Ethics And Governance - Next Global Frontier


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As Indian companies go global, what challenges will they face in the area of ethics and governance? Achal Raghavan provides an action plan.

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Ethics And Governance - Next Global Frontier

  1. 1. Page 1 of 3 Date:15/07/2006 URL: Back Ethics and Governance — Next global frontier for India Inc Achal Raghavan Good ethics and governance are not just "moral" or "compliance" issues. In the long term, they are essential behavioural traits for the organisation that strengthen brand equity and help ensure stable growth. The Indian economy is on a roll. Organisations are increasingly becoming global. From a simple "let's export" mindset, companies are moving to the next stage — establishing marketing, manufacturing and distribution networks abroad. Operational excellence, quality systems, proactive human resource strategies, logistics — Indian companies have ultimately arrived.What, then, is the next global frontier for India Inc? Which is the one area that no Indian company can afford to ignore, as double-digit growth rates become the norm and organisations scramble to globalise? It is ethics and governance. Complex subject This is a complex subject, requiring more than mere compliance with the laws. It represents the obligations of a company to all its stakeholders — customers, shareholders, employees, suppliers, and the government. In the long term, it is a source of competitive advantage — to attract more business and more talent. On the flip side, the effects of ignoring ethics and governance issues can be grave. In the US, irresponsible behaviour by a few corporations and their senior executives has spawned the Sarbanes-Oxley Act, with its complex requirements with respect to financial reporting, "sign-offs," and CEO accountability. Board members have been sent to jail. Large Korean organisations are now scrambling to execute damage-control actions, in the 7/17/2009
  2. 2. Page 2 of 3 wake of governance issues. All it takes is one headline, and a brand name is shot to pieces. In this context, Indian organisations — especially the small and medium sized ones — need to be aware of one requirement as they begin their globalisation journey. Not only do they need to be ethical, they have to be seen to be so. Global customers will demand to see proof of ethics and governance systems at work. This means documentation, systems and processes. Just as quality management system certification and capability maturity models (ISO 9001, CMM and the like) became minimum requirements for establishing credibility, ethics and governance policies and processes will be the "next wave" sweeping the global market place. Organisations should, therefore, put in place some strong ethics and governance systems proactively, before market and international regulatory dynamics compel them to do so. Much work has already been done in this area, and there are many Indian corporations that follow global best practices. For the others, this is the time to act. It is much easier to influence the DNA of the company in the right direction when the company is relatively young. Employees' attitudes and value- systems are already formed by the time they join a company; but it is important to set out the company's expectations clearly and enforce adherence. Ethics and governance guidelines will help employees figure out for themselves what actions they should take when faced with ethical issues. Leaving it to individual judgment is highly risky for the organisation. Tackling the issue While individual organisational approaches may vary, here are some key steps to be followed in tackling this "next frontier": Establish an Ethics and Governance Policy for the company, through discussions within the senior management team; benchmark it with the policies of best-practice companies. Write it out in plain, easy to understand language. Publish the Policy, along with a Code of Conduct for the employees. Illustrate the code with typical examples of what the employee should do, when faced with day-to-day ethical dilemmas. In other words, demystify corporate jargon, and make the policy user-friendly. Communicate the policy widely and repeatedly. Start all meetings with a slide on it; hold refresher training programmes; get all employees to sign; and make it part of the new employee orientation. Encourage dialogue and challenge, in order to improve understanding and "ownership" of the policy at an individual level. Come down hard on the cynics. Set the example from the top; practice the policy consistently and visibly. This is critical, the ultimate fate of the policy depends on this. 7/17/2009
  3. 3. Page 3 of 3 Circulate the policy amongst customers and suppliers. This will make it easier for the employees to follow the policy. Establish an Ethics Hotline which is secure, confidential and available to all employees. Someone senior should handle this hotline, with direct reporting to the CEO; alternatively, it could be the CEO's office itself. Take swift and fair action on reported violations, after due verification. Review the policy at regular intervals, to make sure it stays current with changing regulatory and market requirements. Good ethics and governance are not just "moral" or "compliance" issues. In the long term, they are essential behavioural traits for the organisation that strengthen the brand equity and help ensure stable growth. (The author was formerly Executive Director, Ingersoll-Rand (India) Ltd, Bangalore. He can be contacted at © Copyright 2000 - 2009 The Hindu Business Line 7/17/2009