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Globalisation, Corporate Failures and Corporate Governance

Enron, WorldCom, Parmalat, and various other failures of global corporations bring out some governance issues and have increased attention to the role of business ethics. Managers and CEOs of these companies must be considered responsible for all of these failures and these are cases of "corporate irresponsibility". Many people have the opinion that if corporations were to behave responsibly, most probably corporate scandals would stop.

Corporate governance protects firms against some long term loss. When corporations have social responsibilities, they calculate their risk and the cost of failure. Firstly, a company has to have responsibility to shareholders and also all stakeholders which means that it has responsibility to all society. Corporate failures have an important impact on all society also. In particular, big scandals such as Enron have sharply affected the market and the economy. Various stakeholders (e.g. employee, customer, consumer, suppliers etc) as well as shareholders and regulators of the firm have a responsibility to ensure good performance. Therefore, corporate governance is not only related to firms but also related to all society. So changing the role of corporate responsibility shifts the focus from the real problem that society needs to address.

One of the reasons for this result is increasing competition between the company and the market. Managers tend to become much more ambitious than before in their behaviour and status in the globalised world. Thus we have to focus on corporate and managerial behaviour. The question is how to behave as a socially responsible manager and how to solve this vital problem in business life and in society. In the business world there are always some rules, principles and norms as well as regulations and some legal requirements.

However, to be socially responsible one must be more than simply being a law abiding person who has to be capable of acting and being held accountable for decisions and actions. The problem is the implication for all of these directions for company and managerial behaviour. On the other hand, one perspective is that a corporation is a "legal person" and has the rights and duties that go with that status-including social responsibility. In the case of Enron, managers were aware of all regulations, even though they have known all irresponsible and unethical problems in the company management, they did not change their approach and behaviour.

The conclusion is that it is not always possible to control behaviour and corporate activity with regulations, rules and norms. So another question arises in this situation, that if people do not know their responsibility and socially responsible things to do and if they do not behave socially responsibly then, who will control this problem in business life and in the market. The concern is that the social responsibility implication of the company cannot be controlled through legal means. This is the only social contract between mangers and society and stakeholders of the company and for responsible and accountable behaviour.

Firms will consciously need to focus on creating value not only in financial terms, but also in ecological and social terms. The challenge facing the business sector is how to set about meeting these expectations. Firms will need to change not only in themselves, but also in the way they interact with their environment (Cramer,2002).


As we can see, globalisation has an enormous effect on society and business life which can be manifest in a number of different ways. So business life needs more regulation and proper and socially responsible behaviour than before. In this chapter we have shown the relationship between corporate governance and globalisation. We pointed out that the relationship between business failure/ scandals increased after globalisation, and good governance is required to address this problem.

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