and transformation. This leaves us asking, what is the importance of ethics when it comes to governance?

In essence, ethics serves to protect the basic human needs. In this case, ethics corresponds to basic human needs. Ethics also builds on credibility among the public, that is, ethics creates credibility with the public especially so when in the governance sector. With this in mind, it is worth noting that gaining the confidence of the community is vital to the public sector.

Public opinion is the most powerful force in a democratic society. It is a way of achieving higher standards of ethical behavior. Ethics provides a common language for aligning a company’s leadership and its people. Ethics, when perceived by employees as genuine, creates common goals, values, and language.

Lastly, ethics helps in better decision making. Ethical decisions made by the company will always be in the interest of the shareholders, other stakeholders, public, and their employees. This is because respect for ethics will force the management to consider all aspects of a question – economic, social and ethical.

Some of the decisions which have been made in the process of governance have several implications towards the sustenance of ethics as a necessity to good governance. It is worth mentioning that the BAe system case study presents a series of decisions which were made and which can be categorized as laudable, culpable or non culpable decisions.

An example of a decision which can be classified as culpable is the manner in which the Tanzanian government used the funds that it had got from the United Kingdom. This was made prevalent by the level of furiousness which was exhibited by the Chancellor of the Exchequer, Gordon Brown in the year 2001. Essentially, the exchequer was furious by the fact that the Tanzanian government had diverted its funds to cater for military traffic control systems.

Whereas ignoring the intended purpose of the money which was to cater for the Tanzanian education. Essentially, the President, Mr. Mkapa was on record contesting the reason for the furiousness. On the other hand, Alan Johnson, the minister in the Department of Trade and Industry responded by stating that there was no evidence of corruption in the deal.

In another case, the ‘AL – Yamamah’ contract for the sale of BAe was associated with underhand dealings which were not straight in their operations. There were rumours that there was a benefactor who was taking in the profits for helping to set up the deal. Mr Aitken was imprisoned for perjury, because he claimed his wife paid the hotel bill when the couple spent a weekend at the Paris Ritz.

She did not. Wafiq Said was at the Ritz during the same weekend. This led to the establishment of a committee to probe into the dealings of the BAe. The Woolf committee which was set up recommended that BAEs should:

Establish a Corporate Responsibility Committee (CRC) of the main board, to set ethical standards and to oversee all conduct relevant to ethical and reputational risk.
Establish a team, led by a senior executive accountable to the Chief Financial Officer, and responsible for ensuring a group-wide ethical business programme worldwide.
Proactively advocate high ethical standards, including openness and transparency.
Make all ethical policies and procedures publicly available and easily accessible.
Develop, publish and implement a global code of ethical business conduct, including specific behavioural expectations for managers, to take precedence in any dilemma.
In the medium term (3 years), develop systems to achieve audits of ethical and reputational risk as thorough as audits of financial risk and set up processes to evaluate all business risks.
Make the Internal Audit function responsible for assessing ethical/reputational risk.
Provide in its annual report a public update to shareholders outlining the findings of external and internal audits of ethical and reputational risk.
In the medium term (3 years), publish an independent external audit of ethical conduct and management of reputational risk; and do likewise at regular intervals thereafter.
In their performance appraisals, monitor senior management’s ability to demonstrate high ethical standards.
In the variable element of their remuneration, pay people according to their ability to demonstrate high ethical standards.
Keep a central register of spending on gifts and hospitality, itemised by individual recipients, by customer, by country and in aggregate, reported annually to the CRC.
Where possible, eliminate facilitation payments immediately, though it may not be possible to do so immediately in some countries.
Report all facilitation payments to the board and develop systems to implement a global policy to forbid and eliminate them completely over time.
Make customers aware of BAES policy regarding gifts before contracts are signed.
Ensure rigorous selection and due diligence in hiring advisers, including face-to-face interviews with BAES lawyers; and make their identity known to potential customers.

This brings us to the question, which was the best way of dealing with the case? Essentially, this is a philosophical question which touches on moral philosophy . In this case, moral philosophy attempts to answer the question of how one should live and how one should behave.

In the case above, it is worth mentioning the fact that moral philosophy would have played an important role reading some of the decisions which were being made. In general, moral philosophy as a whole can be usefully divided into three basic areas: metaethics, normative ethics and applied ethics. In this case we are interested in normative ethics.

Normative ethics involves substantive proposals concerning how to act, how to live, or what kind of person to be. In particular, it attempts to state and defend the most basic principles governing these matters. For example, in the earlier case, it would be considered immoral to substitute education of the masses for the benefit of a few. Secondly, it is immoral to receive commissions based on underhand dealings when it comes to public governance.

In conclusion, it is worth noting that when it comes to ethics. Normative ethics should be given considerations with regard to governance. This is because normative ethics is concerned with stating and defending the most basic moral principles.

Reference List

Chandrasekaran, B& 2009, Corporate Governance and Social Reposibility, PHI Learning Pvt. Ltd, New Delhi.

Davies, A 1999, A strategic approach to corporate governance, Gower Publishing, Ltd, Hampshire.

Huberts, LW, Maesschalck, J & Jurkiewicz, CL 2008 , Ethics and integrity of governance: perspectives across frontiers, illustrated edn, Massachusetts.

Kagan, S 1998, Normative ethics, Westview Press, Colorado.

Kerridge, I, Lowe, M & McPhee, J 2005, Ethics and Law for the Health Professions, Federation Press, Massachusetts.

Outhwaite, W 2006, The Blackwell dictionary of modern social thought, Wiley-Blackwell, New York.

Outhwaite, W 2006, The future of society, revised edn, Wiley-Blackwell, Oxford.

Sison, AG 2008, Corporate governance and ethics: an Aristotelian perspective, illustrated edn, Edward Elgar Publishing, Massachusetts.

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What is the Importance of Ethics When it Comes to Governance?

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