2. What is Ethics?
• It is the discipline that examines one’s moral standards (an
individual’s, a group’s or an entire organization’s) or the
moral standards of the society.
• Asks how standards apply to lives or their existence and
checks whether standards are rational or irrational
• It is the establishment of transparent norms of
interrelationships.
• It is a very practical approach towards attaining goals in an
environment that involves other people.
• Eg: Satyam Computers manipulating its financial
statements
3. Morality
• Is more individualistic.
• Does not require the enrolment of others.
• Or it can be privatized.
• It does not demand acquiescence from others.
• A moralist is not pressured to make morals workable
to others.
• Of course, moralists can have strong influence on
others, not necessarily because of any active act of
volition on the part of moralist
• Has more to do with right, than what is generally
acceptable or what is good, according to a general
view.
4. Ethics & Law
• Where there are laws and regulations in place,
abiding by the rules and regulations gives the
individual or organization the legitimacy of being
ethical.
• The example of Bajaj Auto,RIL, erstwhile Ranbaxy
etc.
5. Ethics & Ethos (Cultutre)
• Ethos is the spirit of a culture or era or community
as manifested in its attitudes and aspirations;
• Hence will have a role to play in the ethical
behaviours;
• The differences between two societies, say the US
and India;
• Ethos may undergo changes over time.
7. • Profit-an important objective of business;
• This objective gets over-emphasis in the current
market driven scenario;
• Contributes to many ethical issues:
Examples(finance, labour, ads etc etc)
8. Importance and benefits
• Lesser energy and resources wasted on litigations;
• A satisfied set of employees, shareholders and
other stakeholders support the business for its
success;
• Markets usually assign weightage for ethical
companies;(Eg.Infosys,TCS Vs. Satyam)
• Business gets accepted as a worthwhile institution
of the society.
9. Ethical Theories
Four Broad types
A.Teleological Ethics Theories
B.Deontological Ethics Theories
C.Virtue Ethics Theories
D.System Development Ethics Theories
10. A.Teleological Ethics Theories
“Concept of goodness over and above the concepts
of rightness and obligation or duty or the concepts of
rightness and obligation are defined in terms of
goodness.”
Utilitarianism- proposed by philosopher Jeremy
Bentham(The said truth is that it is the greatest
happiness of the greatest number that is the measure
of right and wrong)-takes its cue from teleological
theories and hence according to utilitarianism, our
obligation or duty, in any situation, is to perform the
action that will result in the greatest possible balance
of good over evil.
11. Types of utilitarianism
Classical -Action right if & only if it produces the
greatest balance of pleasure over pain for everyone.(4
types –discussed later)
Act- and Rule(Act-we should perform the action that will create the
greatest net utility or produce the best overall results; Rule-a) a
specific action is morally justified if it conforms to a justified moral
rule; and b) a moral rule is justified if its inclusion into our moral code
would create more utility than other possible rules (or no rule at all).
Cost-Benefit based
Ethical Egoism holds that an action is good if it produces or tend to
produce results that maximize a particular person’s interest as
defined by the individual even at the expense of others.
Eudaimonism holds that an action is good if it promotes or tend to
promote the fulfillment of goals constitutive of human nature and its
happiness. Eg:A manager enforcing health & safety stds at work,
ensures fundamental, natural components of human happiness.
12. 4 types of Classical Utilitarianism
a. Consequentialism-rightness determined solely by
their consequences
b. Hedonism-utility identified with pleasure & absence
of pain-holds that only pleasure is ultimately good
c. Maximalism-action not only provides some good
consequences but provides greatest amounts good
consequences while taking into consideration bad
consequences too.
d. Universalism—consequences to everyone must be
considered
13. Ethical Theory of Immanual Kant
Kant tried to restore reasoning into the moral life.
Argued that there are certain things that we ought
to do and others that we ought not to do just
because we are rational.
Hence moral obligations have nothing to do with
consequences or end results but arises solely from a
moral law that is binding on all rational beings.
14. B.Deontological Ethics Theories.
a.‘Rights’Theories/The concept of a ‘Right’
Kinds of Rights
1.Legal and Moral rights( Eg.)
