In the recent years, the media has been awash with scandals involving huge corporations, in which managers at the helm of the corporations have been accused and charged with ethical and criminal wrongdoing. Embezzlement of funds, sexual harassment, fraud, and misappropriation/siphoning of company and employee funds are just among some unethical issues that have emerged in organizations orchestrated by organization employees, particularly those at the helm. Such scandalous incidences continue to raise interest in ethical and unethical behavior in organizations and the repercussions of such actions to organizational stability. One of the case studies of ethical governance and its effect on organizational stability is the Enron scandal, which led to the eventual collapse of the company and loss of investment for many, including the company’s employees. Ethical governance, as a determinant of organizational stability, demands certain characteristics from not only the leadership of the organization but also the employees and organizational culture. Organizational stability hinges on ethical governance, transparency, and its achievement rely on the different characteristics of ethical governance and organizational transparency.
Ethical governance is one of the most sought-after features of an organization and has several characteristics. Othman and Rahman (2014) opine that ethical governance starts with the leadership in an organization. Quoting the 2002 Kings Report, Othman and Rahman (2014) argue that there is a close connection between leadership and corporate ethical governance, and they indicate that the first characteristic of ethical governance is accountability. The aforementioned trait not only requires clarity and honesty in decision making, but also involves allowing the employees and stakeholders to understand the reason behind those decisions. Rahim and Salleh (2010) inform that the commitment to ethics and accountability in decision making by an ethical leader should be a foundation on doing the right thing regardless of the outcome. Accountable leaders, therefore, convey organizational information ensuring clear representation of decisions and provide a decision-making process that is honest and realistic.
Another characteristic of ethical governance is the presence of a structure that affords equally distributed authority and shared accountability. Ardichvili, Mitchell, and Jondle (2009) inform that firms with ethical governance have policies that include ethical codes of conduct. In such cases, the codes are clear and well-communicated, and are specific about the expected procedures and practices. Such firms also ensure that the codes are extensively comprehended and enforced. Such structures are communicated to new members of the organization and in-service training conducted to established members of the organization as refresher seminars on the ethical expectations of the organization.
Equality is another characteristic of ethical governance. The current setup of the globalized workplace is such that people from different backgrounds work within the same organization. As such, diversity in age, gender, ethnicity, religious beliefs, sexual orientation, and race is commonplace in today’s corporate world. Salminen (2010) argues that despite this diversity, ethically governed corporations uphold integrity, equity, and justness in dealing with both customers and stakeholders within the organization. Equality, here, means the absence of discrimination of any kind, and when the vise is identified, function structures and procedures are available and accessible for seeking redress.
Ethical governance is evident in organizations today in various aspects. Given that leadership is often associated with ethical governance, evidence of ethical governance starts with the action of the leader. Although ethics within the organizational and business environment include the leadership, employees, and organizational culture, leadership ethics have a particular influence on employee morale and loyalty and determine the discipline and acceptable behavior among workers in an organization. High ethical standards in leadership largely encourage employees to strive to meet the same standards in their work. Gibney (2005) argues that part of the reason for the Enron scandal was a lack of ethics in the leadership, the employees, and the organizational culture. In the company, the leadership encouraged winning, regardless of the path taken by the employees or leaders. At the same time, the leadership put too much pressure on the employees by rewarding winning regardless of the cost and avenues taken by employees to score the win. In contrast, in an ethically governed organization, integrity, accountability, care for the environment, corporate and social responsibility are evidenced by actions taken by both the leadership and stakeholders of the organization.
Ethical governance is related to organizational stability, which has several components. Smith (2011) avers that the first core constituent of organizational stability is leadership, which is usually present to meet both the current and future needs of the organization. Leadership transcends the mechanism and individual that steers the organization to the building blocks used in grounding the organization. Moreover, with the incorporation of the employees, it develops and shapes the mission and vision of a company. Involving employees and other stakeholders ensures that everyone has a stake in the result and direction the organization takes. Leadership herein also involves making a succession plan for top leadership: ensuring that there are no gaps in leadership in case of demise or exit of a leader.
