Ethical Values and Responsibilities of Directors in the Digital Era

Ethical Values and Responsibilities of Directors in the Digital Era

Duane Windsor (Rice University, USA)
DOI: 10.4018/978-1-7998-2011-6.ch005

Abstract

This chapter addresses the ethical values and responsibilities of corporate directors in the unfolding digital era. Explanation for directors of private or public companies in the digital era involves three principal dimensions. The first concerns the ethical values and responsibilities of any director defined independently of the company or industry or era. The second concerns the additional ethical responsibilities of a director in the digital era, which imposes further conditions on directors. These conditions are heightened for directors of high technology, digital era-oriented businesses. The third dimension concerns whether ethical values and responsibilities of directors vary across countries and legal systems. This dimension separates into legal standards for directors and cultural variations in attitudes and behaviors of directors and managers. The chapter offers real company illustrations for these three dimensions. The chapter recommends four solutions: better and better prepared directors, sounder regulation, and a more unified theory of ethics and responsibility.
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Background

Businesses, and their stakeholders, have entered into an expanding and evolving digital era and knowledge economy (Ho, 2018; Sarrazin & Willmott, 2016; Swaminathan & Herzinger, 2018). The essential feature of the digital era is an accelerating shift in the 21st century from the industrial revolution of the 19th and 20th centuries to a new economic domination of information technology (IT). Broadly defined, IT includes artificial intelligence (AI) systems, communications modes, machine learning, and robotic systems. The digital era involves new business models, new interactions with stakeholders, and expanding access to private information that increase importance of and stress on ethical values and responsibilities of the directors of private and public companies. There will be increasing stress on proper CG principles and processes in this digital era.

Key Terms in this Chapter

Digital Era: The 21st century shift from the industrial revolution to a new economic domination of information technology.

Enterprise Risk Management (ERM): Preparation for identifying and handling any potential dangers or hazards to the business and communication, and communication of action plans to stakeholders.

Professionalism: Adherence to a code of conduct appropriate to a profession and defining virtuous behavior of a professional in terms of what to do and what not to do. One might define a profession in terms of required governmental licensing (e.g., accounting, law, or medicine) or higher education (e.g., MBA or non-medical doctorate).

Stakeholder Theory of Management: An alternative to shareholder wealth maximization that emphasizes instead the responsibility of directors and managers to seek increased welfare for as many stakeholders as feasible.

Shareholder Wealth Maximization: A doctrine or theory that the primary (but not sole) responsibility of directors and managers is to seek increased wealth for the shareholders.

Responsibilities: Directors’ and managers’ legal and ethical obligations or duties to various stakeholders of the business.

Ethical Values: Assign degree of importance to anything or anyone according to morally based principles, rules, or norms that define virtuous behavior.

Cybersecurity: Security measures against various forms of cyberattacks on the business.

Corporate Governance (CG): The set of principles, codes, and relationships within which corporate management makes decisions and set policies. Codes may be legal and mandatory or private and voluntary.

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