Business Ethics & Governance: Definitions, Linkages & Stakeholder Roles

TAKEAWAYS:

• Business ethics are moral principles guiding decisions, while corporate governance is the system ensuring accountability—they overlap but serve distinct purposes.
• Stakeholder theory (Freeman) expands beyond shareholders to include employees, communities, and regulators, reshaping modern governance.
• Nepal’s Company Act 2063 and FNCCI’s Business Code of Conduct mandate transparency, but enforcement remains weak in family-owned firms.
• Real-world examples: Ncell’s ethical ad campaigns (Unit 5 link) and Daraz’s supplier audits (Unit 6 link) show governance in action.
• Exam focus: Compare definitions, contrast ethics/law, and analyze stakeholder roles—always use Nepali cases (e.g., NEPSE scandals, Chaudhary Group).

1. Definitions: Ethics vs. Governance

Core Definitions

mindmap
  root((Business Ethics & Governance))
    Ethics
      "Moral principles guiding behavior"
      "Influenced by culture, religion, law"
      "Subjective: 'What is right?'"
    Governance
      "Structures/policies ensuring accountability"
      "Objective: 'How to enforce rules?'"
      "Legal + procedural frameworks"
    Link
      "Ethics informs governance; governance enforces ethics"
      "Example: Ncell’s 'Digital Trust' policy (ethics) → compliance audits (governance)"

Key Difference:

2. Why Ethics and Governance Matter

The Stakeholder Theory (Freeman, 1984)

graph TD
  A["Stakeholders"] --> B["Primary"]
  A --> C["Secondary"]
  B --> B1["Shareholders"]
  B --> B2["Employees"]
  B --> B3["Customers"]
  B --> B4["Suppliers"]
  C --> C1["Government"]
  C --> C2["Community"]
  C --> C3["NGOs"]
  C --> C4["Media"]

Real-World Trace:

• Pathao’s Ethical Dilemma:
  • Ethics: Should drivers earn a living wage (stakeholder: drivers) vs. profit margins (shareholders)?
  • Governance: Pathao’s board sets fare algorithms (governance) but faces backlash when wages drop (ethics).
  • Outcome: Nepal’s Transport Management Act 2074 now requires gig platforms to disclose driver earnings—governance enforcing ethics.

Nepal’s Context

• Family-Owned Businesses (70% of Nepal’s economy):
  • Challenge: Blurred lines between personal and corporate ethics (e.g., Chaudhary Group’s tax disputes).
  • Governance Gap: Only 30% of listed firms comply with SEBON’s stakeholder reporting (2023).
  • Solution: FNCCI’s Business Code of Conduct (2061) mandates:
    • Whistleblower protections.
    • Environmental disclosures (e.g., Himalayan Java’s fair-trade coffee).

3. Ethical Decision-Making Models

The 4-Step Model (LaRue Hosmer)

flowchart TD
  A["1. Identify the Problem"] --> B["2. Gather Facts"]
  B --> C["3. Brainstorm Alternatives"]
  C --> D["4. Choose & Justify"]
  D --> E["5. Monitor Outcomes"]

Worked Example: NTC’s Tariff Hike (2023)

1. Problem: NTC raised internet prices by 20%—ethical? (Stakeholders: students, businesses, government).
2. Facts:
   • Profit margin: 15% → 30% (governance: regulatory capture?).
   • Alternative: Tax internet profits instead (ethical: progressive taxation).
3. Choice: NTC justified hikes as "cost recovery" (governance: legal) but faced protests (ethics: public good).
4. Outcome: Supreme Court intervened—governance (law) overrode ethics (profit motive).

4. Governance Frameworks: Global vs. Nepal

Comparison Table

5. Case Study: Daraz Nepal’s Ethical Supply Chain

Problem: Daraz sources from 1,000+ suppliers—how to ensure ethical labor? Solution:

1. Ethics: Audits for child labor (aligned with UN Global Compact).
2. Governance:
   • Supplier Code of Conduct (mandatory).
   • Blockchain tracking (transparency for NGO monitoring).
3. Outcome:
   • 2022: 80% suppliers compliant (up from 30% in 2020).
   • Ethical Branding: "Made in Nepal" campaigns (marketing + governance).

6. Emerging Trends in Nepal

1. ESG Reporting:
   • NEPSE’s new rule: Listed firms must disclose Environmental, Social, Governance (ESG) metrics.
   • Example: Himalayan Java publishes carbon-footprint data.
2. Digital Governance:
   • eSewa’s Anti-Fraud AI: Uses ethics (user trust) + governance (KYC laws).
3. Stakeholder Activism:
   • Youth-led protests (e.g., against Ncell’s data leaks) force governance reforms.

Exam Tip

How to Score Full Marks:

1. Definitions:
   • Ethics: "Principles guiding right/wrong in business" (1 mark).
   • Governance: "System of rules ensuring accountability" (1 mark).
2. Comparisons:
   • Use the table above for ethics vs. law/governance (3 marks).
3. Nepal Focus:
   • Always cite:
     • Company Act 2063 (Section 110 on board duties).
     • FNCCI Code 2061 (whistleblower clause).
     • Real cases: NEPSE scandals, Chaudhary Group tax evasion.
4. Models:
   • Draw Freeman’s stakeholder map or Hosmer’s decision flowchart (5 marks).
5. Critical Analysis:
   • Weakness in Nepal: "Family firms lack board independence" (link to Unit 10).
   • Strength: "Nabil Bank’s stakeholder council" (link to Unit 7).

Avoid:

• Vague statements like "ethics is important" (0 marks).
• Ignoring Nepal-specific examples (examiners deduct for global-only answers).

Visual Summary:

classDiagram
  class Ethics {
    +Subjective
    +Moral principles
  }
  class Governance {
    +Objective
    +Rules + enforcement
  }
  class Stakeholder {
    +Shareholders
    +Employees
    +Community
  }
  Ethics --> Governance : "Informs"
  Governance --> Stakeholder : "Serves"
  Stakeholder --> Ethics : "Pressures"
  note for Ethics "Example: Ncell’s ad ethics"
  note for Governance "Example: SEBON audits"