2.Specific and general rights-Some rights are specific
because they involve identifiable entities
(individuals, organizations etc.,) Eg. A Contract.
General-Apply to everyone-Eg. Right of speech
3.Negative and positive rights –
• Negative rights are correlated with obligations on the
part of others to refrain from acting in certain ways
that interfere with our freedom of action.
Eg. Trespassing into your property.
15. • Positive Rights-Impose obligations on other people
to provide us with some goods or services & to act
positively on our behalf
Eg(1)The right to health-the corporation has to
provide lots of services like garbage removal(2)The
right to transparency: BOD has to provide the
correct information to the stakeholders (fiduciary
role of BOD)
16. b.Social Contract Theories
An action is right if it conforms to the terms
agreed upon, conditions or rules for social well-
being, negotiated by competent parties.
Eg: The unemployment wages code specify
normative guidelines arrived at by consensus
The relationship that exists between the govt. and
the citizens of a country-by the citizens agreeing
to put some of their rights to a common ruler (the
govt.) and rulers agreeing to protect the interests
of the citizens in turn-even while no formal
agreement exists, can be considered to be a social
contract.
17. Social Justice Theories
An action is right if it promotes the duty of fairness in
the distributive, retributive and compensatory
dimensions of social benefits and burdens
Eg: Injury of non-smokers with secondhand smoke at
workplace.
Distributive Dimension -distribution of the health risk
burden
Retributive Dimension -imposition of
fines/penalties/punishments on responsible parties
Compensatory dimension -compensation to the
injured parties
Managers who adopt this approach puts emphasis on
adherence to std. procedures, usually decide by the
book regardless of consequences
18. C. Virtue Ethics theories
Habitual development of sound character traits determines
the ethical value of persons. For the virtue ethicist, building
character is what life is all about.
Character-the pattern of intentions, inclinations and virtues
that make a person/organization act ethically.
Will find persons with strong and weak characters
• Persons with strong character-possesses a consciously
cultivated ,intellectual, moral, emotional & social virtues to
achieve self-discipline to do the right thing.
• Persons with weak character-do wrong things or what is
truly harmful to them & make excuses for their
irresponsible choices in life.
19. Character can be of three types or at three levels:
Individual character (individual level)
Work character (work level)
Professional character (professional level)
Ind. Character ethics-holds that identification &
responsible development of human traits of nobility (like
courage, justice, gratitude, self-discipline, reliability, caring,
simplicity etc) determine the value of all human ethical
interactions. Eg: A person retaining his/her dignity &
prospects for happiness by living a virtuous life even after
losing all his wealth, health & even the loved ones for no
fault of him
20. Work Character ethics-holds that identification &
development of noble traits at work like competence,
creativity, honesty, fairness, co-worker appreciation,
loyalty, shared work pride, tolerance, empathy etc)
determine the ethical quality of work life. Eg: a manager
has to serve as a role-model for many of the traits when
facing global competition with a need to higher
productivity & effective team work.
Professional Character ethics-expertise, collegiality,
trust, truthfulness, autonomy, independence of
judgment, loyalty etc determine the ethical quality of
individuals in associational communities (workplace or a
social service orgn:)
21. D. System Development Ethics Theories
The nature and extent of the supportive framework
in organizations for continuous improvement of
ethical conduct determines the ethical values of
actions in organizations.
Eg: Managers create a culture supportive of ethical
conduct & implement systems towards achieving
this (like JW & Narayana Murthy)
Syst. Devpt. May target
a.Personal improvement ethics
b.Organizational ethics
c. Extra-organizational ethics
22. • Personal Improvement – by promoting personal
responsibility for continuous learning, moral
excellence directed at co’s goals.
• Org. Ethics-by promoting formal & informal
processes like systemic justice, caring, innovation in
ethical work cultures etc. (Eg: GE & Infosys)
• Extra-Org. Ethics- by promoting collaborative
partnerships ,diversity, social resp. like ecological
concerns, social & philanthropic concerns etc (Eg
Infosys Foundation, GE etc)
23. Values
A value is something considered worthy in and of itself
by a person, a group or an organization-a policy for
everyone to adhere to and believe in.
