Corporate Governance and Business Ethics

Corporate governance, according to Investopedia, “is the system of rules, practices, and processes by which a firm is directed and controlled” and is usually managed by a company’s board of directors. The four P’s, or key categories of corporate governance, are people, process, performance, and purpose.¹

Corporate governance rules are important because they outline a company’s ethical beliefs and provide a working roadmap for a company's objectives and activities. In short, these plans affect and influence every aspect of a company’s daily operations and management.

Companies use the rules of corporate governance to balance and meet the needs of their different stakeholders, which can include financiers, the community, employees, shareholders, suppliers, customers, and senior executives. Done well, “corporate governance leads to ethical business practices, which leads to financial viability.”¹

Read on to learn about:

• The role of ethics in corporate governance
• Prime examples of corporate governance that are propelling today’s most successful businesses forward
• How you can acquire the top-level financial and analytical business skills to design—and implement—effective corporate governance plans

Governance extends beyond mere regulatory compliance—it embodies the principles and values that shape a company's identity and operations. Ethical corporate governance rests on four pillars: people, process, performance, and purpose.

Central to corporate governance, this is the collective ensemble of individuals—from the board of directors to stakeholders—who wield influence over organizational conduct. Their diversity, in terms of skill sets, experience, and perspectives, enhances the board's ability to make balanced and prudent decisions. Engaging people who prioritize ethical behavior creates a backbone for integrity within the company's culture.

This denotes the set of mechanisms, policies, and guidelines that steer a corporation toward responsible practices and ethical decision-making. A robust governance structure encompasses transparency, accountability, and checks and balances. Together, these ensure that actions taken are in the corporation's best interest and adhere to ethical norms and legal requirements.

Performance is intertwined with adherence to ethical standards. It goes beyond financial metrics, embracing the manner in which results are achieved. Ethical performance involves aligning everyday operations with moral principles, thereby reinforcing trust among stakeholders while contributing to sustainable success.

Purpose stands for the underlying values and principles that guide business objectives and strategies. Signifying the ethical heartbeat of an organization, it's the compass that directs a corporation toward social contributions, responsible citizenship, and ensuring that profitability does not overshadow moral responsibilities.

Today’s business industry is not highly trusted. According to data published by PwC in 2024, “90% of business executives think customers highly trust their companies while only 30% of consumers actually do.”² Therefore, it’s more important than ever for today’s companies to set well-defined, actionable governance plans that are rooted in the ethical values of integrity, honesty, and openness as they conduct their operations.

Doing so encourages positive behaviors that lead to long-term business success and sustainability. It also helps companies gain increased trust, the intangible—but very valuable—social and cultural currency by which companies can:

• Become authorities in the space to drive business and capture market share
• Garner repeat business
• Gather support, funding, and positive public opinion

All of these measures can boost a company's revenues and long-term viability. Fortunately, many modern businesses are aware of the benefits of ethics in corporate governance and desire to operate “the right way” by following governance rules that lead to:^1,2

• Accountability: The obligation of an organization to account for its activities, accept responsibility for them, and disclose the results in a transparent manner. It ensures that those holding positions of authority in a company, such as managers or board members, are answerable to stakeholders for the decisions and actions they undertake
• Transparency: The openness and clarity with which companies operate, allowing stakeholders to have insight into decision-making processes, operations, and financial reporting. Transparency is the basis for building trust with shareholders, customers, employees, and the wider community
• Fairness: Equitable treatment of all stakeholders within the corporate ecosystem, including shareholders, employees, and customers. Fairness entails making decisions that do not unreasonably favor or prejudice any one group, thus upholding justice and equality in corporate conduct
• Responsibility: Corporate responsibility encompasses a company’s duty to make decisions that positively affect society, the environment, and the economy beyond the interests of shareholders. It reflects the company's commitment to ethical standards and its obligation to contribute to the well-being of all its stakeholders

In practice, companies demonstrate accountability through rigorous external audits and comprehensive internal controls, while upholding transparency via open communication channels and detailed reporting practices. They exhibit fairness by ensuring impartial policies for employees and equal consideration of shareholder interests, and they exercise responsibility through sustainable business initiatives and active community engagement.

Companies use ethically-focused corporate plans that enable them to follow a set of well-defined values and avoid common issues in corporate governance, including mismanagement, non-compliance, and fraud.

Rules set forward by a diverse board of directors help companies see the needs of all stakeholders and create plans that address them equitably. As a result, these companies are strengthening trust levels internally and externally, to the benefit of all stakeholders.

Ethics in corporate governance also covers environmental considerations. Our planet and the environment require fair consideration when drawing up governance plans. Environmental awareness leads to the sustainable, efficient development of our planet and limited resources, ensuring that both are protected for future generations.

How a company acquires, manufactures, sells, transports, and recycles/disposes of its goods and services once used are all questions its leaders should address in an environmentally-conscious governance plan.

Oil drilling, plastic waste, and deforestation are all aspects of business creation that can have detrimental effects on the environment if not properly managed and conducted with sustainability and pollution reduction in mind. Responsible corporations are obliged to evaluate their behavior to determine future financial performance and longevity and how it will affect the environment, looking for ways to mitigate any negative results while ensuring their businesses can thrive long-term.³

It’s encouraging to note that environmental awareness in corporate governance has grown, as companies grapple with urgent climate challenges and embrace standards such as frameworks from the Sustainability Accounting Standards Board (SASB) and Task Force on Climate-related Financial Disclosures (TCFD). These guide organizations in addressing ecological impacts, resource management, and environmental risk—a reflection of the evolving expectations of investors, regulators, and society.

