Code of ethics and employee governance

Purpose - The purpose of this paper is twofold: first, to add to the debate on governance and, second, to describe a value set theory of the firm. Design/methodology/approach - The methodology has centred on good governance amongst employees – management and workers alike. Findings - It is noted that committees are appointed in firms to ensure that good governance is practised across a range of issues to do with audit, remuneration and appointment. However, the debate on governance has largely overlooked the importance of good governance amongst all employees. It was found that governance at the employee level requires a code of ethics that is not just about right and wrong, but emphasises a contractual sense of duty to fellow employees as stakeholders in the firm. This defines the essence of obligation and duty within the stakeholder firm, the s‐firm. Practical implications/limitations - One practical implication of the paper is that the practice of good governance at the employee level should begin by asking whether the employees as rational individuals in a state of nature would freely have agreed to the contract or work arrangement within the firm that obligates them to do X. A value set theory of the firm could assist employees by allocating responsibilities among all employees in such a way as to maximise joint effort. Originality/value - The paper proffers a new approach to understanding governance and it concludes that every rational being is in the state of being an end in itself – a firm should teach people morality. An s‐firm teaches people morality. This is the quintessence of employee governance. The paper should be of value to shareholders, workers, management, trade unions and commentators on the theory of the firm.