Business Ethics as A Measure of Corporate Performance — A Study on Indian Listed Companies

Abstract

In the era of industrialisation, pursuing market opportunities while maintaining ethical integfity became a cmcial challenge for business enterprises. The responsibility and accountability ofjoint stock companies is constantly under scmtiny post notorious scandals like those of Enron, WorldCom, Adelphia, Tyco intemational and Satyam. Fillther, the global financial crisis in the year 2008 exposed the world to the pefils of colporate governance failures, unregulated markets, and neglected risk management (Dandapat, n.d.). Most of the companies have placed ethics on the strategic agenda due to govemment regulations, augmented pressure from stakeholders and media. However, the ultimate objective of the corporate world remains shareholders wealth maximization. As agency theolY asselts the importance of shareholder value maximization, managers are often incentivized to behave in the best interest of the shareholders ignoring other stakeholders. Traditionally businesses assessed the perfonnance of companies using only financial measures. In the recent times there is growing emphasis to adopt comprehensive measures including non-financial measures(Proffitt, 2000)

The concept of colporate perfonnance and performance measurement is continuously evolving. There are many financial indicators to measure the perfonnance — profits, eamings per share, returns to shareholders and so on. Evan Davis and John Kay (1990) discussed the concept of added value which means the amount by which the value of colporate output exceeds the value of all the inputs the company uses. The concept of colporate pelfonnance to a large extent is understood as financial perfonnance. Assessing financial perfonnance is very impoltant as profitability is vital for the existence and continuity of a business. But this will not provide holistic view of the performance of an organization. Going concern concept says that a business must function without the threat of liquidation for a foreseeable future and should be able to honor its financial obligations when due(Associate et al., 2022). Measuring profitability alone may not ensure sustainable perfonnance for an organization. Once businesses become large, listed entities, along with financial perfonnance other aspects like quality of govemance, contribution towards society, initiatives towards sustainability and so on will also be considered to measure the holistic perfonnance of an organization. When profitability was the sole aspect of the business, focus was on producers, later attention shifted to consumer. When shareholder wealth maximization theory was propagated, shareholder was the most impoltant beneficimy(Solovida, 2021). Today, the concept of stakeholder is the key. All stakeholders of the business must be taken into consideration while doing business.