Components
While I have not personally experienced corporate governance in a professional environment, I will
speculate about the essential components. Generally, an entity’s fiduciary responsibility is to act in
the shareholders’ best interest by increasing wealth and value (Ehrhardt & Brigham, 2016). This
aligns with the stewardship theory, where managers choose what is in the company’s best interest
over personal gain. Corporate governance broadly refers to the rules and principles an organization
employs to balance the interests of its stakeholders and company success.
The components essential to corporate governance are “accountability, oversight, and control”
(Mintz & Morris, 2020, p. 135). Accountability in corporate governance is the checks and balances
that hold individuals accountable for the outcome of an activity or decision. Oversight in corporate
governance is the mechanism that monitors the actions taken by the entity and employees to
ensure compliance with the relevant standards, laws, and regulations for its industry. Control in
corporate governance is the process of observing and scrutinizing the activities carried out by a
company. Strong corporate governance is necessary for all organizations because it enhances the
firm’s performance and profitability (Mintz & Morris, 2020).
Ethical Climate
These corporate governance components affect an organization's ethical climate in many ways. A
company’s ethical climate starts with the tone at the top. When leadership models ethical behavior
through their decisions and actions, it creates the basis of an entity’s cultural environment and
ethical values. The accountability component is used to observe the effective implementation of
company policies and procedures. These policies and practices are vital in communicating positive
ethical standards to employees. The oversight component seeks to establish the use of due
diligence when making decisions. This affects the ethical climate by signaling to employees that a
level of ethical care and compliance is necessary for reasonable business activities. The control
component is designed to assure that the entity’s objectives and goals are being met. These
objectives and goals can be accomplished through employee improvement opportunities for
continuous education in business and professional subjects (Mintz & Morris, 2020).
References
Ehrhardt, M. C., & Brigham, E. F. (2016). Corporate finance: A focused approach (6th ed.).
[VitalSource
Bookshelf version]. Cengage Learning. vbk://9781305887220
Mintz, S. M., & Morris, R. E. (2020). Ethical obligations and decision making in accounting
(5th ed.). McGraw Hill Education.