According to the Society for Human Resource Management (SHRM), fair compensation means “compensating employees the same when they perform the same or similar job duties while accounting for other factors, such as their experience level, job performance, and tenure with the employer.”⁴

It’s important for companies to follow equitable compensation as it leads to happier employees, better performances, less turnover, better skillsets, and better business outcomes overall.⁴ In today’s evolving office climate of more flexible work options include remote work and hybrid work, employee safety, office setting, and social/political concerns within the workforce need to be addressed in a competent governance plan.³

Workplace practices have shifted significantly since the COVID-19 pandemic. In addition to flexible work arrangements, organizations now emphasize robust health protocols and mental health support—underscoring a commitment to employee well-being. Moreover, the pursuit of diversity, equity, and inclusion initiatives remain paramount, as companies seek to rebuild more resilient and harmonious workplaces in the wake of the pandemic's disruptions.

When it comes to risk awareness and management, companies should design governance plans that are executable by their executive/managerial teams and enable them to do:

1. Identify risks for various stakeholders
2. Assess potential severity of each risk
3. Create risk action plans to solve/mitigate risk
4. Evaluate the effectiveness of risk management
5. Adapt risk management plans as needed

Cultural forces that marginalize risk prevention must be eliminated.³ Additionally, a company’s board of directors should evaluate management’s risk performance to ensure that it is are able to receive the correct risk information, determining if current management can implement risk and compliance strategies and systems. Doing so helps keep the company operating at an optimal level that reduces fraud, theft, and exploitation. It is imperative that a diverse board of directors perform this risk assessment so that an accurate picture of the risks to all stakeholders can be produced.

There’s a good reason to conduct business responsibly and ethically: ethical business decisions that benefit all stakeholders, as fairly as possible, allow a company to place itself as an attractive option to investors.¹

Creating an ethical culture that rewards those who conduct themselves within the rules of compliance helps generate a workplace environment that values proper conduct over improper behavior. Business operations that ignore ethics can lead to legal and financial ruin, brought on by attempts to cut corners, cut costs, and circumvent timely and expensive compliance measures, should be addressed and curtailed.

Like any business activity, corporate governance can be conducted well or poorly. The following examples show the contrast between the two approaches to ethical governance and highlight the reasons it’s better, business-wise, to conduct responsible, ethical business transactions that are fair to stakeholders.

1. Clearly defined, up-to-date, widely-shared corporate governance plans
2. Incentives for environmentally-beneficial behaviors
3. Routine internal audits with external oversight
4. Shareholder and stakeholder engagement
5. Long-term sustainability planning
6. Compensation rewards for ethical business behavior

1. Boards structures that prevent ineffective members from being ousted
2. Non-compliance with auditors and regulators
3. Compensation packages that fail to create incentives for corporate officers to adhere to ethical governance
4. Operations that allow conflicts of interest to flourish
5. Lack of transparency

While once-thriving companies like Enron and Worldcom undertook poor, unethical governance which eventually led to their downfall, active proponents of ethically-based corporate governance practices have been rewarded with ongoing business success, including Pepsico.¹

Modern businesses need leaders with advanced, business-focused financial and analytical capabilities who can design corporate governance rules which lead to equity for all stakeholders, and in turn, financial stability and sustainable growth. If you’re ready to learn about responsible business practices and ethically-driven corporate governance plans, Santa Clara University is your destination.

The Leavey School of Business at SCU offers a financial master’s curriculum that teaches the latest in business skills and strategies—including ethical corporate governance rules—that are the cornerstone of today’s businesses. SCU’s FNCE 2400: Corporate Finance and Financial Analysis course teaches a foundation in the basic concepts of corporate finance, including corporate governance and issues in corporate governance.

SCU’s Online Master of Science in Finance and Analytics is ranked the #6 Best Online MBA for Finance program nationwide by U.S. News and World Report.⁵ With its robust academics and Silicon Valley focus, the Online MSFA program prepares you to thrive in corporate finance settings and investment-focused organizations. SCU Leavey is also nationally recognized for its strong faculty of experienced professionals, its forward-looking curriculum, its powerful Bronco network, and its outstanding career outcomes and academics.⁶

Ranked #3 among Best MBAs for Career Outcomes by Poets&Quants, the Online MBA program in the Leavey School of Business blends strong business ethics and values with the innovative and entrepreneurial spirit of Silicon Valley.⁷ Through its dynamic curriculum, students will learn what it means to be a discerning, forward-thinking leader and, in turn, how to become one. Students can choose a concentration in Data Science and Business Analytics, Leading Innovative Organizations, Marketing, Finance, or Entrepreneurship and New Venture Creation.

As a graduate student in the Leavey School of Business at Santa Clara University, you’ll develop executive-level business acumen while building a powerful Silicon Valley network. The immersive online programs are designed and led by our world-class business faculty, who are industry insiders and committed educators.

Don’t wait to become a Silicon Valley Professional. Launch your advancement by scheduling a call with an admissions outreach advisor today.