Explain with Suitable Examples the Ethical Issues in Corporate Governance

Corporate governance means the way a company is directed, controlled, and managed. It deals with the relationship between a company’s management, its board of directors, shareholders, employees, customers, and society at large. Good corporate governance makes sure that companies work honestly, responsibly, and in a transparent way.

However, many times companies face ethical issues in governance. These issues arise when companies, managers, or boards make decisions that benefit only a few while harming employees, customers, investors, or even the environment. we will discuss the main ethical issues in corporate governance in easy words and give examples for better understanding.

1. Lack of Transparency

Transparency means being open and honest in sharing information with shareholders and the public. When companies hide facts or mislead investors, it creates serious ethical issues.

• Example: The Enron Scandal (2001) – Enron, an American energy company, hid its debts and losses using accounting tricks. Shareholders were misled, and when the truth came out, the company collapsed, leading to thousands of employees losing jobs and investors losing billions.

Lesson: Companies must give clear and truthful financial reports.

2. Conflict of Interest

A conflict of interest happens when people in power put their personal gain above the company’s or stakeholders’ interests.

• Example: If a board member of a company also owns shares in a supplier company and gives all contracts to that supplier, it benefits him personally but may harm the company if the supplier charges more.

Lesson: Decision-makers should avoid mixing personal interest with company interest.

3. Executive Compensation (Unfair Salaries and Bonuses)

Many top executives (CEOs and directors) get very high salaries, bonuses, and stock options even when the company is not performing well. This raises questions of fairness.

• Example: During the 2008 Global Financial Crisis, many banking CEOs received huge bonuses despite their banks failing and needing taxpayer bailouts. Employees lost jobs, but top leaders took millions in pay.

Lesson: Salaries and bonuses should depend on actual performance and long-term success, not just short-term profits.

4. Insider Trading

Insider trading means when company insiders (like directors, employees, or managers) use secret company information to make personal profits in the stock market. This is unethical and illegal.

• Example: In India, Raj Rajaratnam’s Galleon Group case (2009) showed how insider information was used to earn millions illegally.

Lesson: Information that is not public must not be used for personal financial gain.

5. Neglecting Stakeholders’ Interests

A company does not only belong to shareholders. It also has responsibilities towards employees, customers, suppliers, and society. Ignoring them creates ethical issues.

• Example: Some companies shut down factories to save costs, without giving proper compensation to workers. This harms employees’ livelihoods.

Lesson: Corporate governance must balance the needs of all stakeholders, not just shareholders.

6. Bribery and Corruption

Sometimes, companies bribe government officials to get contracts, licenses, or favorable treatment. This is both unethical and illegal.

• Example: The Satyam Scandal (India, 2009) involved bribery, corruption, and accounting fraud, which shook the corporate world.

Lesson: Ethical governance requires honesty in business practices without using bribes.

7. Environmental Responsibility

Many companies ignore their responsibility towards the environment. They pollute rivers, air, and land to maximize profits. This raises serious ethical concerns.

• Example: The Bhopal Gas Tragedy (1984) in India was caused by Union Carbide’s negligence in maintaining safety standards. Toxic gas leaked, killing thousands and harming future generations.

Lesson: Companies must act responsibly and protect the environment, not just think about profit.

8. Tax Avoidance and Evasion

Big companies often use loopholes to avoid paying taxes or hide profits in tax havens. Though sometimes legal, it is considered unethical because it deprives the government of revenue for public welfare.

• Example: Many multinational corporations like Apple, Google, and Amazon have been criticized for shifting profits to low-tax countries to avoid paying fair taxes.

Lesson: Ethical governance means paying fair taxes where the company earns profits.

9. Discrimination and Unfair Practices

Companies sometimes discriminate based on gender, caste, religion, or race in hiring, promotions, or salaries. This is unethical and against the principle of equality.

• Example: In many tech companies, there have been cases of gender discrimination, where women employees are paid less than men for the same work.

Lesson: Every employee must get equal opportunity and fair treatment.

10. Unethical Marketing and Consumer Exploitation

Some companies use misleading advertisements or sell unsafe products to maximize profits. This is an ethical issue as it harms consumers.

• Example: In 2015, Volkswagen’s emission scandal revealed that the company cheated emission tests by using software tricks. Customers were misled, and pollution increased.

Lesson: Companies must be truthful about their products and not exploit customers.

11. Boardroom Manipulation

Sometimes the board of directors does not function independently. Powerful executives may dominate decisions, silencing independent voices. This weakens governance.

• Example: In the Yes Bank crisis (India, 2020), poor board oversight and over-dependence on one leader led to mismanagement and financial collapse.

Lesson: Boards must act independently and in the interest of all stakeholders.

12. Whistleblower Harassment

Whistleblowers are employees who expose corruption, fraud, or unethical practices inside a company. Many times, instead of rewarding them, companies punish or harass them.

• Example: In the Enron case, whistleblower Sherron Watkins raised concerns about accounting fraud. She faced pressure and threats for speaking up.

Lesson: Companies should protect whistleblowers and encourage reporting of unethical practices.

Why Ethical Corporate Governance Matters

1.Builds Trust – Honest companies attract more investors, customers, and employees.

2.Long-term Success – Ethics ensure sustainability, not just short-term profit.

3.Prevents Scandals – Good governance avoids fraud and protects reputation.

4.Protects Society and Environment – Responsible companies contribute to overall growth.

5.Employee Satisfaction – Fair treatment improves morale and productivity.

Corporate governance is not just about laws, rules, and profits. It is also about ethics, fairness, and responsibility. A company that ignores ethics may earn quick profits but will face long-term damage, scandals, and loss of trust.

The examples of Enron, Satyam, Volkswagen, and Bhopal Gas tragedy remind us how unethical governance harms not only companies but also employees, customers, and society.

Therefore, good corporate governance must include transparency, accountability, fairness, and responsibility towards all stakeholders. Only then can businesses grow in a way that benefits everyone, not just a few.