Leadership theory

Ethical behaviour in corporate governance

The increasing size of corporations and/or their pervasiveness in the social fabric is raising the problem of Corporate Social Responsibility (CSR). On one hand, the biggest corporations in the world are becoming more powerful than national governments. Thus General Motors sales for instance, exceed sales for the whole Malaysia and those of Royal Dutch Shell are greater than Thailand’s. On the other hand, such companies are not really accountable to anyone except, perhaps, their shareholders.

Whatever the size of the company, however, we should all think about the sort of business we are in and find out how it can benefit the community – thus taking a longer-term view. Evidence shows that, for example after the case of ENRON, socially responsible companies are longer lasting and more sustainable. Because they are transparent, people have more confidence in them. Also, again because they are transparent, they can take criticism, like in a democracy, and they can change accordingly.

Whilst the majority of shareholders are, in the short term, primarily interested with return of capital, the trend, however, indicates that there are an increasing number who are concerned about the ethical impact of their investments. It has been estimated that these stakeholders are increasingly investing in Ethical Investment Funds, which are now rapidly growing. According to the latest figures, 150 billion - 1 trillion US Dollars of investments are going into Ethical Funds in the United States alone.

Companies that are the most socially responsible are also transparent as well; so that anyone can find out what is going on. Moreover it is easier to anticipate any problem that could occur within such a company. In other words, it would seem that the more transparent and responsible companies are, the more appealing they become for investment from private banks.

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