Governance and ethics are often treated as separate concepts, but this is a flawed approach to management. Governance is a system of rules and structures designed to ensure integrity, transparency, equity, accountability and diversity, while ethics is often seen as a matter of individual values. But this separation is artificial. Considering corporate view, they one can´t exist without the other. Governance without ethics is a mere bureaucracy. Ethics without governance is just rhetoric.
Governance as a system, ethics as a culture
Board members, executives, audit committees, and risk management frameworks form the backbone of corporate governance. They establish controls, accountability mechanisms, and decision-making structures to safeguard the organization. However, even the most sophisticated governance systems fail when ethical leadership is absent.
Ethics, in turn, is not about formal rules – it is about culture and decision-making in practice. A company may have a governance framework that appears robust on paper, but if its leaders and employees are willing to bypass ethical principles when convenient, that framework is meaningless.
When governance lacks ethics
History is full of corporate failures where governance structures existed, but ethical leadership did not. Some of the most infamous cases include:
• Enron (2001): a well-documented governance framework was in place, but ethical misconduct led to one of the largest corporate frauds in history.
• Volkswagen (2015): despite compliance structures, executives engaged in large-scale emissions fraud, prioritizing profits over transparency.
• Americanas (2023): a financial scandal that exposed how even governance mechanisms can be manipulated when ethical oversight is weak.
These cases, among others, prove that governance alone cannot prevent misconduct. Ethical leadership must guide governance principles in real-world decision-making.
The board’s role in ethical governance
A board’s responsibility goes beyond enforcing rules and ensuring compliance. It must actively shape the organization’s ethical culture and set expectations for leadership behavior. This requires:
1. Beyond Compliance: ethics should not be reduced to a compliance checklist. Boards must evaluate the ethical reasoning behind strategic decisions.
2. Encouraging Ethical Decision-Making: open discussions on ethical dilemmas should be a core part of leadership meetings.
3. Holding Executives Accountable: governance fails when boards tolerate ethical lapses at the top.
4. Aligning Incentives with Integrity: executive compensation must reward ethical decision-making, not just financial performance.
5. Ensuring Transparency: Ethical governance prioritizes proactive risk management over crisis-driven damage control.
Ethical governance as a competitive advantage
Companies that successfully integrate governance and ethics gain a strategic edge. Investors, consumers, and employees increasingly demand authentic ethical leadership. In an era where ESG (Environmental, Social, and Governance) standards are shaping business decisions, ethical governance is no longer an abstract ideal; it is a necessity for long-term sustainability.
The challenge for modern leaders is not simply enforcing governance rules but embedding ethics into the decision-making process at every level of the organization. Only when governance and ethics work together can companies build lasting success, resilience, and trust.
Bringing ethics into governance: practical steps for boards
Understanding the link between governance and ethics is not enough: leaders must actively embed ethical decision-making into corporate structures. Here are three key questions, among others, every board should ask to ensure ethical governance in practice:
1. Are ethical considerations influencing strategic decisions?
Ethics isn´t a compliance checkbox. Boards must ensure that financial goals and ethical standards are aligned, preventing short-term profits from overriding long-term sustainability.
2. How do we measure ethical culture beyond policies?
Governance structures may exist, but how employees, executives, and stakeholders behave matters more. Boards should track indicators such as whistleblower reports, employee trust surveys, and ethical risk assessments to gauge real ethical commitment.
3. Is executive compensation reinforcing ethical leadership?
Incentives drive behavior. Boards should ensure that compensation structures reward integrity and long-term value creation, not just financial performance at any cost.
By incorporating these questions into board discussions and governance frameworks, companies can move from ethical rhetoric to ethical leadership in action.
Final Thought
Strong governance without ethics is fragile. Ethical leadership without governance is ineffective. The real power lies in their integration. The principles of governance (integrity, accountability, equity, transparency and diversity) are rooted in ethics. Governance applies ethics, and ethics makes governance effective.
Companies that understand this balance are not just compliant; they are built to last.
