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Corporate governance is a term used to describe the structure of organizations regarding the establishment of a formal pattern that guides the running of the organization by those in charge. The role of business ethics in corporate governance refers to the manner in which ethics is applied during the process of running or administering the organization. To this end, business ethics in corporate governance can be applied in the way the management of the organization, which may be a business concern or a government, deals with both internal and external issues.
An example of the role of business ethics in corporate governance is the way in which the management of a company deals with the issue of the selection of employees. The ethical manner of selecting employees should be based on criteria that include the possession of the necessary human capital, rather than on superficial attributes, such as nationality or physical attractiveness. Business ethics in corporate governance can also be seen in the manner of remuneration that the company uses to compensate the employees for their services to the organization. The question would be whether the company applies the same schedule or rate of remuneration for deserving employees. For example, some companies might adopt different schedules for offering bonuses and other types of remuneration to certain categories of employees, while ignoring other equally deserving employees.
Business ethics in corporate governance can also be seen in the manner in which the management of a company relates with individuals and external businesses, such as distributors, consumers and business partners. It may also be applied to the manner in which a company relates with host communities and the society at large. One of the ethical considerations that the management of an organization must necessarily address is the issue of responsible corporate behavior, including topics like giving back to the community and ensuring that they do not pollute the environment unnecessarily. Where a company is directly or indirectly responsible for the pollution of the environment — either through its own actions or the actions of any entity affiliated to it — the practice of business ethics in corporate governance will ensure that the company will make the right decisions in terms of addressing the problem. For example, an oil tanker that spills crude oil into the sea will present an environmental hazard that a company will be both ethically and legally bound to respond to by cleaning up the spill.