Values guide people. They identify what behaviour is
acceptable, and what is not.
Values constitute among the powerful tools in the hands
of managers-more powerful than rules.
May be explicitly stated or may be implicitly understood
and recognized by all.
Example:Wipro Values
24. WIPRO VALUES: What makes us true Wiproites
@Human Values: We respect the unique needs of
customers and employees. We are sensitive to their
differing needs in our interactions with them
@Integrity: We deliver what we commit. With
honesty, fairness, reliability and uprightness in
whatever we do
@Innovative Solutions: We consistently offer novel &
superior solutions to satisfy the needs of the
customer
@Value for Money: Delivering higher value to the
customer throu continuous improvement in quality,
cost and speed
25. The Mirror Test
JW asked every employee of GE to do the mirror
test-”Can you look in the mirror everyday and feel
proud of what you are doing?”
He argued that people who cheat are not doing it for
competitive reasons. ”Excellence & competitiveness
are totally compatible with honesty & integrity.---
People who cheat are weak”
26. Approaches to ethics
The approaches to ethics are basically linked to the
theories:
The utilitarianism approach
The rights approach
The justice approach-based on justice, fairness, impartiality
and equity
Virtue approach- actions shall be consistent with certain
morally acceptable virtues leading to full development of
humanity
The common good approach- the interlocking relationships
are grounded in ethical reasoning, respect and compassion
for others, especially to the under-privileged sections of the
society
27. Ethical Corporate Behaviour
Corporates fall in a wide range in terms of ethical
behaviours.
Companies like Satyam, Enron, WorldCom and of
late Wolkswagan etc belong to the group of
questionable ethical behaviours.
Companies like Johnson & Johnson, Intel, Mutual of
America Life Insurance etc belong to the group of
highly ethical behaviour.
28. Ethical leadership with Examples
There may occur many issues during the lifetime of a
corporate body.
Many a time leadership will be tested on ethical aspects.
Only leaders who have emotional fortitude will be able to
take tough decisions even if it means some kind of
sacrifices in terms of reduced profits, lesser returns to
shareholders, and lesser rewards etc will be able to take
the company over a long haul.
“The day we have to downsize, the day we have to
eliminate jobs, my name will be the first on the list.” said
William Flynn, currently Chairman Emeritus and formerly
CEO of Mutual of America Life Insurance to his employees
while he was the CEO.
29. Work Ethics
Work ethic varies at different levels of hierarchy.
At the basic level, it is about discipline(coming to work on
time), behaviour with subordinates, peers, and superiors,
being at the work place during working hours, not wasting
time of self and others, completing the tasks allotted to
them in the given time etc.
At the highest level it is about commitment and
accountability.
Another aspect could be protecting the interests of the
organization and not denigrating it to outsiders or creating
poor morale within the organization by negative
comments.
30. A person’s work place ethics may be influenced by the
corporate culture, the set of beliefs of the organization, the
organizational values, goals, norms and the manner of
solving the problems of employees.
Ethical issues at Work place
Gender, caste, religion, race and geographical
discriminations
Lack of fairness in the distribution of rewards and
promotions
Denying legitimate rights of employees
Harassment of various types
31. Ethics & Cultural Issues
Culture is a set of values, beliefs, norms, goals and means
of solving problems by members of the organization.
Culture is not something people do when they are on their
own, but when they interact with one another.
Culture influences ethical conduct at workplace.
An organization develops its own culture usually based on
the values of the founders or some leaders of influence
who followed them.
Assumptions that members of an organization share in
common also forms the organizational culture
Culture varies from organization to organization
Business ethics depends on creating a definite culture that
involves and enthuses all employees within an
32. Hence, business ethics demands that cultural norms are
practiced in such a manner that relations between people
are transparent.
33. How to create an ethical corporate culture?
Choose the right leader.
Adopt a code of conduct.(UniCredit: Integrity
Charter)
Adopt transparency as a policy.
Hire the right people.
Fire the wrong people(Remember the GE Value-
Performance matrix)
Reward those who show and promote ethical
conduct.(UniCredit: Integrity Champion)
34. Environmental Ethics
Today, more than ever, people are concerned about the
environment, and issues like global warming and its
attendant problems are looming large on us.
