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1. Meaning of Ethics:-

Ethics in Latin Language is called

“Ehicus” and in Greek, it is called “Ethicos”.

In fact this word has originated from ‘ethos’

meaning Character or Manners.

Ethics is thus said to be the source

of morals -------- moral principles, recognised

rules of conduct. The character of a man is

expressed in terms of his conduct.

Ethics refer to the code of conduct that guides an individual while dealing in a situation. It relates to the social rules that influence people to be honest in dealing with the other people.

Ethics are the principles of behaviour that distinguish between the right from the wrong.

According to Oxford Dictionary,

Ethics is related to morals. It is the science

of morals which is concerned with human character and conduct, capable of knowing right and wrong.

Ethics concern the rightness or wrongness of human conduct. It describes what is right and what is wrong in human behaviour. These rules tell us when our behaviuor is acceptable and when it is disapproved and considered to be wrong. These are a set of rules that define right and wrong conduct.

2. Meaning of Business Ethics:-

Business Ethics is the Evaluation of business activities and behaviour as right or wrong. Ethical conduct confirms with what a group or society as a whole considers right behaviour.

In the simplest forms, Business Ethics

are moral principles that define right and wrong

behaviour in the world of business. What

constitutes right and wrong behaviour in business

is determined by the public interest groups, and business is organizations, as well as an individual’s personal words and values.

Business Ethics are the desired norms

of behaviour exclusively dealing with commercial

transactions. Business Ethics, in short, can be

described as the systematic study of moral

matters pertaining to Business, industry or related

activities, institutions or practices and beliefs.

These are rules of business conduct by which the

proprietary of business activities may be judged.

But also relates to the behaviour of managers.

Business Ethics concentrate on moral standards

as they apply to business policies, institutions

and behaviour. It is a specialised study of moral

right or wrong. Today, more and more interest is

being given to the application of ethical practices

in business dealing and the ethical implications

of business as Business Ethics are nothing but

the application of ethics in business.

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Introduction to Business Ethics

Character ofLeads To

Service ofTaken together Good or Bad

-------- Decided byConduct of a

considered asa Man actionperson Right or Wrong

Moral or Immoral

Know asBy which we can Moral

Judge again Requires JudgmentMoralStandards

Ethics thus can be considered as the source of Character of

a person expressed as Right or wrong conduct or Actions.

An understanding of Ethics:-

In any organization, from top management to Employees at all levels, Ethics is considered as everybody’s business. In business it is not just only achieving high levels of economic performance, but also to conduct one of business’s most important social challenges, ethically.

The problems in a business are multifold. Many

of the vendors offer Kickbacks to the buyers, for the

purchase of their goods and securities. These bribes are

many a times hefty and within a short period, the buyers

make plenty of money.

A number of Ethical Problems in business can

arise.

Case Study No. 1: - When orders dropped in any manufacturing company, the Supervisor is

asked to terminate a few employees to save cost. The Supervisor knows that some of them though

loyal, hard working, they have to be terminated to save his skin. He knows it is unfair to terminate

the employees and still he is helpless. Even if he is given two months termination time by the

Company, he will not reveal his plan of termination to the employees with a fear that employees

will quit while still needed or not work as hard as they usually did after being told. The

Supervisor had to entrée all company rules and policies. For him, the ethical dilemma relates to

two dimensions :- (I) Personal (II) Professional.

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Case Study No.2: - In another case, a senior Librarian who was very casual and negligent in his

attitude, had to make one of his weak Assistant a scapegoat at the end of the year when Library

Inventory was checked and nearly 500 books were short. The Senior Librarian know very

well that his Assistant is highly loyal, sincere and honest in his work and such a thing would not

have happened from him. However, the reason of the books lost could not be found out by him

and he had to put the blame on his junior who is mentally weak and innocent. Otherwise, he had

to take the full blame. He took the decision of putting the blame on his junior rather than on

himself.

There would be many episodes like this, raising ethical question for a number of reasons. Sometimes society is harmed. At other times the individual makes profit in an unfair way at the expense of others. We all know the story of the clever monkey that ate the curd rice and smeared it on the face of the goat. The Goat was punished severely by his master who thought that it had eaten the same

A business firm suffers many a times with higher costs when the firm has

to pay hidden costs for its suppliers.

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Ethical Rules:-

Ethical rules are guides to moral behavior. For example, all Societies have ethical rules and these are all basic rules of behavior which are of much use for the presentation and continuation of organised life.

I.ForbiddingII. Buying III. Stealing IV. Deceiving andV. Harming others.

Similar to these, other ethical rules are.:-1. Honesty 2. Keeping Promises 3. Helping Others and 4. Respecting the right of others.

Sources of Ethics

The earliest recorded Codes of Conduct found in

the Bible are:-

1. Honour your father and your mother, that you may have a long life in the land which the Lord, your God is giving you.

2. You shall not kill.

3. You should not commit Adultery. 4. You shall not steal.

5You. shall not bear false witness against your neighbours.

6. You shall not covet your neighbour’s house; you shall not covet your neighbour’s wife, nor his male or female slave, nor his ox or ass, nor anything else that belongs to him or her.

Primary Sources of Ethics:-

1. The legal system. 2. Religion 3. Genetic Inheritance. 4. Philosophical System 5. Code of Conduct 6. Cultural Experiences.

1. The legal System:-Laws represents a rough approximation of society’s ethical standards. Thus

the laws serves to educate about the ethical causes in life.

2. Religion:-Religious morality is clearly a primary force in shaping our societal ethics.

The applicability of religious ethics to the business community is the concern.

3. Genetic Inheritance:-

In recent years, Socio- Biologists have lots of evidence and arguments to suggest that the evolutionary forces of natural selection influence the development of traits such as cooperation and alteration that lie at the core of our ethical systems.

4. Philosophical System:-To the Epicureans the quality of pleasure to be derived from an act was

the essential measure of its goodness. Philosophies have been instrumental in our society’s moral development.

5. Code of Conduct:-The primary categories of codes are ,(1) Company codes, (2) Company

operating policies, (3) Codes of Ethics.

6. Cultural Experience:-The rules, customs and standards transmitted from generation to

generation are considered as guide lines for appropriate conduct. Individual values are shaped in large measure by the norms of the society.

Objectives of Ethics:-

The primary objective is to define the highest good of man and set a standard for the same.

Here we have to consider ethics to deal with several interrelated and complex problems which may

be of psychological, legal, commercial, philosophical, Sociological and political in nature.

The other objectives are:-

1. Study of human behaviour, making evaluative assessment about them. 2. Establishing moral standards and norms of behaviour. 3. Making judgment upon human behaviour based on these standards and norms. 4. Prescribing moral behaviour and making recommendations how to behave or vice-versa. 5. Expressing an opinion or attitude about human conduct in general.

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objectives Business Ethics:-

Ethical issues exist at all levels of business activity. As per Peter Pratley, Business

Ethics has a two fold objective:-

1. Evaluates human practices by calling upon moral standards. 2. Gives prescriptive advice on how to act morally in a specific kind of situation.

