Corporate Ethics Theory And Stakeholder Theory

1309 WordsSep 19, 20146 Pages
One of many duties of a director is set under s131 of the Company Act 1993. This section of the act let know that directors must act in good faith and in what the director believes is the best interest of the company. Traditionally, the word company foretold under this section have been regarded to devote solely to the company’s shareholders. However, this notion is seen as immoral. This is because according to the notion of corporate social responsibility, business must behave ethically, represents a broader recognition of stakeholders and must take into account economic, social and environmental inputs in the way it operates. Hence, people against the notion of shareholder primacy suggest that the director should also take into account the interest of a wide range of shareholders (e.g. customers, employees, the society as a whole) in order to be deemed as moral. This conflicting opinion raised the question, “To whom are the directors responsible?” This paper will explore a number of corporate governance practices (i.e. agency theory and stakeholder theory) that are related to this issue. It begins with the explanation of each theory and the discussion of ethical and societal concerns they put forward, followed by the advantage of shareholders and the disadvantage of other stakeholders regarding remedies of director’s breach of duty from a legal viewpoint and ends with a recommendation that would best reflect a good governance practice that is consistent with the corporate
Open Document