Both governments(States) and corporates have
responsibilities to preserve nature for all creatures on earth
in order to maintain ecological balance.
All stakeholders –public, media, consumer and
environmental groups in addition to States and corporates
have also taken lot of interest in the matter.
Businesses and corporates have a lot of responsibility to
take as normally production of goods results in some kind
of destruction-destruction of forests, use of scarce water,
over use of irreplenishable resources, pollution of
atmosphere and water etc.
35. Environmental preservation: Role of stakeholders
The major stakeholders are Public, Media,
Environmental groups, Corporations, Investors&
Government.
Public: Public opinion is crucial on the issue. The public can
exercise power to support interest groups, elect and lobby
officials, pay taxes, work for companies, consciously buy or
reject products, and support and reject government policies.
(Eg: Mavoor Rayons, Calicut)
Media: exerts considerable influence over the public perception
of environmental issues; it disseminates information to the
public on various issues of importance.
36. Environmental Groups: Many env. advocacy groups have
evolved; while some are radical in their approach and try to
block corporate or government activities, many are moderate
and try to co-operate with corporates and governments. There
has been a change in approach- from simply bringing attention
to working with other stakeholders to find solutions
(Eg:Greepeace).
Corporations: traditionally were insensitive to the
environmental issues; but because of regulatory measures and
pressures from environmental groups and public, corporates
have altered their stance on the issue. Many firms today work
on ensuring that no damage to environment is created.
Investors: today, investors are also concerned about the various
ethical issues like environmental harms, child labour, gender
discriminations etc. Many investors like mutual fund have
decided to make their investments in ethically acceptable
37. Financial Times has constituted the Financial Times FTSE4 Good
Index and Dow Jones has constituted Dow Jones Sustainability
World Index, both of which have become significant in
screening good corporate citizenship of companies.
Government: the state has a responsibility to ensure that the
society gets right kind of leaving free from ethical violations –
be it on environment, be it labour, be it on investments. In
order to achieve, the Govt. creates laws & regulations for the
business and corporates to follow. In case of violations,
members of the society can take recourse to laws and
regulations. They also try to promote the causes of good
environment by offering certain incentives(like tax exemptions
on investments on pollution control equipments, use of non-
conventional energy etc)
38. Ethical Dilemma
It is a moral situation in which a choice has to be made
between two equally undesirable alternatives.
For example, an organizational decision maker may face a
choice between two or more options that will have impacts
on (a) the company’s competitiveness and profitability; and
(b) its stakeholders.
Say,what is in the interest of the shareholders may not be
of the interest of customers or society.
The leaders at J&J probably might have faced a dilemma if
there was no Corporate Credo for them to bank upon.
Corporates have to maintain a proper balance on the
demand from various stakeholders.
Read Chapter 10.
39. Ethical Displacement
Most of the time when development efforts take place in a
society, it may involve displacement of people, many a time
depriving them of their means for livelihood. So, when
people get displaced for some development, the agency
who handles development have to act ethically. Normal
course of action usually resorted by industry is to offer jobs
to one member of the families who get displaced.
Eg. The first chosen location for making Nano by Tata
Motors.
40. Ethics in functional areas
While business ethics may pervade across the corporate as
a whole, there are specific functional-related ethical issues.
Ethical issues in Operations
Safety of the worker
Safety of the product
Quality of the product(Eg:Volkswagen)
Harming the environment
Closure of production facilities
Rights of workers
41. Ethical Issues In Marketing
Marketing is playing a stellar role in being instrumental in
developing and delivering products of great value to
society.
It not only meets the known need of customers but also
create an “Aha!” feeling by even surprising customers by
meeting their unarticulated needs.
While the above aspects are positive, there are certain
negative aspects that may arise from marketing: it
becomes instrumental in making and delivering unsafe
products, selling products that have certain side effects,
encourage use of materials like plastics that are not bio-
degradable and hence harmful for the environment, banks
compromise on the underlying confidentiality by supplying
customer data bases to other marketers etc.
42. Persuade people to buy products by hiding certain
information,
Promote through wrongful advertising(Eg.Fair &
Lovely) etc.