The first objective implies Analysis and Evaluation. It leads to an ethical diagnosis

of past actions and events.

The second objective is to provide the Therapeutic advice. It suggests slowdowns and policies when facing the present dilemmas and future dangers, based on well- informed opinions. This specially requires an identification of relevant stakeholders and a clear understanding of the vital issues at stake.

Scope of Business Ethics:-

1. Stakeholders Level:-

I. Employees:-

− Security of Job − Better working condition − Better Recommendation − Participative Management − Welfare Facilities. II. Customers:-− Better quality of goods. − Goods and services at reasonable price. − Not to corner stocks and create securities. − Not to practice discriminatory pricing. − Not to make fake claims about product in advertisements. III.Shareholders:- − Ensure capital appreciation. − Ensure steady and regular dividends. − Disclose all relevant information. − Protect minority shareholders interest. − Not to window dress balance sheets. − Protect interest in times of merges, amalgamations and takeovers.

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IV. Bank and other lending institutions:-− Guarantee safety of borrowed funds. − Prompt repayment of loans.

V. Government:-− Complying with rules and regulations. − Honesty in paying taxes and other dues. − Acting as Partner in the progress of the country.

2. Personal Policy level:- − Not to use office Car, Stationary and other facilities for personal use − Not to fall prey to short ends. − Not to misuse others for personal. − Not to indulge in policies to gain power. − Not to spoil promotional chances to others. − Promise keeping − Mutual help.

3. Societal level:- − Concern for poor and downtrodden. − No discrimination against any particular section or group. − Concern for clean environment. − Preservation of scarce resources for prosperity. − Contributing to better quality of life.

4. Internal policy level:- − Fair practices relating to requirement, compensation, layoffs, perks promotion etc.

− Transformational leadership to motivate employees to aim at better and higher things in life.

− Better communication at levels.

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Case Study No. 3: -

COLD ANNEALING OF STEELWork on bridge construction was going on over the river Ganga. The contractor who had been

awarded the contract had quoted the lowest rates on the condition that the Executive Engineer would

allow him to use hot annealing of steel, where he would save nearly Rs. 2, 00,000/- per ton. The

bridge required fifty thousand tons and the contractor was to save ten crore of rupees, if the Engineer

overlook the provision of cold annealing. The Contractor was ready to share half of the Extra profit

with the Engineers. The Executive Engineer Incharge had agreed to the stipulation. He knew that a

lay person would never be able to decipher the difference between cold and hot annealing of steel.

Usually the auditing and costing people belonged to that category and the Executive Engineer was

sure that he would be able to keep the audit team happy by looking after

them and by giving expensive gifts.

The Executive Engineer had not considered the possibility of a new young Assistant Engineer joining the team for the bridge project. On his first inspection tour, the Engineer stopped the work on the bridge site after finding out that hot annealing was being carried out. When the contractor told him that before stopping the work he should consult his boss the Executive Engineer, who in fact authorised the hot annealing by explaining that the hot annealing would yet take care of the bridge for at least the next 10 years and by that time he would have retired from service. The assistant Engineer remained adamant on his decision and decided to report the matter to the Executive Engineer.

Assistant Engineer:You may not be aware that on the bridge site, the Contractor is

cheating the Government by using not annealed steel. Thereby risking the safety of the bridge. I have stopped the work, although the contractor was justifying hot annealing as you had approved it. Of course, he could not show any written approval given by you.

Executive Engineer:I believe what you did was the right decision from a youngster like you.

You have no experience of building bridges, while I am veteran in this game. I can recount at least ten bridges which I got constructed and all of them have stood the test of time, by being in use for 10 years or more.

The Assistant Engineer had read the reports of the collapse of the Mandovi river bridge in Goa, which was constructed by the Executive Engineer but he kept quiet about it. The Executive Engineer said you have had a tiring day. Go home and relax. You will find your wife in quite a good mood tonight.

The Assistant Engineer found a new Thirty inch TV had been installed

in his house, courtesy the Contractor.

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Question for the students:-

1. Accept the gift and fall in line with the Executive Engineer. 2. Politely return the TV and yet kept protesting with the boss

about the Un-ethical practice of the contractor. 3. Report the matter to the Chief Engineer; even though he has a sneaking

suspicious that perhaps even he was involved in the

racket. 4. Report the matter to the Minister and the Police.

Conclusion:-

It is the job of the CEO to organize training programmes in ethical business for the new entrants

in the organization and also have refresher course for the existing employees. Such training

programmes need the total support and the approval of the Board of Directors. The training

should be done by using real life case studies, where free and frank views need to be expressed

by the participants without any fear of persecution at a later date. The HR Department should

ensure that no training programme is organised without an element of training on Ethics. The

employees must be encouraged to report on unethical behaviour of any employee (at whatever

level he or she works in the organisation) found guilty. For this purpose the CEO has to build the

organisational culture, which is conducive to ethical behaviour and of non tolerance of unethical

behaviour. Each member of the company, new and old, must be given a copy of the code of

conduct for the employees with continuous updates to it as and when made. The CEO plays an

integral role in the conduct of business of the organisation and in today’s competitive world he

can servive in the market place only by conducting himself ethically and creating the

organisational culture, which fosters such behaviour among other employees.

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Case Study No. 4: -

The marketing manager is visiting a top office of his customer’s firm, who has to place a

large order on the firm.

Top Officer:- I think you have come on a wrong day. I am very disturbed today. My college going son has been pestering me to buy a new Motorcycle, worth Rs. 50000/-. I do not have spare money today to buy it. Even my wife joined my son and I do not get any peace at home. Naturally, I am in no condition mentally to take a decision on your tender.

Marketing Manager:- Sir, why do you worry? Just give me a cheque in the name of Ram

Automobiles for Rs. 50000/- and the Motorcycle will be at your house by tomorrow.

Top Officer:- Why do you want the cheque? It May bounce!

Marketing Manager:- Sir, these days the Vigilance has become active and I am only booking at

your safety. The cheque will be encashed, please keep that much money in the Bank.

Next day the Motorcycle receipts for the cheque and an envelope with Rs. 50000/- cash

was delivered at the officer’s house.

Case Study No. 5: -

Distributor:- I know my quota is only 7’ tons per month. If you can allot 70 tons instead, I

promise to place Rs. 1000/- per ton, that is Rs. 70000/- per month in any Bank account you

name in India or even in Switzerland.

After 6 months, if you keep starving other distributors, I will double the amount. We both will

become richer by your decision and since other distributors will keep getting some quantities,

they will not complain. If any one complains I will settle with him by going him some quantities.

Top Officer:- Mr. Distributor, you have come to the wrong place. I do not play such games. Now you

better leave the place or I will have you thrown out of my office by calling our security guards.

The story does not end here. The Distributor writes letters to the concerned Minister, the Prime Minister and the Managing Director of the firm saying that the office is depriving him of his legitimate quota because on the last visit to his office, the officer had asked for Rs. 2000/- per ton on being allotted minimum quota of 70 tons.

