31. What is the role of ethics within corporate governance?
Corporate codes of ethics are internal measures aimed at ensuring fair and honest conduct by members of the corporation. The corporate law objective to promote openness of information is echoed in codes of ethics. The main problems with codes of ethics are that they do not force compliance and there is very little consequences for individuals failing to adhere to their provisions. As such, corporate actors routinely avoid these provisions in favor of self-interested actions.
• Note: These codes, however, may serve as the standard by which corporate members are judged in the event of direct or derivative actions against the corporation or the member.
• Discussion: Why do you think corporations establish codes of ethics? Do you think they are effective? Why or why not? Should there be repercussions for failure to adhere to corporate ethics policy? Why or why not?
• Practice Question: How do rules of ethics affect corporate governance practice?