Failing to meet service obligations after promising
them to get orders.
43. Ethical Issues in Finance
Can be classified broadly into two:
Financial Accounting
Financial Management
In the area of financial accounting, ethical problems arise when
management, in their anxiety to project better performance,
resorts to fudge the financial statements- like inflating
revenues by making bills for items which are yet to be
manufactured and supplied, postponing revenue recognition to
future months if the future order book position is not very
bright, deviating from accounting standards without proper
declaration, not disclosing certain transactions etc.
A large number of corporate governance failures have primarily
occurred due to frauds in accounting in which auditors have
colluded with company managers.
44. Financial Management
Ethical issues in finance revolves around three aspects:
Ethical issues in financial markets
Ethical issues in financial services and
Ethical Issues involving finance professionals
Financial Markets
W r t financial markets, ethical violations happen in terms of
information flows-some people may have access to privileged
information and make extra-ordinary gains, while others who
don’t have such access may suffer losses; markets gets fooled
by certain new innovative instruments in the hands of the
financial whiz-kids etc.
Various market regulators create regulations to prevent such
violations from happening but market players find ways and
means of circumventing the laws and regulations.(Read Ch 7)
45. Ethical Issues in Human Resources: mainly
Discrimination issues; gender, caste, race, geography,
performance, experience, disabilities etc.;
Denying democratic rights to workers to unionize, bribing
union leaders etc.;
Privacy issues: in organizations, lot people from different
castes, religions or race may work together but each of
them have a right to pursue their social, political or
religious beliefs, personal lifestyles etc which are private
matters and any intrusion into them could be ethical
violations. Tapping of phones, observing them over CCTV at
places except work places etc could also be violations. In an
internet era, lots of privacy violations can happen.
46. Safety & Health: Most of the industrial equipments and
practices are hazardous. The hazards could result from high
speed and noisy machinery, processes requiring high
temperatures, handling highly inflammable materials, and
sometimes the nature of work itself like in construction of
underground and underwater tunnels, oil drilling and
mining. Accidents involving death, injuries and illness are
very common the construction jobs. Corporates do not
take care to install safety precautionary measures as they
may involve cost and usually dismiss them as occupational
hazards.
The pressure for increased productivity is also creating
mental stress in employees.
47. Performance appraisal: This is yet another area where
unethical practices are happening is the performance
appraisals of employees. Many a time the process involves
bias or lack of fairness. Extraneous factors like assessee’s
personal equation with the assessor, or biases on caste,
community or religion many a time influence the
appraisal.
48. Ethics In Information Technology
Plagiarism: with internet sources available, the instances of
plagiarism have been increasing.
Piracy: Illegal copying of software; it is estimated that about
50% of all the programs in PCs are pirated copies.
Programmers spend months or even years designing
software programs.
Hacking: it is breaking into a system and very often is
dangerous and hence unethical. But, there may be a positive
side of hacking to break into crimes.
Viruses: Writing and spreading virus programs can lead to
disastrous consequences like loss of data, system crashing
etc.
Health issues: Continuous working in front of computer
screens have found to be leading to health issues like mental
49. Recent Challenges in Business Ethics
Ethical dilemma
Shareholder Vs. Stakeholder conundrum
Corporate Social Responsibility or Socially
Responsible Business
Day-to-day confusions(as we discussed in Ethical
Rule of Thumb)
One individual can create ethical violations that can
affect many and even the organization, however
meticulous care leaders take to create an ethical
environment.
50. Ethics in Different Countries
Countries or societies vary based on the culture
they have, values they imbibe and systems of
interaction that exist. Some countries are more
transparent and open in their approaches while
some countries or societies are closed and opaque.
Some societies are corrupt and to get things done,
they resort to corrupt practices. Transparency
International is an organization that has created an
index for corruption (Corruption Perception index)
and publishes the list of countries based on the
index every year. The score varies from 0(highly
corrupt )to 100(very clean).
51. According to the 2014 List with 174 countries,
Denmark tops the list with a score of 92 followed by
New Zealand with 91 and Finland 89.United
Kingdom is at 14th
with a score of 78,US at 17th
with
74,India at 85 with a score of 38,while China is at
100 with a score of 26,Brazil at 69 with a score of
43, Russia at 136 with a score of 27 and South
Africa at 67 with a score of 44.