Lucky for the officer, his implacable reputation as a rare honest officer came to

his rescue, when the Managing Director assured the concerned persons about his honesty.

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Case Study No. 6: -

The boss of an International Firm in India orders supply of 10 Tank Wagons of white oil (used in

dry cleaning process) to be delivered to one of the Major Distributors of the of the Firm. This high

demand came up because the boss came to know that the white oil can be mixed to the extent of up

to 50%in petrol and the cars would run smoothly for at least 3 years is long enough period, and cars

mostly go bad in this period anyhow. On the financial side, the distributor would make Rupees

hundred thousand per wagon and he was agreeable of giving the boss Thirty Thousand per wagon.

It would amount to Three hundred thousand per month and in the next 4 years; the boss would have

enough money to retire in peace. All went well till some wise guy the boss’s junior, stated prying into

the deal and in less than 3 months, the boss who was to take over as the Top Boss in the country,

was given the sack. It was his good luck that he was not handed over to the Police.

The students have to analyse the case for the following:-1. The junior who disclosed the fraud risked his job. Was it the right thing to do? 2. Other juniors also had come to know about it and some had in fact abetted in the crime.

How should the firm treat them, in view of the fear under which they use operating?

The boss in India rules supreme as he keeps a sword hanging over the head of his employees,

especially, those who are not part of a union, and with this fear psychosis the employees are

ready to do anything ordered by the Boss. These are people, who are extremely honest in their

private life, while they succumb to the boss’s orders during office operations. Then these are

others, who do the illegal tasks ordered by the Boss willingly, almost eagerly, ready to deliver the

bribe to the right person as they would take a handsome cut from the bribe as personal

insurance against any problem they may face as a result of the act of giving the bribe.

Conclusion of the Case Study:-There are two types of firms: Some firms have stayed on the right track of ethical business for a long

time. These are a few elite firms, who have been carrying on their operations on ethical moral and even

religious lines. Such firms keep a steady but slow growth since they do not believe in get rich quick.

Techniques of the present day business. In fact in the 18th century, rarely a firm could be found indulging

in unethical operations. They were turned to their social responsibilities. The emergence of unethical

firms can be traced to the twentieth century in India for the following reasons:-

1. Government controls on Private Business, which result in quota, permit raj. 2. Powers vested with even the junior government officers who demanded benefits each

time the firms wanted a favours, even if it was strictly under the law. 3. The Government departments like the public utility offices had an axe to grind with the firms

operations and they had to pay these people money for letting the firm carry out its legitimate operations.

4. Government approvals, Licenses, No objection certificates all had a price and some of

them are still present giving opportunities to Government officers to make money.

Most persons are quick to blame the system, the Government for the state of affairs. They believe

that the laws are made for letting the Government officers make as much money as they can.

Today, the first kind of honest firm has become a rarity as the others have taken over the business world. It must be argued that it is the businessmen who have corrupted the Government officers for their benefit and in the process unleashed a major Frankenstein, who they find different to tie down.

Types of Ethics:-There are normally three types of Ethics.

1. Transactional Ethics are performed on the basis of connected interests of Equality,

Honesy and reciprocity.

2. Participatory Ethics are privileged part of Business Ethics for common good and common interest.

3. Recognitional Ethics are one’s moral rights vis – a – vis moral duty. For example, the

Employees aged 57 to 60 years morally obliged to retire to give way to some younger

colleagues, who being in the midst of their careers can rise to more weighty claim to a job.

There are also 3 other important Ethics as below:-

Personal Ethics:-The Personal Ethics reflects general expectations of any person in any society, acting

in any capacity.The Principles of Personal Ethics include:-

1. Concern for the well – being of others. 2. Trustworthiness & Honesty. 3. Willing compliance with the law. 4. Refusing to take unfair advantage. 5. Preventing Harm.

Professional Ethics:-The Professional Ethics are written codes containing rules of conduct and

standards of behaviour based on the principles of Professional Ethics, which include: -1. Impartiality. 2. Objectivity. 3. Confidentiality. 4. Avoiding potential or apparent conflict of interest.

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Business Ethics:-The Business Ethics are desired norms of behaviour exclusively dealing with actions

related to performance of duty.1. Moral principles that define right and wrong behaviuor in the world of Business. 2. The desired norms of behaviour exclusively dealing with commercial transactions. 3. Systemic study of moral matters pertaining to Business, Industry or related activities

or practices and beliefs. 4. It is a specialised study of moral right or wrong and the application of Ethics in Business.

Values of Ethics:-

Values are a set of principles that will govern behaviour in the pursuit of a vision.

Values are a general term referring to those things which people regard as Good, Bad, Right,

Wrong, Desirable, Justifiable etc. We can speak of “truth Values” (true or false) and the value of

judgments which are statements about what is Valued, Sound, Deplorable, Skilled etc.

Business is driven by Values. Values determine :- (I) What Business people do? (II) How other react?

Values are potent sources of conflict as well as of Co-Operation, Control and Self – control.

Through values, business can and does create value in the form of goods, services,

employment etc. It is also noted that in extreme cases business and whole industries can cease

to function because their continued existence to inconsistent with certain powerful values.

Values are of many types, like Cultural values, Moral Values, Ethical Values, Managerial Values. Hence, values are collective representations of what constitutes a good life or a good society. Health is a value and self respect and so are democracy, tolerance and freedom. The basic premise is that these values not across culture and time.

Norms of Ethics:-

Norms are expectation of proper behaviour. These are criteria of behaviour. Each

individual within the society has a set of norms, beliefs and values that together form his or her moral

standards. Norms are the ways an individual expects all people to act with a given situation.

In India lower level employees address the higher level at the time of starting the discussions as “SIR” to show respect to them. The same is not found in USA, as they call their bosses by name as “MR”. This may look awkward in the beginning for the Indian students or Indian employees who go for employment to USA.

The norms are not published, may not be obeyed and cannot be enforced. It is not consistent nor universal. Norms are just the way we feel about behaviour. Norms are collective expectations regarding a certain type of behaviour, for example, Brush your teeth twice a day, keep your premise clean, Chew the food properly while eating, etc.

Beliefs of Ethics:-

The beliefs in an ethical code are standards of thoughts. These are the ways that the Senior Executive in the organisation wants others to think. The intention is to encourage ways of thinking and patterns of attitudes that will pave way towards the wanted behaviour. It is expressed in a positive form in an ethical code. “Our first intention to serve our customer” is an example of a positive belief that commonly appears in Code of Ethics.

Beliefs are criteria of thought. They are the ways an individual expects people

to think about given concepts.

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For Example:- (i) I believe in the present method adopted by University regarding teaching. I

expect others to recognise the worth of that concept and accept it as a form of teaching.

(ii) Similarly, I believe I energy conservation or afforestation and I expect other people to recognise the importance of that idea and accept it as a good worth preceding in that direction.

