The application of ethical standards within corporate governance : the case of companies listed on the Malta Stock Exchange plc

Abstract

Corporate international scandals linked with immoral decision-making triggered an overhaul of corporate governance policies on a global scale. Scholars argue that acting legally does not necessarily lead to high ethical standards. This scenario coupled with the absence of in-depth local academic research on the subject matter has driven the author to investigate the extent of ethical standards application within the local corporate governance arena. The research commences with an in-depth critical analysis of business ethics theories. The study reviews theories of why companies should be expected to behave ethically including Sternberg's theory on why acting legally and ethically correct contributes to a firm's long-term profitability and sustainability. Conversely, opposing views claim a company should not be expected to behave ethically since it does not have a conscience. These theories were tested on 14 companies listed on the MSE. The methodology applied is focused on qualitative and primary research data gathering holding interviews with company officials based on a self-determined sample. The field research findings reveal that the majority of companies have basic corporate governance policies and procedures that promote good ethical behaviour in line with regulatory requirements. Nevertheless, the study discloses that formal ethical frameworks complementing their corporate governance program is lacking. Evidence of this is the absence of formal ethical training, ethical audits, scepticism on the whistle-blowing concept and considerable ambiguity on how ethical issues are managed in a formal way. Thus it is recommended that company officials are trained on ethical standards to improve competency subsequently leading to a formal ethical clause to be incorporated in their companies’ code of ethics/conduct. Companies should explore the possibility of introducing an ethics program and undertake annual ethical audits. Finally, the local Listing Authority should probe the launching of a Stewardship Code for institutional investors to instigate improved corporate accountability.