52. Corporate Governance
Corporate Governance is an umbrella term
that includes specific issues arising from
interactions among senior management,
shareholders, boards of directors and other
corporate stakeholders.
Philip Cochran & Stevan Wartick, 1988
53. Another definition which is more precise for
practice:” CG deals with the appropriate board
structures, processes and values to cope with the
rapidly changing demands of both shareholders and
stakeholders in and around their enterprises”
Bob Garratt in Thin On Top
54. CG in a limited liability company
Regulators
Shareholders
The Board Other
Stakeholders
Top Management
Auditors
55. Since the board is the legitimate body involved in
directing the corporation in its relationship with
other stakeholders and regulators, CG is said to be
the discipline concerned with the structure and
processes of the board & its relationships with
shareholders, regulators, auditors, top
management and any other legitimate stakeholders
56. Corporate Governance initiatives
Global Scenario
The first ever organized initiative :Cadbury committee
in UK 1992 ; submitted the report titled
“The financial aspect of CG”
Advocated
• I,NEDs
• Audit Committees
• Separation between Chairman & CEO
• Remuneration Committee
• Code of best practices
57. Other initiatives
• Hilmer Report – Australia – 1993
• Greenbury Report – UK – 1995 – On Remuneration
of Ds.
• Hampel Report in UK – 1998 –(to check whether
changes in the CG system reqd- no major changes
but more common sense than box-ticking
recommended)
• Public Company Accounting Reform and Investor
Protection Act (Sarbanes – Oxley Act – 2002 –USA)
• Higgs Report – UK 2003 – Role and Effectiveness of
NEDs.
59. Clause 49 of the listing agreement
@ Originally issued in February 2000
@ Compliance by Group A companies March 31,2001
@ Compliance by other companies-Cos with
minimum Paid-up capital of Rs.10 crores and
networth Rs.25 crores –by Mar 31,2002 and
remaining listed cos with paid-up capital of Rs.3
crores or networth of Rs.25 crores by March
31,2003
Contd….
60. Clause 49 amended
@ Compliance by April 1,2005.Extended to Dec
31,2005 after SEBI meeting on March 23,2005
@ Tighter qualification criteria for independent
directors
@ Time gap between two board meetings-3 months(4
months)
@ Audit committee meetings- min 4(min 3)
@ Audit committee members shall be financially
literate and at least one should have
accounting/financial management expertise
@ Wider role for the audit committee
61. Dual regulation in India for CG
Company Law(Broader, mostly incorporation
related aspects of CG)
Clause 49 of SEBI(mostly capital market related
aspects of CG)
There used to overlaps which have of late been
taken care of by the 2013 Company Law
62. A typical board consists of the following types of
Directors:
Promoter Directors and their Nominees
Whole-time directors(Executive directors) and Part-
time directors(Non-Executive Directors)
Independent directors
Institutional nominees
63. Directing Is Not Managing
Directors shall have a “brain-on” rather than a
“hands-on” attitude
Directors’ task is to continuously overview of four
(opposing) forces of
a. Organizational effectiveness-LT customer
perception (good value for money)
b. Organizational efficiency-ST focus on cost reduction
& efficiency gains
c. Board performance-external focus-competitive
(strategic) positioning
d. Board conformance-internal focus-pre-set goals of
accountability to stakeholders
64. Governance structure in India and abroad
Board and Committees of the Board
Committees
1. Audit
2. Remuneration/Compensation
3. Nomination/Corporate Governance
4. Investor Grievance
5. Special Committees – MCs
- CODs etc.