Morality In Ethics:-

Morality is the standards that an individual for a group what is right and wrong, good and evil. The term morality is derived from the Latin root “ Morales” means “Behaviour” Moral standards examples could be “ Integrity is good Dis honesty is Bad. It is right to tell the truth and wrong to endanger the lives of others.” So, Moral standards includes the norms we have about the kinds of action we believe are morally right and wrong as well as the values we place on the kinds of objects we believe are morally good and morally Bad. Moral Norms are expressed as general rules

or statements such as, “Always tell the truth.” It is wrong to kill the innocent people etc.Moral Value are expressed as statements describing objects that have worth, such as, “Honesty is good. Anger is bad.”

Moral Actions pertain to set of actions engineered by the characters and expressed through behaviours. In Gandhiji or J.R.D Tata we find certain set of activities like (I) Honesty, (II) Truthfulness, (III) Sincerity, (IV) Generosity, (V) Transparency, (VI) Co-Operation, (VII) Integrity and (VIII) Strong will power etc.

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HOW DOES ETHICS HELP:-

1. Help maintain a moral Course at all times. 2. Take right decisions at all times. 3. Cultivates strong teamwork and productivity. 4. Supports employee growth and meaning. 5. Helps excuse that policies are legal. 6. Promotes a strong public image. 7. Helps to pursue Business Excellence.

8.Helps commitment towards equal opportunity for personal recognition and career development.

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Normative Ethics in Management:-

A Normative Study is an investigation that attempts to reach

normative Conclusions.

- Conclusions about what things are good or bad?

- About what actions are right or wrong?

A normative study aims to discover what should be Ethics are the study of moral standards whose explicit purpose is to determine as far as possible which standards are Correct or supported by the best reasons. It attempts to reach conclusions about moral right and wrong and moral good and evil.

Though Ethics are a Normative Study, the Social Sciences engage in a Descriptive Study of Ethics. A descriptive study is one that does not try to reach any conclusions, about what things are truly good or bad or right or wrong. Instead, it attempts to describe or explain the world without reaching any conclusions about whether the world is, as it should be.

Normative Ethics in Management

The Holistic Teleological DeontologicalTheory Theory Theory

Eternal Empirical Ethical Uttitariam Rights JusticeEthics Ethics Egoism Principal Principal Principal

Principals of Eternal Ethics believe in the core divinity of individuals. Holistic Theory believes that these are two different approaches in Ethics.

The eternal and empirical. These could be read in the Bhagwad Geeta shlokas 15 and 16.

“The world consists of the empirical and the externals. All the worldly things come under the empirical self, whereas the timeless, spaceless dimension comes under the Eternal.”

Empirical is the one whose knowledge is got from experiences and

induction only whereas Eternal is ever lasting, an appettation of God.

18Man is not only potential divine but also divine in all our behaviour and

actions. It is this intrinsic divinity that takes place not only in human dimension but also in other dimensions also. Man is considered as an embodiment of the divine. It is the divine who thinks and gets in the garb of man. Biodiversity is the diverse revelation of the same divine in different directions and proportions.

The Teleological and Deontological theories are utilitarianism and Kantianism. Teleological Theory determine ethics of an act by looking to the consequences of the decision. Rightness of actions is determined solely by the good consequences they produce.

Deontological theory determines the Ethics of an act by looking at the

process of the decision. It does not appeal to consequences (Kantian Ethics).

Ethical Decision Making:-Ethical issues arise out of every day business decisions. An individual’s

Personal benefits and the moral atmosphere of the organisation in which one works

significantly after the behaviour one exhibits. Many philosophers, organizational

relationship and opportunity influence behaviour as does the organizational

environment. OpportunityOrganisationalEnvironment

IndividualBehaviour

Organisational MoralBehaviour Philosophy

Individual Behaviour components, The factors influencing Behaviour.

Example:-

If any garment manufacturer selects a small place in

India where these is no Industry and make improvements in the

place through:-

Brought a higher standard of living to the local people.

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− Provided with opportunities.

− Provided Skill.

− Produce quality products at a competitive price.

− Products used by local people also to meet their requirements.

But paid kickback to the local State Government officials for operation.

To discuss the Role of Moral Philosophies in decision making:-

Moral Philosophy is a set of principles setting forth what is

believed to be the right way to behave.

Role is something that is moral conforms to a standard of

accountability.

A philosophy is a study of the general principles of a subject

such as Morality. Individuals learn the principles through

socialization by family members, social groups and formal

education.

SUGGESTIONS FOR ETHICAL DECISION MAKING:-

1.Top Management can improve behaviour. The managers

should be quick to consider ethical principles in their decision

making by improving their understanding to develop their

moral philosophies.

2. Code of Ethics improves decision making: - Business establish codes

of Ethics and corporate policies on ethics to foster ethical

decision making by reducing the opportunity for unethical

activity. Enforcement of corporate policies is a common way

of dealing with ethical problems. The establishment of

corporate policies and codes of ethics helps employees

understand what is expected of them. Understanding how

individuals choose their standards of Ethics and what prompt

a person to engage in unethical behaviour may reverse the

current trend towards unethical activity in Business.

3. Interactions with Peers and other colleagues: - People learn ethical

behaviour from interacting with individual also in Social,

Business

and other groups. Thus Business should examine their to see

how policies, rewards and punishments affect ethical

beahaviour. Without companywide standards for behaviour

employees generally base ethical decision on their on their

observation of Peers and Management.

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4. Control System:- If a Company is to maintain ethical behaviour,

its policies, rules and standards must be worked into its

control system. Reducing unethical behaviour is a business

goal, not very much different from increasing profits. The

business set a goal – achieving greater ethical behaviour

among company employees and measures

the out come.

Control System

Number of Not Making Ethical Then Company toEmployees Decision Investigate

Strengthen the Take Why?standards and corrective

Policies Decision

Ethical behaviour occurs only when a plan is developed and successfully

implemented, through stronger re-inforcement of current standards and

policies.

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ETHICAL ISSUES THAT ARISE FOR MANAGERS:-

The Ethical issues that arise for Managers are indeed for all

people, including Employees, Customers, Consumers and Members

of the public.

Corporate activities affects us all and so the conduct of business is a

matter of concern for everyone with a stake in ethical management.

The ethical issues are regularity faced by the Managers in the

Ordinary Course of their works.

These are also major issues debated in the Parliament and

scrutinised by the courts, This is because ethical issues in Business

are closely tied to important matters of Public Policy and to the

Legislative and Judicial Processes of the Government.

REASONS FOR ETHICAL PROBLEMS:-

1. Cross Cultural Contradiction:-

These problems arise and occur because

Corporations do business in other societies where ethical

standards differ from those at home.

2. Competitive Pressures: -

When Companies are squeezed by severe

competition, Managers sometimes engage in un-ethical

activities to beat out a competitor.

3. Personal Gain: -Personal gain or even greed, causes some ethical problems.

Business sometimes employs people whose personal values

are less than desirables.