Business strategy/model marks the next component of sustainability. At its core, a business strategy is a harmonized set of actions that look to create and sustain an organization’s market position (Smith, 2011). A business strategy traditionally draws from the organization’s vision set through a concerted effort by the leadership and employees. Bleich (2017) posits that the formulation of strategies requires the leadership to establish organizational practices etched from the mission, purpose, and goals of the organization. Working towards the attainment of the organization’s mission brings stability to the organization since rarely are organizational missions achieved within the first year of operation; missions are traditionally long-term goals that inspire strategy.
The level and type of resource management point to organizational stability. Corporations that care about their future effectively manage both their financial and human resources. Such organizations have sufficient, diverse, and well-managed financial resources (Smith,2011). Moreover, they have good stewardship of their hard assets and continuously and consistently build up soft assets. Even more important is aligning organizational technology with the business strategy and not taking up technology or making decisions based on trends but on functionality and how the two align to the overall business sustainability.
Organizational stability is evident in several ways in stable organizations. One of the pieces of evidence of organizational stability is a smooth transition in leadership. Huawei, for instance, has an innovative leadership transition formula of a rotating CEO. According to Cremer and Tao (2015), the company has a system that rotates the three deputy chairmen as CEO for six months. Ren Zhengfei, the company’s founder, however, remains as the overall CEO who mentors and coaches the sitting CEO (OSawa, 2013). Through such a system, the organization not only has a smooth transition in leadership, but the leadership also benefits from mentoring. It is perhaps for this reason that Huawei has grown to become the leading telecommunication company and currently one of the top smartphone manufacturers in the world.
Employee training offers stability, enhances organization performance, and talent retention. In a study of the impact of training and development, Salah (2016) informs that they had a positive impact on not only employee performance and stability but also retention. Talent retention is significant evidence of organization stability as it points to employee satisfaction. Apple highlights the importance of training, wherein it runs its in-house training with a full-time faculty sourced from some of the top universities including Yale, Harvard, Stanford, M.I.T., and Berkeley (Chen, 2014). The training program inculcates Apple’s business culture to the employees and has proven successful as Apple is one of the most valuable companies in the world.
Organizational transparency is one of the pillars of organizational operations. Organizational transparency transcends the ethical responsibility of an organization- it is practical and adds value to the organizational operation. A study of the importance of transparency by TINYpulse (2013) showed that aside from being the ethically responsible thing to do, transparency also contributes to maintaining an engaged and motivated employee body. The benefits of transparency and ethics additionally go beyond gaining the trust of consumers, Turilli and Floridi (2009) inform that transparency helps organizations attract and retain higher quality employees, customers, investors, and suppliers. Additionally, the organization earns goodwill from the community and government officials. Transparency, therefore, is ethically enabling to organizations given its freeing property to organizations regarding their operations.
Despite the benefits that come from transparency, questions still abound on how much an organization is ethically obligated to divulge to the public. Part of the reason for Enron’s scandal was the lack of transparency in organizational operations (Gibney, 2005). The scandal, along with many others, led to the passage of the Sarbanes-Oxley law that instituted reforms in organizational operations and disclosure of company operations to the public. Although transparency is the best policy for all organizations, Turilli and Floridi (2009) inform that ethically, organizations should disclose as much information to the public that they (organization) are legally obligated to divulge as well as information that will not put them at a disadvantage. Herein, information such as trade secrets must remain away from the public eye.
Ethical governance, transparency, and organizational stability are all a part of the three pillars of ethical organizations. As aforementioned, ethical governance relies on the leadership of the organization (Othman & Rahman, 2014). Part of the defining characteristic of ethical governance is organizational transparency. Grimmelikhuijsen and Meijer (2014) argue that corporate transparency and information sharing help in building unity within the organization. Transparency not only allows employees to know their role in the organization but also the purpose and vision of the organization, eventually creating trust and belief in the organization. A belief in the vision and leadership of an organization creates loyalty among employees and the public, which translates to organizational stability. Internal organizational tranquility that emanates from the ethical treatment of employees, transparency, and organizational orientation goes a long way in creating an amiable external environment that guarantees organizational stability.
Ethical governance starts with the choice of leadership in an organization. Ethical leaders traditionally have characteristics that include trust, accountability, and integrity that they bring to the organization. Part of ethical governance also demands transparency from the organization. Organizations are obligated to divulge information to the public, however, even in divulging information, they have to ensure that the information does not disadvantage them. Ethical governance and transparency all work together for organization stability, which requires strong leadership and talent retention.
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