65. The Ideal Board (A Wish List)
$ Decide on the role-watchdog or pilot
$ Have a board charter for governance
$ Independence in thoughts, attitude ie substance
rather than form
$ CEO & the entire board should understand that
collegiality & Collective wisdom will result in
performance
$ Periodical review of performance of the CEO by the
board & constructive feedback
$ Proper induction & orientation for new recruits on
the board by chairman/ a senior member
Contd…
66. Contd…
$ Self-evaluation of the board at frequent intervals
$ Continuous learning for existing directors
$ Stack the board with talent
$ Performance than conformance
$ Plan for succession (both CEO & Director level)
$ Treat board as a competitive weapon for gaining
competitive advantage
67. Corporate Governance Failures
Corporate governance failures occur when corporates and
their boards don’t act in the requisite manners or when
they violate good governance principles. Once failures
happen, that will attract lot of publicity and everybody
concerned will try to find scapegoats. All interested parties,
regulators, law makers, accounting and auditing related
bodies, corporate governance experts, investor bodies,
rating agencies, organizations monitoring corporate
governance and even Government will suddenly spring into
action. Deficiencies in the governance processes and
loopholes or shortcomings in laws or regulations will
suddenly be revealed. But, very often the pains and lessons
will be forgotten, till the next episode of failure happens.
68. While the organizations and board of directors
have inbuilt mechanisms for detecting poor
governance practices through the structures
created, very often failures happen because these
mechanisms fail to act.
Some of the reasons for failures:
Corporates don’t distinguish between management and
governance functions.
Positions of Chairman & CEO are usually combined in one
person.
IDs don’t act their designated roles; many a time the
independence of the IDs itself becomes questionable.
In family managed companies, promoters will play an
overwhelming role.
69. Lack of rigour by the audit committee.
Lack of rigour in the appointments of CEO and other
directors including independent directors.
Failures in disclosures.
Too much of pressure on CEO and the organization to
better performance every quarter.
Lack of involvement of investors other than promoters.
White collar crimes were given a lenient view in the earlier
era.
Collusion between management and auditors to inflate
profits or suppress information.
Last, but not the least, corporate and executive greed.
70. An example for corporate governance failure in
India is that of Satyam Computer Services Ltd.,
which occurred in 2009. (For details, refer
Corporate Governance by Kumar, pp11-16,OUP) .
From a global perspective, there are a number of
examples, the best one provided by Enron(Refer
Kumar,pp65-73). Others include WorldCom, Global
Crossing,Tyco International(US), Parmalat
(Italy),Adelphia (Netherlands) etc.
71. General Ethical Issues
Those that have binding on governance are mostly in the area
of finance, HR and marketing.
In the finance area, it can be related to audit committees
(constituted mostly of Independent Directors), accounting and
auditing bodies, auditors, rating agencies, analysts(so called
gatekeepers).One of the reasons for the ethical violations is the
conflicts of interests.
In marketing, it is mostly related to taking customers for a
ride(through wrong claims on products) or through restrictive
trade practices.
In HR, it could be related to violation of labour related laws &
regulations
Regulators have of late made stringent regulations to include all
these so called gatekeepers in the context of good governance.
72. Court verdicts
Court verdicts in matters related to corporate
governance have of late become severely punishing
even in India.
In the case of Satyam, while no action has been taken
against the independent directors, the CEO and top
management have been handed jail terms along with
the individual auditors and the auditors have also been
barred form practicing auditing profession for life.
In US, the punishments are far more severe than in
India, including independent direct ors.
73. CSR & Its Significance in Business
Businesses offer products or services that help
members of the society in many ways.
Businesses thrive because members of the society
buy their products or services. Businesses take and
use lots of resources from society.
Again, while indulging in the economic processes of
production or service, they also at times harm the
society and its inhabitants.
Hence, it is believed that businesses have a serious
responsibility towards the society or they must do
things in return for the way the society helps it to
achieve its objectives and goals.
74. Even though businesses do lot of good to the
society, by giving them products and services that
improves the lives, by and large public considers
business as self-serving for the people behind them.
Indulging in CSR improves the acceptability of
businesses in the society.
It improves the profiles of individual companies in
the marketplace.
75. Social Audit
It is the process of evaluating a firm's
various operating procedures, code of conduct, and
other factors to determine its effect on a society.
The goal is to identify what, if any, actions of the firm have
impacted the society in some way.
A social audit may be initiated by a firm that is seeking
to improve its cohesiveness or improve its image within the
society. If the results are positive, they may be released to
the public.
For example, if a factory is believed to have a
negative impact, the company may have a social audit
conducted to identify actions that actually benefit the
society.