4. Organisational Goals:-

Ethical conflicts in Business frequently occur when a

Company pursues goals or uses methods that are not

acceptable to some of the Employees.

Managers are the key people to investigate

whether a Company will act ethically or un-ethically. As major

decision makers and policy makers, they have more

opportunities than others to set an ethical time for the

Company.

HOW TO USE ETHICAL REASONSING:-

What business needs is a set of guidelines for thinking about

ethics. The guidelines should help Corporate managers and

employees.

− Identify the nature of the ethical problems.

− Decide which course of action is likely to produce the most

ethical results.

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3. Methods of Ethical Reasoning Are

− Utilitarian

− Rights

− Justice

Utilitarian are comprising benefits and costs where an action is ethical

when net benefits exceeds net costs. It’s limitation is, it is difficult to

measure some human and social costs. Majority may dis-regard

rights of minority.

Rights: - The critical determining factor is to respect the basis human

Rights, where it is difficult to balance conflicting Rights.

Justice: - Here an action is ethical when benefits and costs are fairly

distributed. But it is difficult to measure benefits and a cost as these

is lack of agreement on fair shares.

The levels of Decision - making occurs in 3 distinct levels:-

− Level of the Individual.

Individuals in the work place require to make a decision about their own

response – whether to live with the difficult boss or blow the whistle?

− Level of the Organisation.

Problems at the level of the organisation – To bring out some

organizational change e.g. Sexual Harassment an individual

matter for the person suffering the abuse.

− Level of the Business System .

Problems resulting from accepted business practices cannot

effectively be addressed by any single organisation, much less

a line individual.

The Individuals are faced with questions about ethics in their

relations with customers, employees and members of the larger

society. Frequently the ethical correct course of action is clear and

people in Business act as per that. Exceptions occur, when these is

uncertainty about ethical obligations in particular situation or when

considerations of ethics come into conflict with practical demands of

Business e.g. Sales Representative not sure about the extent to

which he is obliged to provide information about possible delays in

Delivery to Customers.

In deciding on an ethical course if action, we can reply to some

extent on the rules of right conduct that we employ in everyday life.

Deception is wrong (e.g. whether we deceive a friend or a customer)

23

One of the feature that distinguishes business activity is an

economic character. In the world of business, we interact with each

other not as family members, friends or neighbours but as Buyers

and Sellers, employers and

Employees and the like Employment is also recognised as a special

relation with its own standard of Right and Wrong. Employers are

generally entitled to hire and promote whomever they wish and to

lay off (or terminate) the workers without regards for the

consequences. The Ethics of Business, is atleast impart the ethics of

economic relation – such as those involving buyers, sellers,

employers, employees.

24Gandhian Philosophy of Ethics and WealthManagement:-

Gandhiji laid great stress on Personal

integrity. According to Gandhiji it is this characteristic in

human beings which takes them far ahead of others.

However, no one can just hang it on his chest as a medal,

proclaiming his integrity. Integrity is also of thoughts, words

and deed. Integrity is not only about taking bribes, but much

more than that. Given below are a few examples of Integrity

or lack of it.

− A person sitting in his office during office time, in his

busy schedule, write a personal letter. He

even uses office stationary for the letter.

−A person promises his colleagues something of

corporate importance in private and in office meeting

he just denies ever having given the promise.

−A person knowingly gives a torn note (Cash) while

buying a product at a busy sales counter.

So, integrity is a character trait. It is doing what is

right even when no one is looking. It helps maintain a moral

course at all times.

The following areas require safeguards

against unethical behaviour in Business.

25

1.Sales:-

−Supply of products not exactly as per the order or the

sample shown.

−Treating two customers differently without valid

reasons.

Delaying− the supply of goods, without proper reason

and not communicating the delay to the customer.

Using− superlative adjectives to describe the product

when the

actual product will not stand the

customer’s security.

26

2.Advertising and Promotion:-

Supplying− products which are different than those

advertised. Giving− wrong price idea in advertisements

by not including the necessary add-ons.

−Exaggerating the product benefits

to the customers.

27

3.After Sales Service :-

Using− substandard material

during service and charging for

the real material.

Service− Engineers not going

by the priority fixed and playing favourites for personal

gain.

−Over-billing the service charge when the customer is

not aware of the rates.

When− the product comes for servicing, exchanging a

few healthy parts with sub-standard parts. These

removed parts are then sold to other customers.

28

4.Marketing Research:-

−Research is conducted only to substantiate the

Manager’s view point.

−Selling the Research report to competitors.

−Research is focused on areas, which need not be

covered, as the manager does not want the truth to

ever come out.

29

5.H.R. Management:-

Recruitment− of kins without assessing their abilities.

Recruitment− based on getting financial favours from

the candidates.

−Arranging training for only pet employees, whether

they deserve it or not.

Planning− training programme without assessing the

training needs of the employees.

30

6.Production Functions:-

Using− substandard material in production.

−Delaying the supply of products to the customers to

help competitors.

−Purchasing from obliging Firms who give gifts and cash

to the purchase Manager.

−Purchasing from Firms owned by

relatives.

−Placing orders without verifying

the suppliers credential because

of personal benefits.

31

7.Management of Quality:-

Accepting− marginally bad

materials.

Allowing− substandard materials

to be used in the manufacturing

process.

Rejecting− materials from good vendors for reasons that

they are not obliging them.

Unnecessary− raising the standards to exclude good

vendors.

32

8.Finance Function:-

− Over budgeting the project costs.

− Using under-hand tactics with the financers to gain

benefits.

−Showing inflated salaries, getting receipts from

Employees for a larger amount than they actually get.

−Paying over time bill wages when none needs to be

paid.

Allowing− extra TA bill to favourate employees.

−Delaying clearing the bills payable to get the maximum

interest for the amount to be paid.

−Ignoring the lowest tender for personal gains

−Accepting as Official, payments made by the Directors

for personal purchases.

−Approving substandard construction by

the contractor and approving his bill for

payment.

33

9.CEO of the Company:-

− Nepotism in recruitment.

− Favouritism in purchasing.

− Extra consideration to friendly buyers

−Use of position for gaining personal favour from

suppliers and Contractors. Allowing− the use of sub-

standard material for personal gains.

−Not keeping promises made to buyers, suppliers,

employees and other stakeholders.

Manipulating− Records for personal

gains.

34Ethics in International

Business

Business is being conducted across national

boundaries and increasingly becoming global because of the

mobility of Employment, Capital,

produce and technology. Intense competition is forcing

companies worldwide to enter the global market. In India,

Software companies in

Information Technology have grown tremendously and are

entering globally.

Such developments present a host of ethical problems that

Managers are unprepared to address. Many of these

problems arise from the diversity of

Business standards around the world.

Having the diversity of Ethical outlooks in the world, it is

possible to agree on ethical “Convergence” or a set of

standards for Business worldwide such a goal is possible if

globalisation is to succeed.

