Corporate governance, regulation, and responses to business scandals

Corporate Governance

A regulation refers to a law or rule designed to govern or control the conduct of a person, group, or corporation. Regulation limits, constraints and creates a right, allocates responsibility and limits or creates a duty. Regulation may take the form of legal restrictions that are promulgated by a federal authority. It also has contractual obligations that are meant to bind the parties involved. This report endeavors to explain how legislative reactions to regulate different business activities can be prevented. It also endeavors to explain about the challenging arguments presented by Professor Manne and the proposal he made for unregulated corporate system.

Corporate scandals that lead to business regulation

Numerous corporate scandals have prompted reforms on the business practices resulting increasing regulation. Some of these corporate scandals include cover-ups, greed, and dishonesty. The business corporations should answer back to the public: for this reason, they should uphold responsibility and accountability in the corporate behavior.

How government policy affects businesses

Governments are responsible for the creation of frameworks and rules in which different business organizations are able to compete against each other. Sometimes the rules change and in turn force the organizations to change the way they operate. The ways in which the regulation procedures by the government affect businesses are many. First, the government interferes with the economic policy. For example, between the years 1945 and 1979, the federal government interfered with the economy through the creation of state-run industries that took the form of public corporations.

Another way through which the government interferes with the economy is through the increase of tax. Corporations are forced to pass the costs to consumers. The government can also interfere with the economy policy through the increment of interest rates. Increase in interest rates raises the costs to the business corporations borrowing money. This forces the consumers to cut down their expenditures and in turn leading to a fall in the business sales (Manne, 2003, p. 1381).

Regulation

Government regulations vary from state to state where a statute confers the legal status of a corporation. Countries such as America have made it illegal to bribe either private citizens or government. It also forbids the facilitation of payments to government bureaucrats so that they can execute their duties more quickly (Ray, 2011, p. 6).

Can Manne's arguments and unregulated corporate system accommodate the ethical principles?

Yes, his arguments accommodate the ethical principles. Manne argues that regulation by the government on businesses does not prevent abuse of office. He claims that legislation and regulation by the federal government cannot prevent financial scandals. He claims that they have a long lead-time and that the law cannot prevent fraud and crime. I agree with Manne's viewpoint that the law should be abolished. I believe without laws and regulations, fraud, and misconduct in companies will increase. There will be no rules to govern companies and managers as well as executives will take advantage of this fact. They will misappropriate the finances, and in the end will reduce the sales of products. This will greatly hurt the economy. However, the ethical code of conduct stipulates that abuse of office is illegal and that anyone who participates in abuse of office should be severely addressed.

He further claims that regulations failing to detect major problems must be eradicated. He says that regulations intervene in trivial issues. I believe that the lack of laws and regulations will give employees the leeway to do that which they believe it is right even when it is not. This will increase problems in corporations and will violate the code of ethics. Equality of all the members of the corporations will be disregarded. This will increase the animosity between the employees and in turn affect the performance in the end (Manne, 2003, p. 1384).

Manne also criticizes the government efforts to safeguard the rights of stakeholders and shareholders. This is in line with the moral principles that claim that all individuals need to equal treated. He supports his arguments by claiming that the government intervention does not treat everyone equally, and that it increases the administrative burden on the board as well as the management. This argument accommodates the ethical principle where everyone's decisions and rights need to be safeguarded (Ray, 2011, p. 7).

Every state is given the mandate to enact their own laws and some states such as Delaware misuse this freedom. For example, Delaware law denies the stakeholders to air out their views in the management and operations of the company. Civil law suits are shielded concerning control and management of stakeholders. For this reason, minority shareholders may be harmed. Shareholders are also forbidden from challenging the decisions made by the board. The board has control over the nomination of board members and excludes minority shareholders. For this reason, they violate the ethical code of conduct where freedom of speech is compulsory. This leads to numerous financial misappropriation cases (Manne, 2003, p. 1386).

Manne supports the unregulated system like those offered in Delaware. He claims that it gives the management the powers to control and manage shareholders. However, I do not approve of his proposal of an unregulated system. This is because it gives the management the leeway to carry out unscrupulous activities without regards to the rights and freedom other individuals in the corporation such as shareholders. Manne is interested in safeguarding the rights of investors only. However, ethical principles are vital for the smooth running of the corporation. The unregulated system that is being proposed by Manne would not safeguard the constitutional rights to prevent the manipulation of minority shareholders and investors. It would not prevent abuse of office and power (Ray, 2011, p. 9).

His arguments fail to recognize most of the OECD principles. He rejects the shareholders' rights as well as disclosure. The only duty imposed on the Board according to Manne is to prevent the occurrence of fraud in the corporation. On the other hand, the OECD principles are responsible for charging the board with the responsibility on charging the board with the protection of shareholder's interests. Therefore, his proposal on the unregulated system is not in line with the OECD principles.