76. The need for social audit
Social consciousness
Monitor unethical practices
Social accountability
Informative system
Evaluating performance of the various CSR
initiatives
77. Advantages of social audit
Trains the community on participatory planning
Encourages community participation
Benefits everybody including disadvantaged groups
Promotes collective decision making sharing of responsibilities
Develops people and social capital
Limitations
Cumbersome & time consuming
No standard methodology
Definition of scope difficult
Subjective
Lack trained people and trainers
Limited practical utility
78. Examples of Social Audit in India
Tata Steel was the first company to do a social audit
in India(in 1982).They did it again 1992 and 2003.
Other useful information
In France, a social audit is mandatory as part of the
annual report.
79. Corruption
Is the dishonest or faudulent conduct by those in
power
Lots of such acts happen in the corporates
It could be compromises in quality of products
/services, offering bribes to get orders/favourable
decisions, make changes in accounting practices or
financial reports to make numbers, poor disclosure
of facts etc.
80. Whistle Blowing
Is calling attention to wrongdoings that happen
Many corporates have instituted whistle blowing
policies. Eg.Infosys(Ref. Moodle)
Initially it was non-mandatory requirements by SEBI
under Clause 49 but made mandatory from Oct 1,
2014
The mechanism would also need to have necessary
safeguards to protect whistle-blowers from
victimization
81. Privacy
Privacy refers to an individual’s right to be free from
intrusion or interference by others. It is a fundamental right
in a free and democratic society.
Privacy issues assumes lots of importance in organizations
where people work long hours together and share official
secrets.
In this context, privacy refers to protecting a person’s
private life from intrusive and unwarranted action by
employers.
Individuals have privacy interests in relation to their bodies,
personal information, expressed thoughts and opinions,
personal communications with others, and spaces they
occupy.
82. Religious ,social and political beliefs,personal
lifestyles etc are private matters which everyone
wants to safeguard from public gaze.
Another important aspect of privacy is the right to
control information about oneself.
Privacy is respected if an individual has an
opportunity to exercise control over personal
information by consenting to, or withholding
consent for, the collection, use and/or disclosure of
information.
Workplace surveillance through CCTVs, tapping of
phones, reading computer files without the consent
of employees are all breaches of privacy.
83. Confidentiality
The ethical duty of confidentiality refers to the
obligation of an individual or organization to
safeguard entrusted information. The ethical duty
of confidentiality includes obligations to protect
information from unauthorized access, use,
disclosure, modification, loss or theft.
84. Trade Secrets
• A trade secret or intellectual property is confidential
information which allows a business to have a competitive
edge over their competition. This could be anything from a
sales methods, distribution methods, consumer
profiles, advertising strategies, lists of suppliers and clients,
manufacturing processes, designs, and formulas.
Eg: The Coca-cola formula, or the recipe of Colonel
Sanders(KFC)
• The unauthorized use of such information by persons other
than the owner is regarded as an unfair practice and a
violation of the trade secret. Loss of trade secrets can cost
companies millions of dollars.
85. Intellectual Property Rights and Ethics
Intellectual property rights are a socio-economic tool that create a
temporary monopoly for inventor firms and enable such firms to
charge prices for their innovations that are many times higher
than the marginal cost of production of the innovations.
This allows the inventor firms to salvage their research-costs and
secure a profit on their innovations. A large body of contemporary
philosophical and interdisciplinary literature suggests that
intellectual property rights give rise to a number of ethical
problems.
While IP Rights are given to somebody or organizations in order to
prevent others from copying the knowledge in order to create
commercial success.
The inventor might have spent lots of money and efforts before
they successfully invented something and hence the protection
offered to them.
86. The protection is offered for a specific period by the patent
authority.
Anybody who copies such products/services which are protected
by patents are liable to be punished.
A number of such issues of plagiarism has arisen, especially in the
case of pharma products.
The controversy of IP Rights
While the intention of protecting the rights of the inventor might
look very justified, the right at times gives the patent owner to
exploit the consumers and make huge profits.
Also, the higher prices of such patented products leads to the
underprevileged people not able to benefit from the breakthrough
inventions(Eg.Drugs).