The very phenomenon of globalisation makes it clear

that these must be a globalisation of Ethics. This requires a

commitment to same core standards or atleast a willingness

to abide by them. The United Nations

(UN) has developed a Code of

Conduct for Multinational

Corporations. These Codes have many guidelines in common

and cover the areas of Employment practices, consumer

protection, Environmental preservation, Involvement in

Politics, Including Bribery and Basic Human Rights.

MNC’s generally recognize a Social

Responsibility and attempt to fulfill their responsibilities

everywhere they are located. The major cause of occasional

failure to act responsibly is not because of lack of effort but

the diversity of political and legal systems around the world

and differences in economic development.

Foreign operations create challenges

as well as opportunities for mis- conduct that simply do not

exist for purely domestic enterprises. The question for MNC’s

is deciding which standards to follow. The solution to many

of the Ethical problems

of International Business lies in

the development of International

agreements and Code of Ethics. Some of the Companies

experience difficulty and hence adopt local conditions:-

−Paying low wages (exploitive wages)

−Imposing straight or unsafe working conditions

(standards are kept low).

−Violation of Human Rights.

−May even try to avoid fair share of

Taxes.

−practices areSome criticised

said to be legal in the countries in question and are not

considered to be un-ethical by local standards.

−Should global Companies are bound by the prevailing

morality of the home Country?

−Should they follow the practices of the host country

and adopt the adage. ( Be a Roman while you are in

Rome)

−Are these special Ethical standards that apply when

business is conducted across national boundries.

Business ought to be conducted

in the same way the world over with no double

standards. Hence it is necessary to observe a single

Code of Conduct in their dealing everywhere.

Operating outside the home country,

create Dilemmas that lead to charges of serious ethical

failings. MNC’s generally recognise a social

responsibility and attempt to fulfill their responsibilities

everywhere they are located.

3 kinds of Guidelines have been offered

for global Companies:-

−Justice

−Human Rights

−Welfare

For Justice, one kind of unfairness is offer the one – sided

division of the benefits from foreign investment.

The gap between the rich and poor

Countries is an urgent moral concern and MNC’s have much

to offer. Another kind of unfairness is violating the rules of

the market place which is to say engaging in unfair

competition and otherwise taking unfair advantage.

Guidelines for Human Rights application:-

−Failing to provide safety equipment to protect

employees from serious hazards (the right to physical

security)

Bribing− Government officials to violate their duty or

seeking to overthrow democratically elected

governments. (the right to political

participation)

−Employing child labour as found

mostly in India (the right to minimum

education)

Welfare:-

Guidelines offered for Welfare are:-

−Do not intentional direct harm.

−More good than harm for the host country.

−Contribute by their activity to host country’s

development.

−Respect the human rights of their employees.

−To the extent that local culture does not violate ethical

norms, respect

the local culture and work with and not against it.

−Pay their fair share of Taxes.

−Coperate with the local government in developing and

enforcing just background organizations.

Global Companies are criticised primarily in cases where

they take more than a fair share by exploiting their

superior’s position in an imperfect market.

MORAL EVALUATION OF THE FIRM

Morality is the standards that an individual or a Group has

about what is Right and Wrong, Good & Evil. Like Ethics,

Morality is a similar term that prevails in and many times

considered as Synonymous of Ethics and is derived from the

Latin root “MORALES” means Behaviour. Moral standards

examples could be “Integrity is

Good. Dis-Honesty is Bad. It is right to tell the Truth and

wrong to endanger the lives of others.”

Moral Norms can usually be expressed as statements such

as, “Always tell the truth”.

It is wrong to kill the innocent people etc.

Moral Values are usually expressed as statements

describing objects or features of objects that have worth,

such as, “Honesty is good. And Ager is Bad”.

Ethico – Moral Actions

Ethica and Morality have different concepts. Ethico – Moral

actions pertain to set of actions engineered by the character

and expressed through behaviour. Gandhiji and J.R.D. Tata

have certain set of qualities like:-

− Honesty

− Truthfulness

− Sincerity

− Generosity

− Cooperation

− Integrity

− Strong will Power etc.

Ethics codes in Business Organisations was there even in

earlier 1940s and these are not an innovation of the later

years like

1990s or 2000s. A leading manufacturing Firm of World

Health Care products at that time and even as on today

continued to be one of the leading manufactures had

established Ethical Codes. In the recent years, larger

organizations have adopted this approach to CORPORATE

ETHICS. In order to improve standards of

Behaviour, many American organisations have introduced

codes on their own.

Moral Codes may therefore, be referred to general areas of

Business conduct to increase respect and recognition for the

profession at local, national and International levels.

TATA GROUP OF COMPANIES

In India, Tata Group of Companies are practicing Business Ethics and Tata Code of Conduct have governed the manner in which Tata Companies and their Employees should conduct themselves. Tata’s code of conduct serves as a Guide to each Employee on the values, Ethics and Business Principles expected of him or her. Each

Tata Employee take pride in up-holding the high standards of Corporate and

Personal Behaviour on which the Tata Group’s reputation and respectability have been built.

Over the past 130 years. For the stages of Ethical Growth and Ethical organisation, Tata Group of Companies have highest standards and Values in

India.

Some of the Codes in Tata Code of Conduct:-

1. National Interest.

2. Financial Reporting as per financial

Reporting Standards.

3. Equal opportunity Employer.

4. Gifts and Donations.

5. Political, Non – Alignment.

6. Health, Safety and Environment. 7. Quality of Products and Series.

8. Corporate Citizenship.

9. Use of Tata Brands.

10. Shareholders

11. Ethical Conduct

12. Regularly Compliance

13. Conflict of Interest

14. Citizenship and

15. Reporting Concerns.

Every Employee of a

Tata Company shall promptly report to the management any actual or possible violation of the Code or event he becomes aware of that could affect the business or reputation of his or any other Tata Company.

CASE STUDY

BRIBE TO GET SUPPLY ORDER

A Director of a company

had to issue a supply order to a company supplying for purchasing of computers. Marketing Manager of the Computer Supplying Company went to the Director for expediting the supply order. But the Director had some problems with his college going Son and Wife.

The College going son wanted a Motor – cycle and the Director did not have sufficient money to purchase it. The case went to little more complication when his wife also justified the need of their son for a Motor-Bike to go to College. So, the Director told to the Marketing Manager to come on other day since that day was a bad day for him with difficulties with his family members like his son and his wife. Hearing the difficulties of the Director, the Marketing Manager of the Computer Supplying Company told to the Director that it did not appear to be a difficult case and offered to help the Director to meet the need of his son and wife.

The MarketingManager asked the Director to give a cheque of Rs.50000/- in favour of M/s. Ram Automobiles who would be supplying the Motor cycle. But The Director informed the Marketing Manager that he did not have sufficient Balance in the Bank. Account and hence, if the cheque is issued , it would be surely Bunched due to not having sufficient Balance. The Marketing Manager informed the Director that he would take care of this Bank’s problem.

