Academic journal article Journal of International Business Ethics

Corporate Harmony and Confidence Building Spheres on the Financial Market

Academic journal article Journal of International Business Ethics

Corporate Harmony and Confidence Building Spheres on the Financial Market

Article excerpt

Abstract:

As the last financial crisis was caused by abuse of trust on the part of the financial institutions, this paper describes a proposed structure integrating sustainability and ethics based on trust and confidence. The author describes relations between business ethics and some theories of corporate governance and presents a possible answer to the question of whether trust can be measured. Then, he sketches a square of rules and regulations in which the financial market with its regulations is immersed, split into four overlapping sectors of financial market law, company law, codes of best practices and corporate governance principles. Interactions between these sectors lead to the creation of an inner circle describing the integration sphere where all the areas merge together in harmony. Last, the author formulates a proposal for the broadest understanding of corporate governance - corporate harmony.

Keywords: corporate governance, corporate harmony, rules and regulations square, business ethics, financial institutions

The last financial crisis has already been named as a crisis of trust that came about as a result of financial institutions abusing the trust of their clients and shareholders on an unprecedented scale. It disrupted a process of sustainable development of financial institutions, largely due to unethical behavior on the part of their managers. We can now find strong declarations at the highest levels that "in a context of crisis, authorities must consider how to safeguard competition principles without hampering policy measures to avoid a slump or the erosion of trust in the financial sector " (OECD, 2009a, p. 11). However, when we get down to more specific documents, such as another OECD report (2009b) that provides recommendations for some improvements in corporate governance, what we see, surprisingly, is that the words "trust" or "confidence" disappear completely. Several issues are discussed there that require mutual trust and confidence, but those words never appear in the report.

It might seem like corporate governance had nothing in common with business ethics, which obviously is not true. In a recent study, Nordberg (2010) examines three main theories: agency theory, stewardship theory, and stakeholder theory. Then he analyzes the role of ethics in corporate governance, discussing three ways in which it can be approached: as teleological, deontological, or virtue ethics. He concludes that "the link to the ethics of corporate governance comes in what directors aspire to achieve " (Nordberg, 2010, p. 185) and compares the implications those three theoretical perspectives may have on such a practical outcome as behavior of individual directors and of whole corporations.

If we define the stewardship theory as a model in which managers are "motivated by a need to achieve, to gain intrinsic satisfaction through successfully petforming inherently challenging work, to exercise responsibility and authority, and thereby to gain recognition from peers and bosses " (Donaldson and Davis, 1991, p. 51), we can derive from Nordberg's conclusions that virtue ethics expresses itself in the stewardship approach to doing business. Trust and confidence play a crucial role, and satisfied managers earn esteem by creating long-term value of "their" company. As he explains, "in a virtue-based system, individual and collective aims seem to be self-reinforcing" (Nordberg, 2010, p. 187). However, mechanisms have to be implemented to support such an approach and prevent would-be stewards from becoming frustrated and turning into unfettered agents. Therefore, I set out an integrated corporate governance model based on a well-balanced equilibrium between all regulation and self-regulation spheres. I develop here an idea of a rules and regulations square specified earlier (Grabowski, 2010) that leads to a concept of corporate harmony built on trust and confidence. This specific square is constructed for the financial market case, but may be easily applied to any branch or business area. …

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