DOMAIN 1

Governance and Business Ethics (5–15%)

1.1 Corporate/Organizational Governance Principles

1.2 Business Ethics

1.3 Corporate Social Responsibility

1.4 Sample Practice Questions

1.1 Corporate/Organizational Governance Principles

The issue of corporate governance is a direct outgrowth of the question of legitimacy. For business to be legitimate and to maintain its legitimacy in the eyes of the public, its governance must correspond to the will of the people.

(a) What Is a Corporation?

(i) The Legal Entity

A corporation is a legal entity and is entitled to protection of the Fourteenth Amendment. In cases of piercing the corporate veil, courts have decided three things:

1. There was no right to pierce the veil for a personal injury victim.
2. There was a right to pierce the veil when a girl who drowned in a company’s swimming pool would be compensated, saying that parent companies or shareholders would be treated as liable when they provide inadequate capitalization and actively participate in the conduct of corporate affairs.
3. There was no right to pierce the veil when insiders who become creditors of a company are subordinated to other creditors when the company becomes insolvent (known as the equitable principle or the Deep Rock doctrine).

(ii) Corporate Constitution

The essential elements of a corporate constitution include corporate charter (bylaws), director power and accountability (right to manage), and shareholder rights and duties (approve sale and purchase of ...

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