Next morning, the Marketing Managers came to the Director and delivered a New Motorcycle, a packet containing Rs. 50000/- Cash and a payment – receipt from M/S Ram Automobiles.Marketing Manager asked the Director to deposit this cash of Rs. 50000/- in his BankAccount. So that the cheque is not Bunched. Also informed the Director that Non- a- days vigilance Department is very efficient and they might check and verify the payment details and hence a proper Payment Receipt is obtained so that the Director do not have any problem with the VigilanceDepartment at any time.

40

CORPORATE SOCIAL RESPONSIBILITY

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Enlightened companies have chosen to embark on the journey

of Corporate Social Responsibility in an effort to broaden the

traditional corporate goals of profitability and

productivity and adopt social trusteeship as a

desirable objective.

Corporate Social Responsibility(CSR) is the process by which a corporation participates in the welfare activities of both internal as well as external community by actively assisting in the improvement of quality of life of the people in the communities in which it operates. It also aims at building relationship with all types of public and enhancing the reputation of the Company.

CSR in practice is being influenced by two major concepts. One is the stakeholder model, wherein it is recognized that good business practice entails engaging all it’s stakeholders in the company’s business. So good business is not only seen as maximizing shareholder value but also stakeholder value. The other concept is where companies would no longer be judged on the conventional financial bottom-line but also on their performance in the social and environmental bottom-line.

So, CSR is the commitment of Business to contribute to sustainable economic development, working with employees and their families, the local community and society at large to improve their quality of life, in ways that are both good for Business and good for development.

Corporate Social Responsibility emerged from corporate philanthropy. The primary purpose of a business is to improve the quality of life of people and that a corporate entity exists to serve society from where it source it’s

customers and other stakeholders. There is relationship between a company’s needs and the community’s needs. Here the company feels a level of obligation and discharges that obligation through contributions to disaster relief, supporting sustainable development and corporate philanthropy for the benefit of the community at large. Here the company is fulfilling it’s responsibility towards community and society and does not expect anything in turn for its contributions. During natural calamities, good companies invest large amounts to provide relief and rehabilitation measures to the victims. In such case, the companies want to help the community and in doing so, they are also seen involved in the socio-economics development activities for the benefit of the community.

Companies persue the Triple Bottom Line Reporting initiative (i.e. Economic Bottom Line, Environment Bottom Line and Social Bottom Lines) to demonstrate it’s commitment to be a good corporate citizen. Man is the social being and is also a part of the society. He lives in and constitutes the society. He moulds the morals and norms of the society and is in turn, moulded by the society. One of the postulates of citizenship is the conferment of rights and acceptance of duties towards society including social responsibility. This responsibility devolves on man as “human being” who is part of the society and as a corporate citizen which owns social responsibility.

The community is central to the core values of Corporate

Social Responsibility and the community

development programmes aim at building trust and improving the quality of life.Corporate Community initiatives tries to help communities to become strong and self reliant. Business can play it’s part in making a community prosperous. The company can take care to nurture the community welfare and the environment in which it does its business. From the community needs, there arises the need for Corporate Social Responsibility. Here the companies not only recognize that they have a responsibility to contribute some of their profits into the welfare of needy communities in which they operate, but also take the view that it is also in the interest of companies to benefit from the community. Community gives the Corporate World valuable opportunities to learn.

Hence, Corporate Social Responsibility is also viewed as a necessary and integral part of the stakeholder approach, an approach on maintaining good relations with all corporate public, employees, shareholders, customers and general community.

The Corporate World should discharge its social responsibility as a good Corporate Citizen. It is against this background that planned Corporate Social Responsibilities demand the same vigour to be applied as to any other business operation. The process of Corporate Social Responsibility like any campaign planning lies in a systematic planned approach such as :-

• Research Assessment of the needs of Community

• Identification of problem Key problems confronting the community out of research and needs

• Set Objectives Objectives for solving problems.

•Design the strategy and levels of investment. •Implementation of community welfare programme to reach the objectives.

• Public Relations Communication programmes to provide CSR.

• Evaluations of Community Programmes • Report to the Management and relevant audiences on

progress based on evaluation and measurement.

To ensure community development in diverse spheres of the society, it is necessary that the Corporate World should set their action plan to the task on hand. To quote Joel Arthur Barker

“Vision without action is merely a dream,

Action without vision just passes the time,

Vision with action can change the world”

Corporate Social Responsibility programme include a wide range activities, often far removed from the corporation’s economic function. Examples of such activities include :-

- Sponsorship of Sport Event or the Arts,

- Donations to charity and contribution in either cash or kind such as office facilities, equipments, professional advice, training, technology,

- Public or voluntary Sector activities which includes– education, population control, removal of poverty illiteracy and ignorance, combating corruption, ensuring free and fair elections, providing employment, pushing through reforms, eradicating communicable diseases and finding answer to problems pertaining to gender discrimination, child labour, mother and child health HIV prevention, energy, conservation etc. The canvas is so large that there is a need for coordinated action from the Government, Local and Corporate bodies, NGOs as well as individuals.

These programmes are also termed as community relations activities, as social responsibility and community relations go hand in hand.

In any community development initiatives, it is very important to understand the meaning and utility of some of the words like self-help, charity, friendship, culture, social service, self-reliance and Philanthropy.

Self-help is the habit of confidently standing on one’s own legs. God helps those who help themselves. Every man should bear his own burden. To be dependant on other is a curse. Living upon charity robs us of independence and undermines every manly virtue. Efforts from within always bring out our latent virtues and strengthen our character.

Charity is that disposition of the heart which leads to think favourably of their fellowmen and do them good. The practice of charity calls forth all the nobler qualities of the mind and the right use of it, brings peace on earth and goodwill among men. It is a form of self-sacrifice without which society cannot exist.

Friendship is a felling of goodwill and affection between two persons. Friendship often springs from similarity of taste, feeling and sentiments; sometimes from gratitude, and sometimes from close association. Friendship is based on love and consideration of mutual welfare.

Culture is one of the most frequently used expression in the world. Perhaps, it means a individual’s way of looking at things or general approach towards life as a whole. “Truth is Beauty and Beauty is truth” is the doctrine though universally accepted seems yet to represent the spirit of Indian culture more than of any other – “Satyam, Shivam, Sunderam” thus runs the significant message of Indian culture enjoining the worship of beauty and truth as the source of all good in the world.

Social Service is the service rendered to other members of the society in their need i.e. nursing the sick, reliving the sufferings of the poor, spreading education among the illiterate, making people conscious of their rights and duties. We, social beings, can be really happy if all of us

are individually happy. So, when an individual or a portion of our society suffers from any trouble we cannot remain idle. Everybody can render service in his own way, some by spreading education, other by relieving the sufferings of the poor etc. Sympathy and fellow-feeling are mainly required.

Self-reliance is the habit of relying on one’s own powers and abilities in the midest of difficulties and dangers. A self reliant man does not depend on others for help but uses his own judgment and powers in facing difficulty or carrying out an undertaking. Self-reliance is great virtue. It is a secret in life. A self-reliant man has full confidence in his own powers. Self-reliance contributes very largely to success in life and to the fulfillment of our ambitions.

We should, therefore, cultivate this great virtue from early life, as without self-reliance no great undertaking is possible in life. For corporate Social Responsibility, a Company should be committed to be a good Corporate Citizen not only in compliance with all relevant laws and regulations but also to maintain and enhance its environment and well being to the advantage of the organization and the community concerned with the objective of making them self-reliant. Such Social Responsibility would comprise, to initiate and support community initiatives in the field of community health and family welfare, water management, vocational training, education and literacy and encourage application of modern Science and Managerial Techniques and Expertise. The Company would also encourage volunteering amongst its employees and help them to work

in the communities. Companies are also encouraged to

develop social accounting systems and to carry out social

audit of the operations.

Corporate Philanthropy is the practice of helping the poor and those in need. The Corporate CSR emerged from Corporate Philanthropy, the link between a company’s needs and community’s needs. Here the Company feel a level of obligation and discharges that obligation through financial contributions usually to non-profit making organizations which in turn perform important social welfare and cultural activities for the benefit of the community at large.

Corporate undertake projects in the fields of education, vocational training, and community health and water management. The Head of CSR of the Companies is responsible for creating and enabling condition for every Employee who chooses to volunteer in community development work.

A majority of the Indian Companies recognize social responsibility as core to taking their business forward. Enlightened companies have chosen to embark on the journey of Corporate Social Responsibility in an effort to broaden the traditional corporate goals of profitability and productivity and adopt social trusteeship as a desirable objective. Empirical studies have demonstrated that CSR has had a positive impact on the

business and economic performance of such companies while also contributing to enhancing shareholders value. One of the strongest reasons for a company to adopt social commitment is the ocean of gratitude and goodwill of the community that is earned, in addition to building up of corporate image based upon secure local identity and harmonious interaction with the community.

GOOD CORPORATE GOVERNANCE

ADRIAN CADBURY AND

KUMARMANGALAM REPORT

Corporate Governance practices have emerged

in free-market economies as a set of structural

arrangements with a view to aligning the management of

Companies with the interests of its Shareholders.

Subsequently, Corporate Governance concerns extend to

the interests of its Shareholders and eventually to Society

at large.

Company Directors around the world are now under

intense public scrutiny. Increasingly, the actions of

Companies and their Directors are under intense public

scrutiny and comment. Shareholders and the Public are

demanding ever higher standards of Ethics and Corporate

Responsibility.

There is considerable debate about what actually

constitutes Corporate Governance. Simply put, Corporate

Governance outlines how individuals charged with the

responsibility of running a Corporation should conduct

their own and their Organization’s affairs.

Corporate Governance refers to the management’s

recognition of its fiduciary responsibility to all shareholders, in

particular minority shareholders. Managements that do things to

benefit one class of shareholders over another are not practising

Good Corporate Governance.

The key elements of Corporate Governance, however,

concern the enhancement of Corporate Performance through the

supervision and monitoring of management performance and

the ensuring accountability of management to all Shareholders

and Stakeholders. Corporate Governance is clearly a system

through which corporate entities are directed and controlled. It

encompasses the entire mechanics of the functioning of a

company and attempts to put in place a system of checks and

balances between Shareholders, Directors, Auditors and the

Management.

Government is the single most important storehouse of

information on a variety of subjects. In certain areas, the

Government is the only source of information. But getting

information out of this vast storehouse is difficult because of the

secrecy inherent in the bureaucracy. For Good Corporate

Governance, society should have the right to know how matters

are being managed by the Government. They should be able to

understand how they are being ruled. This is possible only by

creating a well-informed society. Effective accountability

depends on the people having the necessary information. If there

is no accountability, the Government is not open. What

Government administrations need to realise is the elementary

fact that their work affects several `publics’, which each

department needs to identify, consult and try to satisfy within

the confines of the Government’s policies and programmes.

CODE OF BEST PRACTICE::

THE CADBURY REPORT

The Cudbury Report gave a Code of Best Practice which was to serve as a guideline to those public companies which wanted, on voluntary basis, higher standards of Corporate Governance.

These are as follows :-

1. In every firm there should be a separate CEO and Chairman of the Board of Directors.

When the same person carries on with the two roles, that of the CEO and the Chairman

of the Board, it provides too much authority with little check on such power with the

person. ( The old saying that

“ Power Corrupts and absolute power Corrupts absolutely) holds good in Corporate

Governance also).

2.It should be the function of the Chairman to manage the affairs of the Board, including

the hiring and firing of the CEO of a Company when necessary. The CEO on the other

hand is responsible for the day-to-day management of the organization.

3.The Chairman should be responsible for setting up Goals and Objectives of the CEO and

of monitoring the CEO’s performance in the implementation of the oranisation’s

strategy. If the Chairman and the CEO are one and the same person, this level of

supervision is lost, bringing it with higher risks to the organisaton.

4. It is the interests of the organization to have Non-Executive Directors bringing to the

Board their experiences and expertise and not as Rubber-Stamps for endorsing the

Chairman’s decisions. The rational is that these Experienced Part-Time Directors are

already in Senior Executive Position with other organizations and they would

supplement the efforts of the full-time Executive Directors on the Board.

EMERGENCE OF CORPORATE GOVERNANCE ::

THE KUMARMANGALAM REPORT

Since the Advent of the limited liability form of Corporate

Business organisation, the issues of Corporate Governance have

assumed great importance. We find reference to the term

corporate Governance in academic and professional literature

both in the West and in India only recently in 1980s.

Financial Scandals like Harshad Mehta Episode where a

stockbroker could wield his power over the Banks for gaining

huge amounts of credit without matching collaterals. In the

debate of Corporate Governance, the Kumarmangalam Birla

Committee Report on Corporate Governance can justifiably be

viewed as a well thought response to our need for better

Corporate Governance. In May 1999, SEBI set up the

Kumaramangalam Birla Committee. SEBI is already in the process

of encouraging better Corporate Governance through the

adoption of the recommendations of Kumarmangalam Birla

Committee Corporate Governance.

According to Kumaramangalam Report, the Corporate

Governance is a process or a set of systems and process to

ensure that the Company is managed to suit the best interests of

all. Corporate Governance is the system by which companies are

directed and controlled. The concept of Corporate Governance is

on Transparency, Integrity and Accountability of the

Management, which includes Non-Executive Directors.

It is a system of making management accountable to the

shareholders for the effective management of companies, in the

interest of the Company with its Ethics and Values.

The Indian Corporate Scenario has undergone tremendous

changes with new opportunities and threats from the MNC’s since

1991, when the liberalization Era started and Indian Business

became part of the market economy of the west. Hence, Corporate

Governance requires bold intiative without using the Rules of

Thumb. Indian Corporates need to evolve and imbibe Corporate

Governance at a rapid pace if they have to survive.